Growth through franchises: how to develop a business under someone else's name?

Franchising is not just a business model but an opportunity for entrepreneurs to achieve success faster by using proven solutions. Analysts estimate that over 770,000 companies worldwide operate under a franchising model, with a total turnover exceeding $800 billion annually. Franchising is most developed in the USA, China, and Europe. In the USA alone, franchises provide employment for over 7.5 million people.

In Ukraine, this model is gaining popularity in the fields of food service, retail, services, and education. The highest demand is for franchises in food service, children's services, and retail.

For small businesses, franchising can be a key to stability and growth, especially in the context of post-crisis and post-war recovery. It helps minimize risks, receive support from a partner, and launch a business under a well-known brand.

What Is Franchising and How Does It Work?

Franchising is one of the fastest ways to scale a business. It is a business model in which the brand owner (franchisor) grants another party (franchisee) the right to use its trademark, business processes, and support for a specific fee.

Successful global and Ukrainian brands have long used this model, allowing entrepreneurs to operate under well-known names, gaining ready-made business processes and brand recognition.

But is franchising suitable for your business? How can entrepreneurs from small towns use this tool for growth?

Types of Franchising

• Product Franchising: Selling goods under the franchisor's brand (grocery stores).

Investment: from $10,000.

• Service Franchising: Providing services according to established standards (beauty salons, coffee shops).

Investment: $5,000–30,000.

• Turnkey Business: A fully developed business model with ready-made processes, training, and support. For example, Helen Doron educational centers.

Investment: $20,000–50,000.

Benefits of Franchising:

✅ Ready-made business plan and proven business processes.

The franchise buyer receives a complete set of tools for business operations, from technology to marketing strategies. For example, opening a coffee shop under a well-known brand includes not only drink and food recipes but also interior design instructions, equipment layout, and customer service principles.

✅ Brand recognition – no need to spend years building customer trust.

Franchisors invest heavily in promotion and advertising. With a franchise, you gain customer trust and benefit from national marketing campaigns.

✅ Franchisor support – training, marketing, suppliers.

Franchisors guide you through all stages of the partnership: you receive free training for staff, legal assistance, and marketing advice.

✅ Faster return on investment compared to starting a business from scratch.

You won’t need to spend money setting up business processes or developing marketing strategies.

But There Are Risks:

1. High startup costs can be a barrier for entrepreneurs with limited budgets. This is one of the biggest challenges for franchisees. Not all entrepreneurs have enough initial capital to open a store under a well-known brand.

2. Strict Contract Terms.

Contracts often contain hidden conditions that entrepreneurs may overlook, but these can cause significant issues in the future. For example, it is crucial to pay attention to who is responsible for local licenses and permits, as well as the terms of early exit from the business.

3. Requirement to Follow Network Standards.

Franchisees must operate under the strict standards set by the franchisor. For example, they cannot change the product range or store design. They must adhere to fixed pricing, which may not always be competitive in the local market.

This model may not be suitable for entrepreneurs with creative ambitions who want to implement their own vision in the business.

4. No Guarantee of Business Success.

If your business does not succeed, no one will help you write off equipment debts or reimburse investments that do not pay off. To avoid this, thoroughly analyze the franchisor's history, profitability, and feedback from customers and other franchisees before purchasing a franchise.

How Can Entrepreneurs in Small Towns Profit from Franchising?

Small towns have unique characteristics: lower competition, cheaper rent, but also a smaller customer base. Local entrepreneurs often choose franchising in cities with populations of at least 30,000 people.

1. Choose a Niche in Demand in Your Town

The franchise should meet the needs of your region. Assess how well it fits local conditions. For example, if there is no high-quality coffee shop in your town, consider franchises like Aroma Kava, CoffeeOK, or Lviv Croissants.

Also, research which franchises in your niche already operate in your region.

Pay attention to new trends, such as eco-friendly products or online education.

2. Assess the Financial Model

Understand all costs and contract terms: initial fees, royalties, rent, and salaries. Consider whether your town has enough customers to make the business profitable.

3. Verify the Franchisor

Reviews, contract terms, and level of support are crucial factors. Reliable franchisors assist with launching, staff training, and marketing. Before signing an agreement, check the franchisor’s market reputation: read reviews from other franchisees, visit existing franchise locations, and, if possible, meet with other franchise entrepreneurs to learn about their experiences.

4. Leverage Local Advantages

Smaller towns offer cheaper rent, more affordable labor, and a more loyal customer base. If the franchise allows for adaptation to local conditions, that is a significant advantage.

5. Collaborate with Local Authorities and Communities

In small towns, entrepreneurs may qualify for additional benefits, such as grants or discounted rent.

Franchise Regulation in Ukraine

Franchising in Ukraine is regulated by the Commercial Code and commercial concession agreements.

Key points to know:

• Franchisees must register their agreements in the state registry.

• Both parties are responsible for maintaining standards and complying with licensing regulations.

• Franchisors often include additional fines for non-compliance with standards.

Successful Franchise Examples in Ukraine

Many Ukrainian entrepreneurs have successfully scaled their businesses through franchising. Here are a few examples:

 McDonald's – One of the largest franchise networks in the world. In Ukraine, it operates through a local partner, Fast Food Systems.

 KFC – An American fast-food restaurant chain actively expanding in Ukraine through franchising.

 EVA – A Ukrainian cosmetics retail chain that not only expands independently but also offers franchising.

 Starbucks – A well-known brand that franchises not only its coffee shops but also its unique coffee culture.

 Dima Borisov Restaurant Group – Franchise projects such as Mushlya Cafe, Dogz&Burgerz, and BPSH, which are available to entrepreneurs.

 Nova Poshta – A postal operator that allows entrepreneurs to open branches and pickup points through a franchising model.

 Veterano Coffee – A pizza and coffee chain founded by ATO veterans, combining patriotism with high-quality products.

If You Are a Franchisor: How to Prepare Your Business for Franchising

Evaluate all factors to determine if your business is ready for scaling and franchise sales:

• Has your business been stable for the past 2–3 years? What are your profits?

• How strong is customer trust? Do customers recommend your business? How well-known is your brand in the market?

• Are all documents and tax filings in order? Do you have clear job descriptions and operational standards?

Once you confirm business readiness, proceed to the preparation phase of launching a franchise, which includes:

• Developing a franchising package: business model description, franchisee instructions.

• Creating a brand book outlining operational standards.

• Preparing licenses and intellectual property rights.

• Franchise marketing strategies.

Franchising offers opportunities for both large corporations and local businesses to enter new markets with a tested business model.

For entrepreneurs in small towns, it provides a chance to launch a recognized business with support and minimal risk. If you choose the right franchise, calculate the financial model accurately, and adapt it to your local market, you can create a successful and sustainable business.