Should Scudamore franchise? Will his first franchise be successful?
Yes, Scudamore should franchise his business because franchising would be the right direction for him. Rubbish Boys is still in the early stage of its business growth with only operations in Vancouver and Victoria. In this early stage, capital is typically scarce and rapid growth is needed to achieve brand recognition and economies of scale. From the case, Scudamore had been talking all about growth and really wanted to rapidly expand his business across North America. However, he has insufficient capital to invest in expanding company-owned stores because it would require a large sum of capital requirements. Moreover, Scudamore had spent a high amount of expenses in buying John out and incurring huge losses with the student franchise model in 1998 (exhibit 5). Thus franchising appears to be an attractive growth alternative to Rubbish Boys as it not only can generate more cash flow through royalty fees (8% of Gross Revenue per month) and franchise fees ($20,000), but also brings great economies of scale as overhead expenses such as advertising, marketing, hiring and training can be reduced.
In addition to higher income and rapid low cost market expansion, franchising also evokes greater responsibility and commitment from franchisees and this is the key to the success of a business. From the case, Scudamore understood that business expansions across long distances would mean that there is less direct supervision as compared to working with someone close. It thus becomes a critical aspect of the business for employees or partners who can stay committed and responsible to growing your business. This then brings franchising an ideal solution for Rubbish Boys because a franchisee would be passionate about the success of the company due to dependent profits and would thus be more motivated to share and contribute new ideas and solutions in building the brand and business. Having aligned...
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