Are you sick and tired of working for someone else? If you think about launching your own business, it might be useful to know the alternatives. Starting a business from the ground up is no longer the only option. Perhaps, you have heard about the so-called franchising. In short, this is an arrangement where one party licenses part of authorities to another party. These two parties are defined as franchisors and franchisees, respectively.
In other words, franchising seems like a pretty good alternative for people who have enough money to invest in some business but do not want to take high risks opening their own company. Both options — startups and franchises — have their pros and cons. We will try to figure out what makes each of these strategies for business development and expansion attractive and what might scare some people off.
Collective Buying Power (Increased Purchasing Power Parity)
Business is usually a solitary matter when it comes to debts and failures. However, people involved in franchising typically have equal liabilities. By purchasing a franchise, one establishes deep-rooted relationships with suppliers.
Almost all companies that offer this option are big corporations. There is no point for a small business or a startup to provide franchising opportunities. Thus, access to purchasing power is higher in the first case. The cost of the premises and the necessary resources are much lower. That is the main advantage of the franchise system, which makes it possible to start off even if you have a limited budget.
When developing a business from scratch, one targets the audience and builds a customer base from zero. If you purchase a franchise, you do not have to bother with that. You bypass plenty of marketing activities.
You will immediately start working with the existing database of dedicated clients as well as a pool of employees recommended by professional HR managers. The number of loyal customers and the potential staff depends on the brand’s recognition and popularity.
That is to say, the one who buys a franchise simply skips the startup stage, which usually involves a lot of planning, research, and implementation. You won’t even have to test the system as it has already been examined before you.
No matter how well you know the field, there is always room for improvement. Franchising is known for its replicability. You do not have to visit any special training sessions and pay for them to learn how to supervise a company. Other people involved in the system will share their experience and skills as you are all equally interested in promoting the brand from the moment you become part of it. On-site training and business education usually include:
- Daily operations
- Opening procedures
- Digital software and tools necessary to run the business
- Marketing and management basics
- Sales strategies, etc.
If you do not have a business-related education, a franchise might be the way to go.
Extra Financial Aid
You will not have to search for crowdfunding solutions or grants with a franchise model. Did you know that the Small Business Administration (SBA) reserves part of the loan allotment for franchises? Seeking a small loan from this organization is way more challenging for a new startup than using the advantages of an established business model. To make sure you’ll obtain the financial support from SBA, check out the list of their Franchise Directory.
Minimized Growth Risks
Are you looking for high returns on investment at low risks? A franchise makes that possible. You will not have to contribute loads of money and assets when opening or adding a new location. Franchising allows for obtaining high royalties from outlets’ revenues.
What Makes a Startup Better Than a Franchise?
There are always two sides to the coin. When you own a business from its “birth,” you have complete freedom. And it is not the only privilege. Companies operating online that offer customers to order blog content, join online tutoring, buy research paper, or purchase an individual website design are excellent ideas that anyone can create and develop on their own. It involves a minimum of investments and risks.
However, when it comes to large-scale projects, franchising makes more sense. Still, it is essential to keep in mind the pitfalls of this type of business. Here is the list of pros that should be considered:
- Innovation challenges. When you have your own firm, it is way easier to implement innovative solutions. You are free to try new services and tools that may add to your profitability and overall success. For a franchising agreement, there needs to be a discussion of any potential opportunities and changes with the initial owner and all business partners or stakeholders. You cannot implement something new without the agreement of the majority. Moreover, you will not receive the necessary funding without approval.
- Less control over management. Franchisees mostly have equal rights, and they rarely listen to what others have to say. It is like working in a team without really being part of it. So if your goals conflict with the objectives of others involved in the system, it might not be the easiest issue to resolve.
- A weaker core community. Often franchisees expect others to do what they initially wanted. They may postpone the process of ordering the necessary ads or software, hoping that another franchisee will do that. After all, the idea is to profit from one another’s attempts to expand and grow business. It is hard to predict what other franchisees will do, and the risks of copycatting are high. While some get everything, others may get nothing in return. You may try to secure various contracts that will keep you from such situations, but it will take time and money as attorneys are not cheap.
At the same time, we cannot ignore the fact that startups have higher failure rates. On the whole, it’s almost impossible to sink a franchise; it is you as a franchisee who can fail and be kicked out of the system.
According to numerous cases and official statistics around the globe, more than 25% of startups fail during the first operational year. 50% fail within five years, which does not sound much better either. High risks = high returns, so it’s up to you to decide whether you wish to take part in this game of chance or not!