If you’ve decided that you no longer want to work for someone else, it could be time to take the leap and go it alone. Before you do, there is a key decision to be made- namely, do you want to open a franchise or start from scratch and build your own business? In this article we will look into the pros and cons of both approaches.
Let’s get back to basics however, before we dive into the pros and cons. What exactly is the difference between starting a business and establishing a franchise? In basic terms, when you start a business, you are starting from scratch. This means everything from your company name, to your reputation is being built from the ground up. When you start a franchise however, an existing company grants you the right to carry out specific commercial activities, such as setting up another shop, under their name.
Pros of starting a franchise
One of the key benefits in establishing a franchise of an existing business is that you have an established name and brand behind you. For example, say you are opening a franchise of a well-established sandwich shop called ‘Sandwiches R Us’. People know the ‘Sandwiches R Us’ name and they know what to expect in terms of your offering, so they will buy from your franchise as it already holds the weight of their pre-existing brand associations. Whilst every business must continue to push for new customers, as a franchisee, you will already have a set of established customers who will want to visit your establishment or buy your product/service.
Just as customers will know your brand, they will also know and trust the product or service you are offering. In addition, you can know the product/service that you are selling is ‘tried and tested’, making it lower risk. Although all companies must keep refining their offering to stay ahead of new trends, technology, legislation or customer interests, this will primarily be the responsibility of the franchisor. This frees time to focus on your sales without worrying about R&D. The shared brand name also signals to the consumer that they get the same product, at the same quality level, from any shop with that name. So, for example, if they always order the tuna sub at their ‘Sandwiches R Us’, they know they’re going to get the same great tasting tuna sub if they buy it from the Manchester franchise or the London one.
In order to provide the same level of continuity to their customers across franchises, the franchisors will provide support to their franchisees to ensure that all franchisees are running things in the same way. This also allows the franchisors to protect and maintain their brand. This support will be multi-faceted and could be anything from training new staff to providing marketing materials for the franchisees business. When you combine this with the established name and product, you are buying into a proven system, making your chances of failure much lower.
Choose what business you enter
The great news about starting a franchise is that there are plenty to choose from! You get to decide what area of business you want to be in and what kind of franchise you want to own before making your decision about which field you go into.
Cons of starting a franchise
Just as being part of an established business can bring you benefits, it can also cause you problems. Any issues with the franchisor or fellow franchisees may mean that your business is tarnished with the same brush. Going back to the ‘Sandwiches R Us’ example, imagine if one of the franchisees had been taking shortcuts when it came to food hygiene. As a consequence, lots of his customers became seriously ill and the story made the national news. Despite the fact you maintain high standards of cleanliness in your store, and no customers have been ill, consumers may still associate this scandal with your business and new customers may be put off from trying your establishment, as you are associated with this food poisoning scandal.
While you can purchase multiple franchises, you are still limited when it comes to owning a franchise compared to owning your own business. Going back to the sandwich shop example, if you had established an independent shop, which had great success and a brilliant business model, you could begin to franchise this out without limits. This could include not only nationwide, but international expansion, with limited capital outlay required from you. However, if you are running a successful franchise, you are a franchise of someone else’s business and cannot get others to franchise on your behalf. Furthermore, all your business activities must tie in with those of the parent business, meaning you are limited when it comes to making business decisions about everything from the décor, to the marketing campaign slogans to the products themselves.
In exchange for the use of an established name and product/service, you have to provide royalties to the franchisor, for them allowing you to use their name and systems plus providing you with their ongoing support. The basis of these can vary but are usually fixed amounts or an ongoing percentage of profits. In addition, there may be very high buy in costs at the beginning for which you will need to have capital.
Success not guaranteed
While there are certain benefits to starting a franchise of an established business, your success is still not guaranteed. There may not be the market demand for another franchise, the area your franchise operates in may not be suited to the business or the franchisor itself may have issues which have a knock-on effect.
Pros of starting your own business
You make the rules
By their very nature, start-ups are more flexible and therefore quick to adapt and respond to the market. This is a benefit of which is lacking in a franchise, where freedom is limited. Marketing campaigns for example, are often run and dictated by the franchisor, with little input from the franchisees, which can lead to frustration. When you run your own business however, you have the freedom to dictate how, why and when things are done. This also means you can pivot and change direction should you see fit, without any restrictions.
While building a business from scratch can be daunting, for many it also feels hugely rewarding. You get to establish your own brand, with your own priorities and rules. This flexibility from the outset appeals more to some, particularly those who deem themselves ‘entrepreneurial’, as it allows them to get those creative juices flowing in ways they may have not been able to before. You can work where you want, how you want and when you want.
Potentially larger reward
When building your own business, the potential for reward is unlimited. You can expand as you see fit and still be in the driving seat.
Cons of starting your own business
Starting your own business can be hugely capital intensive. Money may be needed for various aspects- be it product development or marketing. This capital investment is also made with little knowledge of the end result. While an end result can never be guaranteed, making a capital investment into an established business and creating a franchise provides a certain level of reassurance. It also means that capital is often not ‘wasted’. When starting a business, it is common for entrepreneurs to make mistakes, which can be costly. This is avoided when owning a franchise. That said, establishing a franchise can be costly and there is the obligation of ongoing royalties. However, the risk of failure, on balance, should in theory be lower.
Lack of support
While there are many resources and support systems in place for those starting their own business, ultimately all key decisions come down to you and you alone. Furthermore, you are responsible for your own training and ensuring you stay on top of industry trends or legislation, to make sure you don’t get left behind when things change.
Risk of failure
Ultimately there is a much higher failure rate when it comes to start-ups. Without the support, products and help that come with a franchise, this risk only increases.
Ultimately, there is no right or wrong answer for which approach is better- it depends on what your preferences are as a person, what skill set you possess and if you prefer a level of security over the ability to be entrepreneurial. If you’re still stuck in making your decision, try talking to both franchisees and entrepreneurs, to work out which approach may be best for you. If you do decide to start your own business, it is worth checking out the 1stformations website, to make sure your business name is available.