Choosing a Business Model – Franchise or Your Own Business: What’s Right for You?
Here you are, ready to explore your options and commit to a better life for yourself. It might be because you want more time and money freedom, a better investment, a new side-hustle for extra income or are ready for a career transition out of the corporate world into entrepreneurship.
As you research, you’ll find that one of the first important decisions you’ll have to face is whether to open your own business or invest into an already existing franchise.
While researching these options, you’ll notice something common among both types of business models…
THERE IS SO MUCH INFORMATION OUT THERE!
It’ll make you feel like you want to pull your hair out or simply give-up.
Well, the good news is that you won’t need to do that quite yet. We’ve put together a list of the differences between the two different types of business models to help make your decision easier. For some, it’s a no brainier once you read through the distinctions, however for others you might need to give a little deeper and that’s perfectly okay.
One thing you should be mindful of either way, it’s only through our own experiences can we ultimately decide if something was right or wrong for us.
However, we can learn from others and compile differences, features, benefits, pros and cons. that being said, here is a straightforward comparison of these two options head-to-head… you’ve come to the right place.
Building a brand vs buying one
The strength of a proven and recognized brand is one of the biggest advantages of the franchise model. Do you know how hard it is to build a new brand from scratch? Think about it, noone knows who you are, what you do, what you sell or if they even need your product or service. Gaining that trust is very difficult.
But if you walked into a Super Cuts barber shop – you would know exactly what to expect if you’ve been before or what about McDonald’s? The same Big Mac or Cheese Burger and fries that you know and enjoy, no matter which location you go to.
Try walking into Joe’s Burgers… what is that and why would anyone visit it without knowing it?
Successful franchises have invested considerable time and resources developing their brand to communicate important messages to their target audience. When buying a franchise, you get to piggy back off of the countless resources that went into developing the trust and brand loyalty of customers.
Think of it like an accelerated Return on Investment (ROI).
Starting your own new and independent business would take time to get traction and build trust and recognition with customers, but franchises already have a good reputation which sometimes can even attract a full crowd the day you open your doors.
Now of course there is the flip-side to all the fame by association. Remember, you are borrowing the rights to an existing brand name. If that brand comes under scrutiny for some sort of sub-standard business practice, than it could have an impact on you.
Here’s a great example. In 2018, it was reported that Subway would close down 500 store locations in the US.
The reasons cited were due to:
- failure to keep up with trends
- and internal battles, including a lack of confidence in the CEO
Having no brand association is both the strength and weakness if you owned your own business. You would get to control and own the perceived public perceptions of your brand and business, but you also would have to meticulously build and nurture that, most often times taking decades and hundreds of thousands of dollars or more to try and do. If you fail at that, you risk losing all that time, effort and capital., including the opportunity-cost.
Branding is crucial, it’s the only way to create a connection with clients who buy your products or services and fuel your profits. Successful brands often spend fortunes in crafting their brand for excellence as this is the only way to be noticed in a crowded marketplace. Extensive resources can be substituted for brilliance and genius, but those traits are few and far between.
If you have the know-how and/or resources to invest in building a winning brand, you may gain some serious traction early as an independent business owner, but that’s a risk you need to take. Otherwise, you will want to have the grit and patience to allow your startup company the time it needs to become a strong player in your niche and market.
Operations: Autonomy vs. Control
Another important distinction between owning a franchise vs. your own business, is how the operating system works, also knows as “operations.” With a franchise, you will invest a fee to gain a license to operate a branch of an already branded business with a proven operating system. This will mean the products or services and the proposed location of your business will have to meet the standard operating procedures of the franchise you will license.
In order to maintain a uniform level of service and meet client expectations across large geographical territories, a franchisor will have a set plan for the way they want their franchisees to run and operate the business. This means that even the smallest details can have very specific ways they must be addressed and this greatly reduces the options for marketing directions and even which suppliers are used to support your business.
Therefore, if you can’t follow instructions and prefer to create your own, starting your own business would be a better fit for you!
There is still some flexibility with a franchise and it varies depending on the brand. Sometimes you can make marketing decisions and even decide which type of culture to promote in the business, including who you can hire. This is a great option for those who don’t have a lot of experience in running a business.
It takes a lot of creativity and know-how to build a brand from the ground up if you were to start and own your own independent business. If you feel the learning curve in this area may be too steep, you may find buying into a franchise would be a great option for you.
In an independent business, all pillars of the business, including operations, will be decisions of your own. You get to choose what you sell as well as when and how you choose to sell it. There will be no sharing your fees and earnings with a head office and you have full autonomy to operate as you see fit. Of course, this does mean going without some of the help and support a franchise can be.
If you do have some experience in building a brand and are looking to apply your creativity how you see fit, the franchise business model is probably going to cramp your style. In such a case, you will probably have a better experience and greater potential for success by running every aspect of your operation yourself.
Another intimidating factor for those looking to start your own business from scratch is the massive failure rate that can suck your savings and investment dry. This is especially frustrating for those who will be using a bank loan, borrowing from friends or even cashing in their life savings to fund the business.
According to statistics by the Bureau of Labor, 20% of all new startup businesses are expected to close within their first few years of operation and close to 40% will close down in the following four years. Of course, there are many different factors that will play into the failure of a business, but this is the general statistic.
It is generally believed that a franchise is more resilient to early failure than an independent business, but this assumption is not always correct. For those interested in opening a franchise, it is vital to perform your due diligence and fully understand the success rate of the franchise they are considering as well as the business type.
Navigating the franchise space is hard and it’s why we offer free franchising consulting services to help you every step of the way. If you haven’t’ yet done so – start with the Franchise Quiz or schedule a free consulting call with us here.
it’s always a good idea to work closely with a qualified franchise consultant. These are professionals that will be better able to match your personal skills and experience level to a suitable franchise that will offer you the greatest outcome.
It does seem that businesses in the independent sector are more unstable when it comes to their success rate, but this also can be affected with a little investigation and planning. Businesses in the real estate and financial sector tend to be more stable than those in the retail or information sector, for example. But, then again it is the skills, resourcefulness and competence of the business owner that will ultimately determine the success of the independent business in the long run.
In the end, you will need to do a reasonable amount of research for either of these options and remember that a success rate is ultimately just a number. If you see your product and service is fit to compete with the other market players and you see your path to a successful connection with your target demographic, you might not need the support of a franchise to get to where you are going.
Innovation vs Stagnation
Innovation will pose a challenge no matter which way you go. For the franchise with great amounts of resources to throw behind researching and developing their products and services, the only limitations are the established ways of doing things. Franchises are committed to working with a set list of products and services they have found acceptably profitable and veering from this planned course is not so easy.
The franchiser will be sitting at the bottom of this process and basically just doing whatever the bigwigs at the top have decided. Hopefully, those resources going into R&D will produce very favorable products that will be a hit with the market. At the very worse, you can expect your product to be met with unenthusiastic acceptance, but the chance of a total flop is not so common.
The independent will take another route entirely through this specific issue. Lacking the extensive resources to improve and adjust their products and services, they will have to rely largely on their gut-feeling and deeper understanding of the market they are in. By this measure, the innovations that come from independent are often far more versatile, impressive and economically-viable in every way. This is where those with imagination and creativity will leave the competition and the big name chains in the dust.
Finally, it is the lifestyle you imagine for yourself that will play a very large role in which of these two options will be best for you. Many people hope to start their own business to enjoy the autonomy and flexibility that being your own boss can provide, but there are some things to consider here.
The franchise will be a tightly regulated business with operating hours and scheduled duties that simply can’t be adjusted or changed. This can make it hard to get that full-flexibility in schedule and operations most people had in mind when looking to own their own business. But, there is an upside.
The franchise may have a tighter set of responsibilities and time-demands than an independent startup, but this is counterbalanced with all the support and training they provide. You will already be operating under another business model that has proven effective in other situations so much of your work will already be done for you. This means no brand building, designing hiring practices or taking the time to select the perfect location for your business.
In the beginning it will be all work for the serious startup as there are so many individual details that will need to be carefully planned and set in motion before the doors can be opened. After this it will be some time before the flexibility truly kicks in and the tired bootstrapped startup begins to gain a measure of flexibility in their work, but much of this “free time” will be absorbed into the imminent challenges that will present themselves.
The bottom line, should you franchises or start your own business?
So which decision is the best for your situation? Will one option ultimately lead you to greater rewards than the other? These questions will be affected by a great many factors specific to you and your personal capacity. One of the most important questions you will need to ask is which of these options will cost you more.
On the one hand, the franchise comes with some financial that allow it to get off the ground quickly and begin generating those ROIs. But, the franchisee will then have to payout regularly for franchise and royalty fees while the independent will have the flexibility and full control over their finances to invest where and how they feel is best. Furthermore, the independent has the chance to go far further than the franchisee can and even open their own franchise in the future.
The only way to get the most from your decision to use either of these business models will be to carefully compare the information you know have the skills and capacity you bring to the table. Then research the two options for you from every possible angle and if you aren’t 100% sure get some qualified and professional advice.