If You’re Thinking of Self-Employment, Why Choose a Franchise Business Rather Than Launch a Startup?
By Doug Bugie, Global Head of Franchising
Lots of people aspire to becoming their own boss one day. All too often, though, things like the fear of failure, anxiety about gaps in knowledge or problems with raising financing get in the way of people ever taking that step.That's why so many who pursue the opportunity of starting a franchise business feel it's literally allowed them to pursue dreams that might otherwise have died. So why should you choose to start a franchise business rather than launch a startup?
Here are six key reasons to take into consideration:
1. Franchise businesses give you the freedom to work in a totally new business, but leverage your industry experience
If you talk to any business coach or business mentor, you'll hear that one of the most common reasons for business failure is that people try to work in a sector they don't know. Or, worse still, they attempt to create a business serving a market that has never previously existed. The problem with both of these options is that the risk of failure is ratcheted up considerably. Think about the business you currently work in. Think of all the little details, steps, processes, strategies and market challenges that a business needs to be on top of in order to compete.
If you were to try and set up a business in your existing field, you would at least do so from a relative position of strength, knowing the market as well as you do. There are franchise options which would enable you to do leverage you existing strengths.
However, as soon as you try to launch a totally fresh business, or move into a different industry or market, you're then in the realm of having to learn by trial and error what works and what doesn't work. Unless you are extremely lucky, this is likely to significantly extend the time needed for your business to become profitable. Indeed, all too many businesses run out of funds and close down long before they've had the chance to learn all these lessons the hard way.
The beauty of a franchise business is that you can leverage your industry experience, but move into a totally new sector and buy into a business where all the little details, steps, processes, strategies and market challenges are already fully understood. The learning curve for you to become profitable is therefore far shorter and the likelihood of your business becoming successful far greater. So for anyone wanting to change industry or career direction when they set up their own business, franchising makes possible something that otherwise would be extremely challenging.
2. Franchise businesses allow you to leverage a strong brand from day one
The next big benefit of franchising is the strong brand identity and story you will be trading under from day one. Many small businesses take years and years to establish a brand name and a legitimate success story in their market - and indeed, many never reach that level of market recognition at all. It's both costly and time consuming to take a business from being unknown to being accepted as a successful, strong business in any market, even a niche one. So small businesses often find themselves trying to become successful from a position of relative obscurity.
By contrast, join a franchise business and you will immediately be trading under a name that people in that industry are likely to know already. That's a massive acceleration in your time-to-profitability right there. Want to be able to charge premium prices and have clients find you, rather than always be cold calling and negotiating on price? Well starting out with a strong brand name behind you is one sure way of making that far more likely.
3. You deploy proven business development systems
Whether you choose to go into retail, restaurant chains, recruitment or any other sector, another thing that plays a big part in achieving profitability as quickly as possible is having all the right systems and processes in place. These maximize your productivity, ensure you get paid, help you win clients, track referrals and a whole host of other things that all add up to business success.
If you set out in business for yourself, it will fall on you to research all of the different tools and systems out there to achieve this productivity and consistency in your business. The risk of choosing the wrong one will also fall on your shoulders and the profitability of your business will hinge on how successfully you're able to incorporate these all into your workflows and processes. That's a lot of things that could go wrong or be implemented suboptimally I'm sure you'll agree. With franchising, by contrast, that problem largely disappears.
4. You gain significant purchasing power
Another shortcoming of a small start-up business is that it has no purchasing power whatsoever. Everything you want to buy for the business you're going to have to scrimp and save until you can afford it. Plus, the high ticket price you’ll pay immediately puts you at a disadvantage versus more established businesses in your sector. By contrast, a franchise will see you joining a business that may have 25, 50, 100 or more branches, offices or outlets already established. At which point, your combined purchasing power is significant and so you start out in business able to buy everything a business needs at far more competitive rates.
5. You’ll have fewer sleepless nights
Talk to anyone who has owned or run a small business and they will tell you horror stories of the sleepless nights they’ve had. Without the proven formula of what works in an industry, the business owner is always experimenting with things, always worrying if they've made a bad decision, sometimes fretting over whether they'll be able to pay this month's salaries. That's where joining an established franchise is a completely different experience.
You may not have quite the same level of thrill of taking all your own decision, 100% on your own... or the elation of seeing some of them pay off. It should be said that with many franchises you can put your personal stamp and imprint your culture, your approach to getting things done within the franchise ‘system’. The flip side of this, though is that you're likely to worry far less too. For many people, that alone is a very good reason to pursue the franchise route as their preferred option.
6. Raising financing to get started will be easier
The sixth reason for giving franchising serious consideration is the likelihood of you ever being able to get your business launched. Some businesses can of course be started from a spare room with a laptop and a smartphone. But most businesses require far more funding than that and as soon as a bank is being drawn into the realm of investing in an unknown business proposition, the cost of securing finance and the likelihood of you being granted finance will both take a big hit.
Compare that to the risk of investing in a franchise business and the picture for the bank is far more favorable where franchise investment is being sought. There's already the track record of dozens or even hundreds of businesses having successfully launched and become profitable by following the exact same steps - and approaching the market in the exact same way - as you will be doing. If running out of cash is one of the top reasons that businesses fail, being unable to secure financing in the first place has to be one of the top reasons that people's entrepreneurial aspirations never even get off the ground.
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