So many people who have the capital to buy into a franchise and have the means to fund their own startup venture ask this question. Why do I need to start my own business if I can franchise one anyway?
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Author’s Note: This entry is part 6 of the series “Business Myths” if you are curious about starting a business or have some questions to ask about starting one, please leave it in the comments section below.
Starting up vs Franchising
Let’s try to identify the difference between starting up your own company and franchising through a simple pro and con comparison.
Pros of Franchising
1) Risk is Less
Buying into a franchise and setting up your own franchise of a certain brand means that you already have a blueprint laid out for you. You don’t need to make your own.
You’re buying a system that exists and works and is making money. Plus there is a brand that’s already good enough and big enough to carry its own weight. Yes it will cost you, but people are familiar with the brand already and that means that there’s a higher likelihood of them buying the brand’s products and/or services.
2) No Need for Ideas on New Products and Services
A franchise business has it all laid out for you – the need to come up with new ideas is out of the window. This enables you to focus your brain’s processing power on other things. Expansion becomes easier as you only need to expand horizontally – set-up new franchise locations – rather than expanding vertically (new products/services).
3) No Need to Think of Potholes in your Employee Protocols
When you buy into a franchise business, you’re buying the system it uses to manage employees. This makes it a whole lot easier for you to learn how to manage payroll, employee concerns, potential HR problems and so on. In my opinion, this is one of the best reasons to franchise instead of starting your own as I’ve had tons of experience in making mistakes and dealing with problems with employees.
4) Branding is Already in Place so no Need to Invest Excessively in Branding / Marketing
One of the biggest money-drain in a startup company is marketing. If you’re doing things right, you’ll be spending perpetually for marketing and branding.
A franchise business eliminates this as the franchise’s main brand owner is marketing perpetually for you.
5) No need to Procure Supplies on your Own
Supplies for a franchise business is laid out. You don’t need to go out looking for your own suppliers. It’s already decided for you. You only need to keep re-ordering and the raw materials will be delivered to you on a regular basis.
Cons of Franchising
1) No room to be Creative as Everything is Dictated by the Franchise Owner
The greatest advantage of a franchise business may also be the biggest downside if you are someone who loves to think of solutions to problems. A franchise business has little wiggle room for change. Usually things are dictated and you have to follow. End of story.
2) You are Getting the Outlying Locations and not the Prime Ones as the Franchise Owner Usually got the Prime Ones Already
A lot of franchises that are great have already gotten the best locations. You’re left with locations that are difficult to access or that are secondary in terms of foot traffic.
3) If the Franchise Owner Does Anything to Damage their Brand, you are Also Affected
There may be scandals or controversies that transpire because of something stupid that the franchise brand owner did. You’re also tied up in that controversy whether you like it or not as you carry the brand as a franchise owner.
4) You are Required to Pay Royalties as Long as your Business Exists – on Top of Taxes
Nobody is ecstatic when paying taxes – much less royalties. These are things that we would very much like to do without but are a must. Buying into a franchise means that you’re also allowing yourself to be put under the burden of paying royalties as long as your franchise business exists.
5) If There are no Innovations from the Franchise Owner, you are Stuck with a Stagnant Franchise
It’s not impossible for a franchise owner to finally just sit back, relax and milk the brand for what it’s worth. It has happened. More times than we care to admit.
When the franchise owner has stopped innovating, your franchise as a brand is stuck – and will die a slow but sure death like an old, battered brontosaurus.
