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Franchise vs. Start-Up Business
When individuals want to start a business, they are faced with a choice – franchise or start-up. Franchising opens up a world of opportunity. Although buying a franchise may not suit everyone, franchising is a much better option than trying to make it on your own in business.
Top 6 Reasons – Why Franchising is the Best Choice
1. Failure Rate
While most franchises succeed, some franchises are bound to meet failure. Failure rates will vary from franchise to franchise. 75%-80% of franchises will still be thriving in five years.
Often, the failure rate for franchises can be as low as 5%-10% but it can be as high as 40%-50% within certain franchises. The failure rate for start-up businesses is 75%-90% in the first five years. Within 10 years, another 50% of the surviving start-ups will experience failure.
Actually, there is an inverse relationship in these statistics. With start-up businesses, 75% plus will be gone in five years but, within franchising, 75% plus will be still enjoying success after five years.
The chance of success in a start-up business is a slim possibility. 10%-15% of start-up businesses succeed but the odds are not in the favor of the entrepreneur. Even the franchises which show a high failure rate may not be necessarily a bad deal. The failures could have happened at the beginning when the franchise had few units.
The franchise may have learned lessons since then such as how to choose better candidates. Franchisees must always practice due diligence and do their research. The difference in failure rates is the most glaring proof that franchises are the best choice.
2. Competition
When entrepreneurs choose their own start-ups over a franchise, they will have to compete against the franchise. If a start-up has millions of dollars and a research and development team, the business might be able to compete against the franchise. A franchise is synonymous with business strength. Smart entrepreneurs will want to put that force to work for them rather than competing against the strength of a franchise.
The various units within a franchise work for the good of the business. Franchises have more locations and they can buy more advertising, product, equipment, and services than start-up owners could ever hope to acquire for their business. In addition, they continue to refine their systems, processes, and methodologies. The true strength of the franchise lies in its members.
3. Experience
When buyers choose franchises, they get the benefit of experienced franchisors. They will have made mistakes in the beginning, learned from their errors, and built stronger businesses based on their experience. Start-up business owners have to figure everything out – in the moment – by themselves. Even if start-up owners worked previously in a particular field, they probably had a support network to back them up within a company.
With a start-up business, the owner is on his own and wears all ‘hats’ in the company. If a start-up business owner chooses the wrong location for his first facility, the business is doomed from the start. That scenario would never happen within a franchise. Franchisors know their markets and the perfect target locations.
4. Capital
Franchises do not run out of capital but start-up businesses might experience this circumstance if they run into challenges. Keep in mind that obstacles are almost a certainty in business. Franchises are supported by franchises fees and royalties. If a business owner has a problem within a franchise, the franchisor knows how to fix it, and since all members contribute to the costs of the franchise, solutions come at a lower price.
Franchisees have to pay upfront fees and monthly royalty payments but these charges are cost-saving measures in the long term. A franchise is a tried-and-true business. When entrepreneurs choose their own start-up business, they have to pioneer the processes and methodologies. Owing a business which works perfectly from the start is worth the investment. Buying a franchise will save you money in the long haul.
5. Education
Owning a franchise is the best business education which an entrepreneur could hope to receive anywhere. Franchisees learn from experts within the franchise and pick up that expertise. They can use that expert knowledge to buy more units and blossom within franchising.
Franchisees might decide to take their expertise and explore a new business outside franchising. The choice is up to the individual franchisee. When you have built up capital within franchising and have gained the business knowledge and experience, a world of opportunity awaits you.
6. Security
Buying a franchise is not a guarantee of success. Yet individuals mitigate the risks when they choose a franchise over a start-up business. Nobody can afford to fail in business. Since entrepreneurs have to handle life’s obligations, as well as protect their investment, they should choose the business opportunity with the least risk.
Franchising may not be the right fit for everyone’s budget or lifestyle. Yet generally, buying a franchise is a smarter choice than going with a start-up. Franchises have the systems, methodologies, and processes in place. Your favorite franchise might be waiting – just for you!