The how can look like a lot of different things. It can be starting from scratch, buying an existing business, being an investor, or leveraging a franchise. Most of my coaching clients fall in the starting from scratch vs. franchising category, and I help them evaluate the possibilities based off what it is that they want to accomplish with the business in the long run.
If you have a deep passion for the business you intend to start, with unique ideas, a higher risk tolerance, and some time and patience to get the product exactly right, for the specific market you wish to serve, then a startup is most likely appropriate for you.
If you would like to leverage the business as a vehicle to the goals that you are passionate about, are comfortable with a done for you operating system that you can leverage, and being in business for yourself, but not necessarily by yourself, then franchising may be an avenue for you to explore more in depth.
Pros & Cons
Evaluating the pros and cons of startup vs. franchising is not by any means a new topic. Americans have been evaluating franchise possibilities as an option since 1731 when Benjamin Franklin and Thomas Whitmarsh entered into an agreement “for the carrying on of the Business of Printing in Charlestown in South Carolina.”
While this type of contract is not exactly how we do franchising today, it did carryover most of the elements we would see in a modern franchise agreement – franchisees are business owners that are contractually partnered with a franchisor in order to execute the franchisor business systems and are able to leverage their brand and trademarked materials. These are things that many business owners would take years to acquire, and a great deal of capital, but is available to a franchisee through the purchase of a license.
Fees: Franchise fees are a major topic that comes up with my clients. I understand. It can seem like the cost of doing business with a franchisor can be high, and you pay for a lot of services that you might not have to pay for as a startup.
I tend to agree that franchise fees can be intimidating but let us put it into perspective: The initial license fee for a franchise gets you the license to operate the system and helps the franchisor with expenses ranging from setting you up with technology, training, dedicating corporate time to your business, and several other initial costs.
Royalties, advertising, and ongoing technology fees are in place for when a franchisee is in business and operating. Sometimes the royalties are a fixed percentage of earnings, or even a fixed monthly rate. These should not be considered expenses, but rather an investment. As a franchisor receives royalties from franchisees, they are then able to use those funds to reinvest into the franchise system so that they can continue to provide modern products and services to the system. Think of a larger franchise system where 50-100 franchisees are contributing to the same bucket. There are a lot of possibilities for business development that would not necessarily exist if you were to do it on your own, or the mechanism would have to be built rather than having it there already.
When you start your own business, you’re in control over every detail, large and small. With a franchise business, you sign an agreement to follow the rules laid out by the franchisor. (Remember, franchisees are awarded a license to use the franchisor’s brand name, operating system, equipment, uniforms, etc. that have been fine-tuned and perfected over many years.) Yes, you control your franchise unit in terms of the culture and values you set, and who you hire and fire, but you must follow the franchisor’s operating system.
One of the greatest pitfalls of starting a new business is a lack of knowledge and connections necessary for conducting regularly scheduled operations. A new business owner must start from scratch and develop every process and procedure for the minute details to the large tasks. Franchising provides built-in operations and the direction, advice necessary for getting a successful business up and running.
What are the staffing requirements necessary for a business? This can vary greatly, even within an industry, and how should employee training be implemented to ensure maximum efficiency? Franchise systems come with prepared staff training regiments that are proven effective.
If a business doesn’t have a marketing and advertising plan, does it even exist? Franchising provides an individual access to instant marketing collateral and name-brand recognition – important when first starting out and maintaining a customer base. In addition, most people are not experts in everything. If a professional’s business involves dry cleaning, for example, he or she has focused their attention on related processes and skills – not marketing. Investing in a franchise allows an individual to benefit from access to marketing guidelines, feedback, and best practices.
Many franchisors provide field support specialists to help keep their franchisees on track, training them to become managers and leaders “working on the business, not in it.”
Franchisor and Peer support
Many franchisors provide field support specialists to help keep their franchisees on track, training them to become managers and leaders “working on the business, not in it.” They also provide concurrent training and best practices for their franchisees so they can continuously sharpen the saw in their business.
If you own your business, you can join the Chamber of Commerce, Rotary, mastermind groups, or other local business organizations, so you’re not completely alone. As a franchisee, you receive ongoing support not only from your franchisor, but also from your fellow franchisees. Can you imagine having access to the top franchisees in a system that are meeting and exceeding their financial goals? What a great situation to learn from the best through mentorship and coaching that would cost you tens of thousands of dollars in most mastermind groups.
Exit strategy/resale value
When faced with a choice between a Wendy’s or Bob’s Burgers, prospective business owners often opt for the safety and familiarity of a known brand over a private business, just as consumers do when looking for a burger. And in tough times if you need to sell you may have to do so at a bargain basement price — if you can find a buyer at all. With a franchise, there’s always a buyer of last resort: the franchisor, who can always buy your unit and run it as a company store until they find a suitable buyer.
The topics I have listed above probably only scratch the surface when you are exploring your ultimate goals through business ownership. A guideline that I try to leave my coaching clients is to ask yourself some personal questions. Primarily, you should have a deep understanding of your income, lifestyle, wealth, and equity goals so you can compare them to each opportunity that you are evaluating.
Career Ownership Coach
The Entrepreneur’s Source