10 Issues to Weigh Up in Deciding on a Franchise or an Independent
Choosing to make a career as a small business owner is the tough part – then you need to decide whether you want to operate as an independent business or within a franchise. Both decisions are all about what’s right for YOU.
There are disadvantages and advantages to both franchises and independents, so to help you decide which best suits, you need to understand the differences between the two ownership models – and the answer for you will then be which one is best suited to your personality, strengths and goals.
1. Autonomy vs control. Of course, we all want autonomy but one difference must rank above all others – a franchise makes it possible for people who have never been in business before to run one successfully. If you have not run a successful business before (and remember all those statistics that barely one in ten start-up businesses succeed) then you might be willing to sacrifice your desire for autonomy in favour of the benefit of success.
2. Most franchises offer branded turnkey functional systems with your franchise license fee. As an independent business owner, you would need to apply your mind to what you are going to offer for sale in the line of products or services, and to acquire rights to those, and then determine how you will distribute them. When you buy into a franchise all those decisions and preparatory work are included – allowing you to focus on delivery and profitability.
3. Build a brand or buy one? The brand is arguably the single biggest attraction of a franchise, with a few provisos relating to how established your franchise system is, and a location tailored to capitalise on that brand strength. It can take considerable specialised knowledge and cost to create a recognised brand, and most small businesses in fact never develop one. However, to compete in a crowded market place, businesses (and even people) have to differentiate themselves and the small business owner needs to come up with a way to get noticed. In contrast, franchises spend most of their efforts on building and maintaining the integrity of their brand. If they’ve done a decent job, your business will benefit from a powerful consumer message that holds the promise of a good, value-for-money experience across all the franchise’s locations. However, there is a downside to this. The branding of your business can become hijacked by how the rest of the businesses within the franchise are run – it’s really a matter of ‘all for one and one for all’. A franchise system demands adhering to set rules and regulations with the upside that quality control is a priority, and assurance that you’re working alongside fellow franchisees who are regulated to maintain a set standard.
4. This is a top challenge facing all businesses, large and small. However, franchises can tweak their business by piloting new products/services at a single branch and roll out successful changes to the entire group. A franchise can also dedicate entire departments to innovation and testing new products. Nonetheless, large companies are notoriously bad at developing exciting innovations – one reason being the attitude ‘why fix it if it ain’t broke?’ Independents have a different problem – while they can innovate much more quickly, the owner is often far too busy running the day-to-day business to think of new products. McDonald’s successful Big Mac and Fillet O’Fish products were franchisee innovations that were adopted by head office and the rest of the network.
5. As an independent you’re typically a lone wolf in the wilderness, having to do it all from sales, marketing, IT and accounting to HR. In a franchise, you are part of a much larger, more powerful network. This comes into play in everything from negotiating the cost of advertising and publicity to the supply chain. It isn’t just financial – when you’re on your own even a computer problem can be a challenge – it’s a tremendous boon to have someone to call. In most franchise systems, these savings can approach the value of royalties a franchisee pays.
6. Intellectual property, such as trademarks, patents and copyrighted agreements, are rarely top-of-mind with independent business owners. In the modern world protecting intellectual property (IP) is becoming increasingly important. It can contribute to making an idea or concept difficult for competitors to imitate. A good franchise will ensure that its brands are registered and that its IP is protected.
7. Succession planning. A problem facing many small business owners is exiting a business once they’re ‘done’ with it, especially where the owner is the key person and nobody else knows how to run it. A franchise can be easily sold because it’s in the franchisor’s interest to have business continuity.
8. Establishing your own business may limit you to doing something just because you already know that business. In this day and age, business trends have ever shorter life cycles as disruptive technologies and competitors emerge. With a franchise, you can choose not just a business that suits you, but one that has some legs for the future. Franchises are good at teaching franchisees – in fact, many franchisors prefer franchisees with no technical knowledge of the business as there are no ‘bad habits’ to unlearn.
9. You get a tried and tested formula. Going out on your own requires a leap of faith, and many franchisees are comforted to know they’re leaping into a system without being subjected to all the trials and errors.
10. Some people choose an independent business for the simple reason that it can cost less to start up. However, research suggests that when comparing ‘apples with apples’ independent businesses are generally more expensive to build from scratch compared to the initial cost of licensing a franchise. The benefits of a franchise do come at a price of royalty fees.
So which is better? Of course, most franchises themselves at some point started out as an independent business that became successful enough to become a franchise itself. The only way to decide which option will work best for you is to put in a lot of time to research all possible angles of the two models, as they relate to the type of business you are interested in starting.
Talk to actual business owners, and don’t just listen to the positive stuff – dig until you find the real story.