Franchising is a widely spoken-about topic all around the globe. It has a reputation for being an almost foolproof plan for any potential entrepreneur. But, is this true? Does franchising hold up to its reputation? In this article, we will explore the factors that make franchising good and bad. So, let’s get right into it.
The Advantages
You Get Access to Business Assistance
One of the most notable advantages of franchising is the business assistance that you receive when starting. These franchises have been around for a long time, and for good reason. They are now completely aware of what is necessary to make a business successful. With this in mind, if you invest in them, they want you to succeed as well as it will just mean further profits for them, logical, isn’t it?
They can provide you with the necessary equipment, an established advertising plan, a good training program, and all of the requirements to get you up and going.
Already Established Brand Recognition
The biggest issue all start-ups face is the fact that nobody knows (and thus, cannot trust them) about them. This results in a much smaller customer base at the start. To overcome this you need to spend enormous amounts of money to get yourself noticed by the wider public. This is where franchises come into play. Since they already have an established identity, you leech off of their success and reap the rewards. It becomes a lot easier to sell your goods/services when the customers see that you possess a trustworthy brand to back you up, as they know what to expect of you. You get bonus points if the innovations that you have brought along surprise the customers, as they will become even more loyal to you.
Lower Risk Going Into it
It isn’t exactly breaking news that opening a business is risky stuff. Pretty much everyone knows this. It’s why everyone and their grandmother isn’t opening a business of their own. However, franchising does offer a higher degree of security in this department. Since you are, as we have already mentioned, leeching off of the success of an already-established brand and business model, you have minimal room for error. The corporation behind the franchise has been in this business far longer than you have. They know what works and what doesn’t. This allows you to go in and stay sure that nothing catastrophic is going to happen. There is a reason why franchising in Australia is so popular nowadays, people are afraid of the risk brought by independent entrepreneurship.
The Disadvantages
The “Lower Fail-Rate” Hoax
This might seem like a paradox considering the previous “advantage”, but it will all make sense in a moment. Even though most franchisees do survive on start, multiple studies around the US and the UK have shown that over a span of 4-5 years, franchises have roughly the same survival rate. This isn’t all. Survival rate does not translate to profitability, most of these franchises do not meet significant profit margins as most would like to romanticize about. It is a much harder shell to crack than most people would like you to know. So, if you are thinking about investing in franchising, be aware that it carries its own risks as well, and isn’t as sunny and bullet-proof as it’s depicted.
Significantly Higher Initial Investments
Coming into a franchise requires a much higher initial investment than it does for independent entrepreneurs. This is a big part of why most people don’t simply get into franchising – they can’t afford it. Franchising has a high barrier to entry. This becomes all the more financially taxing the more known the brand is, as they will ask for higher royalties and higher initial funds. And when you lose larger funds at the start, you will have less maneuverability for implementing your own innovations in the business.
Imposed Regulations
Franchises allow you to use their brand to get yourself off the ground, but this also means that they will impose a lot of regulations upon you to make sure you don’t stain their brand. This can be suffocating for some aspiring entrepreneurs since they will not be able to implement anywhere near the number of innovations that you intended to. They can (and most of the time, do) have control of aspects of your business such as pricing, store layout, product choice, décor, etc. If you have a good SEO plan, it will need to be approved by the higher-ups.
