3 Advantages (and Disadvantages) of Owning a Franchise for Aspiring Entrepreneurs
What Can You Expect After Buying a Franchise?
The franchise industry is booming, as more and more people take note of the advantages of buying a franchise. Chances are you’ve already engaged with a franchisee at some point today, whether it was stopping in for a morning coffee or hitting the gym to burn it off. But owning a franchise is different from frequenting one.
Investing in a reputable brand with a proven model for success that people trust is a sensible decision for most aspiring entrepreneurs looking to follow their dream of flexible self-employment. What’s more, with the variety of franchises available across a plethora of industries, the franchising advantages are endless.
There are several types of franchises that entrepreneurs can explore, which pay a fee back to the franchisor:
- Business franchise-This is typically the chain fast food or retail store that you normally associate with a franchise. The franchisor provides the franchisee with everything they need to succeed (trademarks, business operation guidelines and instruction, etc), as well as the strict standards expected of the franchisee.
- Product distribution franchise-A franchisor supplies the franchisee with the product to sell or distribute without providing the business system. Examples may be Pepsi branded soda in a vending machine or a car dealership.
- Investment franchise-These franchises require a large amount of capital and include entities such as hotels or fine dining restaurants.
- Job franchise-This type of franchise is often a home-based operation that requires some capital or equipment. These can be in the form of a trade service, repair service, etc.
While franchising is an extremely attractive model, here’s why it’s not suited for everyone.
1. ‘Already Doing It’ Syndrome: Owning a Franchise is Not a Hobby
Franchising types are incredibly diverse, as virtually every type of business and business model is franchised in one form or another. Many individuals can envision themselves as franchisees of a particular brand, because they have, in a past or present life, been doing exactly what the franchise offers.
The biggest hurdle here is that the individuals in question have usually been doing ‘it’ as a hobby. They firmly believe that as a long-time hobbyist, they know all the ins and outs of the process, require minimal training and are already well on their way to instant success under a brand name. The reality, though, is that hobbyists don’t always make successful franchisees.
That’s because running a business and having a hobby are two very distinct and separate situations. As a hobbyist, you have no structure, timelines or reporting responsibilities and certainly no bottom line requirements. Hobbyists can stop and start when they please, and even walk away from a project for a week or two with no adverse effect. Owning a franchise, on the other hand, requires regular hours and a strong work ethic. What’s more, franchisors expect more of their franchisees, as they have a brand to maintain and service standards to meet.
Rarely can even a keen and devoted hobbyist convert to a franchise environment. If you are thinking of turning your hobby experience into a franchisee situation, look carefully at all of the ramifications involved.
2. Being Your Own Boss Comes with Tradeoffs
The old adage of what makes a franchise successful-location, location, location-doesn’t apply anymore. Today, a growing number of franchise offerings present a home-based environment. While this can be very attractive in terms of avoiding long commutes and late nights at the office, it may not be what one might expect.
Many people making the transition into self-employment and entrepreneurship have had long and exceptional careers in large companies. Many may have spent decades working for the same business. To find themselves on the move and potentially becoming self-employed represents a serious leap of faith. For those looking at that option and thinking of perhaps a home-based, one-person enterprise, theirs becomes a quantum leap of faith.
In any corporate setting, employees of long standing understand the structure of the business they work for. They report to someone, and others report to them. There are specified times to do certain things, complete projects, plan and budget, all driven by the corporation. It is a well-planned and disciplined organization. It has a social side, with appropriate safety nets to handle issues that arise. It also provides a community, as one is working in an organization with potentially hundreds of other employees.
Notwithstanding that, a franchise is also a very organized and detailed business, but in a one-person business, many of the organizational aspects just do not apply. Likewise, there is no coffee machine or water cooler for social chit-chat and the like.
The lure of working in your jeans and a sweater may be a big enticement after years of commuting or being part of a high-pressure team, but look beyond the immediate benefit to the bigger picture. It takes a certain type of disciplined individual to be a successful one-person, home-based entrepreneur. If you are a social creature, then maybe you should think again about the lure of wearing jeans to the office every day.
3. It’s a Franchise, So It Must Be Successful… Right?
Franchising has a long record of success. Over the years, we have seen franchise brands grow and grow. That growth must translate into success for both the franchisees and franchisors, right? Many individuals enter owning a franchise with the preconceived notion that if it is a franchise, then that spells instant success.
A 2021 report by the IFA (International Franchise Association), emphasizes the importance of franchise success to the post-COVID economy. Robert Cresanti, IFA President and CEO states:
Through quick adaptability, scalable technology, and a focus on in-demand products and services, the franchise sector has shown its resilience time and again. In conjunction with smart policies out of Washington, franchises can help Americans get back to work.
Small businesses represent more than 99% of employer firms and employ 58 million of the nation’s private-sector workforce, with small business job creation often outperforming big businesses.
The reality check is that any brand, no matter how well known and prominent it is, can sustain failed locations. This usually happens when the franchisor does not apply its usual stringent review process to would-be franchisees.
With an established brand, if a failure occurs, it has invariably nothing to do with the brand, but rather the franchisee in a specific location. Because this is a problem to be avoided at all costs, franchisors continue to be diligent in ensuring their franchisees understand that being a franchisee is hard work, or at least, smart work.
For would-be entrepreneurs transitioning from the corporate world into the world of self-employment, a franchise opportunity will often represent an ideal vehicle for such a transition. However, those making the journey should always consider the franchise advantages and disadvantages and understand that it’s not an automatic ticket to success.
[ Editors’ Note: To learn more about this and related topics, you may want to attend the following webinars: The Very Basics: Forming the Business and What Every Founder/Entrepreneur Must Know. This is an updated version of an article originally published on January 5, 2017.]
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