Statistically speaking, businesses owners have a far higher success rate as a franchisee rather than a stand-alone business owner. While the statistics vary from source to source, typically you will see that franchisees have a success rate of 95% (when reviewing those open after their first year) compared to 75% for small business startups.
So if being a franchise owner is far more likely to drive success, why would anyone consider something different? There are five key reasons why someone may consider opening a business without being part of a franchise brand. Some of these are real and need to be considered while others are incorrect assumptions that need to be addressed.
The business or industry that you are considering doesn’t exist in the franchise world
This is uncommon but is real. If someone found a need for a product or service that simply wasn’t already being offered as a franchise, they may need to start it alone, without the support and coaching of a franchisor.
As a business owner, you need 100% control
This is something to consider as under a franchise system, there are some decisions you just don’t get to make on your own.
There are no territories available in your market for the business you would like to open
This does happen. The big consideration then is that you will be competing with larger brands in your market who have capital and a high investment in software and significant industry or market intelligence.
You don’t want to pay the royalties and want to keep that portion for yourself
This is a completely false reason and one that needs to be addressed. The small amount of royalties you pay as part of what I refer to as your contribution to the “shared resources”, is money very well spent in many cases. With good franchise brands, the return on that investment for the franchisee is incredible. In many cases, the franchisee could not engage a board of directors, employ a strategic consultant and participate in the incredible learning from so many other franchises for triple that amount of money.
You think that being a franchisee is another form of buying a job
This is completely false, with most brands. As a past franchisee, I had a controller and a vice-president along with a small payroll department and admin staff supporting my chain of stores. The total revenue was significant, and the bottom line was enviable. In my current role as a strategic advisor and consultant, I am working with one client who is a franchisee with revenue and profit numbers that many small business owners would only aspire to.
What are the advantages of choosing to be a franchisee?
The advantages are plentiful, but they are different depending on how established the brand is along with the business design itself. In addition, the most commonly referred to reasons as to the advantages are not actually the most important in many cases.
Many franchise prospects will think of brand recognition and marketing support as the two main strengths of being part of a franchise brand. This can be true in a very small percentage of cases. As an example, a Tim Hortons or McDonalds franchisee will have advantages such as shared resources, a business formula that works, the power of leverage that the brand uses with suppliers for preferred pricing and as part of the design of their business, the means to get your franchise location up and running quickly. These are all great components that result in higher profits faster. Even with these advantages, the brand recognition and their powerful marketing are noteworthy benefits.
However, most brands are NOT the size of a McDonalds or Tim Hortons. In fact, while difficult to establish an accurate number, of the over 1200 franchise brands in Canada, over 1000 have less than 100 units open. As a result, this idea that the franchisee of any of these brands will benefit from brand awareness is false. In addition, marketing is most often handled locally rather than nationally. There is often some advertising (these two are different) that is done nationally but there is so much more to marketing than just the paid portion known as advertising. So what are the amazing benefits then?
Well known benefits:
- Brand marketing as noted.
- Brand recognition in some cases.
- A proven recipe or formula.
This most often is referred to but not well understood. The mistakes we have all made as business owners, launching a business outside of a franchise, are costly and plentiful. Buying a proven business model and partnering up with the franchisor who has a vested interest in your success is invaluable. - Purchasing power.
- Shared resources such as a website, social media team members, vendor associate to handle discussions with vendors, cloud storage of files and branding are all examples of this.
Lesser-known benefits:
- A business coach who not only is interested in your success but is vested in it. Your franchisor team is your business partner and business coach.
- Less competition and more partner businesses. Your fellow franchisees are no longer competition but rather, a partner business flying the same banner.
- The incredible knowledge of your fellow franchisees. This is what I refer to as the super power of franchise companies. Being able to speak with someone from another city or province, or from another area of your city, who is doing or has done the exact same work as you are doing is powerful. Great franchisors optimize this and ensure there is a culture of sharing, and that the system is built to provide opportunities for sharing and improving.
The decision of deciding on a franchise or stand-alone business is an important one. The key is to make that decision based on facts, not incorrect thoughts around the royalty cost or other factors that may not be real. Once you are armed with that information, you can move forward on either your business idea or as a franchisee.
