Should I Franchise or Build My Own?

Starbucks. HSBC. Sony. Whether you are in Chicago or Cairo, you’re bound to see some familiar faces- these local vendors of world-renowned products are called franchises. This sense of familiarity and the comfort and sense of dependability that it brings to a weary customer is what franchising is all about.

For those who wish to open a franchise- defined as a local institution operating under the strict guidelines of the parent company- this sense of the familiar can cut both ways. On the one hand, franchising doesn’t come cheap and, perhaps much more importantly for those with an free spirit, does not allow for the sort of autonomy that many small business owners seek. On the other hand, being guided by a successful corporation helps alleviate the natural anxiety brought on by starting up a business and greatly reduces the risk of losing the business to inexperience and stress. In short if your happy to have your efforts guided along then franchising is a great way to improve your chances of success in business. If you don’t like following rules and want to tell people the way it should be done then stay away from franchising

Franchising eliminates the guesswork and many of the mistakes made by many start-ups because you are guided by an experienced and successful company which has – and allows you to market under their brand name – a recognized product within a recognized system. You are spared what is often the greatest stumbling block for new businesses- you don’t have to compete from zero in the marketplace, because your product has already won a place. You don’t have to build a system up by answering the daily mistakes and challenges that come to and new business because the franchise system has already been through all of that for you. On the other hand, franchising must be paid for. You pay a fee to take immediate advantage of the experience and effort of those who have gone before you. Franchising has a dollar price and an emotional price. Those who love the challenge and risk of building up a business from zero, who love the pride in knowing the entire system is their own making will pay on the emotional level if they buy into a franchise. Franchising does not allow for the sort of innovation that some small business owners seek- there is less slack, less room for “playing around” or “batting out ideas”. You can certainly pitch your ideas to the parent company, but you are not running your own establishment.

What makes a good franchise owner?

All franchises have one thing in common- all are either integral to a business or they are the business. Therefore, a franchise owner is a business owner. A golden rule, in business and in life, is that you are your own best customer. If your passion and skills lie in auto repair, an auto repair shop would be a natural fit for you. If you love computers, a career in IT may hit the spot. If, on the other hand, the most technical thing you have ever done- or ever want to do- is to turn on your coffee maker in the morning, a career that requires tech-savvy is not for you.

Secondly, businesses are about people. If you do not like the daily interaction and give and take which is the biggest part of the day- if you do not like customer service or dealing with suppliers, for instance- being a business owner is not likely to be a good occupation for you.

Beyond these fundamental rules, a good franchise operator is someone who understands his role in the big picture. A franchise is a business- it requires care, skill, and passion, all tempered with good sense. A good franchise owner needs to be able to budget well, to work independently, and at the same time to build and continually inspire a team. Because a franchise is a business and business requires good people skills, warm, friendly and authentic people would likely do the best job.

Franchises are guided by experienced businesspeople that have a vested interest in success, and are thus more likely to succeed- and you are more likely to succeed owning one, especially if it is your first business venture. After all, when you are starting something new, it is nearly always beneficial for someone to stand by your side and “show you the ropes”. When you buy a franchise, you’re not only paying for the particulars like the building and the supplies, but also for the experience of being trained for success by an organization that is already a success. Being mentored is a priceless experience and one of the biggest pluses of franchising. Don’t forget that you are also paying a company for the right to be a part of their corporation and to carry their brand name. Therefore it stands to reason that a good franchisee knows he/she is part of a team, knows how to take maximum advantage of what that team has to offer, knows it is faster to stick with the proven team system than re-invent the system and knows to give back to the team by contributing to that team.

With their prestige invested in you, most corporations will go out of their way to make your franchise a success. This support system, one not found in small stand alone businesses is a fundamental selling points of franchising.

Mentoring is an integral part of the process and you will gain knowledge and insight that many others would love to have. You will not only be part of a successful business, but will get to know the business.

Franchising, as we know it began in the 1840’s when major German breweries gave certain pubs the exclusive right to sell their beers. In 1851, Singer, a German maker of sewing machines, started selling companies the right to market their products and had those companies sign exclusive contracts with them- these contracts were the equivalent of modern-day franchise contracts.

Modern business franchising took off in the United States after the Second World War ended and millions of servicemen and women came home from the front. Instead of attempting to climb the corporate ladder, these men and women started buying franchises from established corporations in an effort to make a go at it on their own.

As franchising took off, the need to regulate them arose. As a result, today there are multitudes of governing boards and bodies at every level to protect you from exploitation. Their efforts have paid off and made franchising a safer bet than opening a small business- after all, according to the Small Business Administration, about thirty percent of small businesses fail within one year, whereas only five percent of franchises do.

We come to the heart of the matter, the question of what a franchise is really all about. In a franchise transaction, both parties have their own interests- you are seeking to own a business that is backed by a brand name and one that is not only almost assured to be successful but will also be managed by experienced people who will guide you through the business world. The franchise, in turn, is seeking a foothold in the local market. In this process of give and take, one of the things you need to sometimes give up is, as we discussed before, your creative license.
Because one of the selling points to a franchise is familiarity- the assurance that you can purchase the same quality product at different locales- people who buy into a franchise and purchase an outlet have to abide by regulations on how they produce and market their goods.

Indeed, the point of franchising is to offer a global product locally. As the local franchise, your role will be to use your inside knowledge of the people and their culture to appeal to them for business while also knowing the company’s global corporate culture and adhering to the norms and standards they have established.

Ultimately, franchising, like any other business venture- indeed like any other action you take in life- carries possible risks while offering potential rewards. The risks can be mitigated with the using the defenses of knowledge and preparation. As for the rewards, the track record of these franchises speak for themselves- many before you have succeeded, many will be succeeding as you do your due diligence and think about joining and there is every reason to believe that you will too.
Sources:
What Makes a Good Franchise Owner
http://www.bankrate.com/brm/news/biz/green/19990809m.asp (Failure Rates for Small Businesses v. Franchises)
http://www.franchoice.com/franchise-information-guide/what-is-franchise/history-of-franchising.aspx (History of Franchising)
http://www.franinfo.com/history.html (History of Franchising)
http://www.franchiseperfection.com/franchisetypes.htm (Types of Franchises)
http://www.mgmt2000.com/articles/Understanding_Franchising.htm (Understanding the Mechanics of Franchising)

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