While very similar, there are core fundamental differences between running an independent business and running a franchised business.
When you go into a franchise business, you’re buying into a system that has a proven business model, structured systems, ongoing support and in many cases, an established brand to operate under.
With an independent business you’re starting off with a blank canvas and are left to figure things out on your own, ideally before you run out of money.
Below is a closer look at the differences between running an independent business and a franchised business and what the they could both mean for you:
Established Business Model
One of the biggest and most significant differences between starting an independent business and a franchised business is that, with a franchised business, you are starting with an established business model.
An established business model is essentially a ‘blueprint’ that sets out how to build and run your business from day one, including how to find and generate customers, how to deliver your product and/or service in the most effective and efficient way and how to recruit, train and manage employees to deliver the product/service to exacting standards.
What a lot of people fail to realise is that if you’re starting a business independently, then this is stuff you must figure out at your own expense. This can be extremely costly and time consuming, often taking years and requiring significantly more investment than you would invest in franchise fees. That’s assuming you have enough capital to last you through the process – many independent business owners either run out of cash before they figure all this stuff out, or they simply coast along – living hand to mouth and not really making any forward progress.
This is one of the main reasons why starting a franchise business has more than a ninety-percentage success rate compared to starting an independent business that has just over a twenty-percent success rate.
When you start a franchised business, you are often working under an established brand that has traction within your market. This doesn’t necessarily mean that you’re working with a global brand such as McDonalds, but it does mean that your brand has significantly more traction and track history, compared to starting a brand from scratch. The route to market, the sales process and the potential success achievable is already known.
One of the hardest things about starting a business is getting your name out into the market and getting people to know about your existence (which comes at a cost).
Training And Support
One of the biggest benefits of a franchised business is that you have the initial training and ongoing support provided by the franchisor. This is where they show you the ins-and-outs of running your business, including the ‘what not to dos’ and essentially giving you a fast track to success. This training and support doesn’t stop after the initial setup – they have a vested interest in seeing you become as successful as possible and will help to navigate the inevitable challenges and obstacles as they arise.
A major advantage of starting a franchised business is the support that comes from the community of franchisees. These are typically likeminded people, who are in the same boat as you are, who have in many cases already walked your path and can provide real-world advice and support based on their own experiences.
Established franchisees are a reliable source of information and, because of the synergies and learning that comes from franchisee networking, franchisors typically run annual and regional conferences to facilitate this learning and growth.
With an independent business, you are increasingly siloed, very often having little support outside your family and immediate employees.
With a franchised business you often have access to large national accounts that can be a reliable source of income and credibility while you continue to develop your local market. These accounts are often generated and developed by the franchisor making it a relatively low cost, low input way of securing business. Independent business is often restricted to local customers and are usually at the mercy of price wars due to having minimal brand leverage.
Economies Of Scale
As a franchise grows it gets to benefit from economies of scale, which are usually passed directly onto the franchisees. This allows you to operate your business more efficiently and gives you a higher profit margin when compared to an independent business that’s operating to the exact same prices, in the same market. Very often the savings made through economies of scale will out-weigh what the franchisee is paying back to the franchisor in terms of royalties. In other words, the savings made through being part of a franchise directly pay the royalty fees.
Leverage Brand Growth
One of the understated benefits of being a franchised business is that you get to leverage the growth of the franchise network and brand. If you time your franchise investment correctly you join a franchise while it’s still up & coming and benefit from huge resale values down the line.
Prime examples of this are brands like Domino’s Pizza, Costa Coffee and McDonalds, where early franchisees where able to join the business and sell for multiples that priced the business in the millions a matter of years later.