We’re often asked why someone would invest their money in starting a franchise business compared to starting their own independent business. The answer is simple; when you buy a franchise, you’re buying a proven business model.
This cannot be emphasised enough. When you buy a franchise, you’re buying an established business model that has proven to create economic value a.k.a. it delivers a product and/or service that customers are willing to pay for, leaving you with a profit.
What Is A Proven Business Model?
A proven business model is nothing more than a series of tried and tested systems. These systems will cover everything from:
- The marketing of your products and/or services.
- What to say when a customer calls or walks through the door.
- How to deliver the product and/or service in the best way possible.
- How to advertise and recruit employees.
- How to train the employees efficiently to do their job well.
- How to fire any non-performing employees.
- How to monitor and produce business reports on the performance of your business.
- How to use your central IT system.
- How to record customer data.
- What to do when a customer complains.
- IT systems for managing your inventory.
- IT systems for integrating your sales system with your accounting system.
- New, tested products and/or services to deliver to your customers.
- And much, much more…
Ongoing Training And Support
In addition to the established systems, you get to benefit from the ongoing training and support of the franchisor, who trains you on each of the individual systems, helping you to setup the business and showing you how to run the it successfully.
Always remember, a good franchisor earns its revenues from royalty payments, so they are financially, as well as morally, incentivised to get you up and running quickly.
Alongside the training and support of the franchisor, you have a network of fellow franchise owners who are all in the same boat as you are, who have been through the same learning process that you have and who you can learn and grow from (and in many cases develop lifelong friendships with).
Existing franchisees will be at various stages of their own business growth, allowing you to tap into and utilise the experience of those whose situation most closely relates to yours.
Starting An Independent Business
With the proven business model and ongoing support in mind, let’s see how this compares with independent business ownership, or in other words, ‘going it alone’.
- You create your products and/or services from scratch, which requires investment in R&D and possibly manufacturing and testing.
- You must continue to modify and adapt your products and/or services until you get a tight ‘product/market’ fit.
- You must figure out how who your target audiences are.
- You must figure out how you will go about marketing these products and/or services to your target market.
- You must try, test and develop scripts of what to say to customers and potential customers at each stage of the sales and customer service process.
- You must figure out small business accounting, including the setup of PAYE for employees.
- You must design employee training and learn the how to deliver that in the most effective manner.
- You must figure out the best way to recruit employees and how long it will take until you begin to see a ROI on your hiring spend.
- You must work out the best KPI’s to track so that you can monitor and improve business performance.
- Business ownership can be a desolate and lonely place and you have a minimal support structure around you that truly ‘gets’ what you’re going through.
- Use must test, choose and implement your IT systems…. And much more!
Fundamentally, with independent business ownership you must ‘figure out’ everything by yourself, which is a trial and error process that can take a long time and cost a substantial amount of money. In fact, in many cases it would be cheaper to invest in a franchise than it would to work through the trial and error process of starting a business.
The Primary Cause Of Business Failure
Many people believe that the primary cause for business failure is running out of money. While this is correct to some degree, running out of money is nothing more than an acute symptom.
The real reason businesses fail is because they haven’t yet validated their business model i.e. they haven’t established tried and tested sales and marketing channels, they haven’t identified their true target customers, they haven’t built inhouse operation manuals that show staff how to run the daily operations and they haven’t employed the right people to run those systems.
They essentially run out of cash before they finished building the business and working these things out. All business models are initially perfected with trial and error which can be an expensive process that most simply can’t afford to see through to the end.
That’s why, particularly if you are considering a career change after an already successful career, franchising can be such an attractive option. As well as having all the systems and processes of the business model in place, franchises have such a phenomenally high success rate when compared to traditional start-ups. This is because all of these business critical components are in place and you don’t run out of money while trying to figure them out.
When you start an invest in an independent business, you’re investing in an idea that needs proving. Even if similar businesses exist, your business still needs proving and you will still be required to ‘figure out’ a lot of its components as you go along.
When you invest in a franchise, you are investing in intellectual property. This intellectual property is an idea that has been proven and includes a business model – which contains all the moving parts required to make that business model a success – plus the licensing of the company brand under which to operate.
While franchising is not for everyone, especially the more entrepreneurial people of this world, it really pays to sit down and figure this stuff out, doing a side-by-side comparison and working out what path is best for you.