Once you've decided that you are ready for a career as a small business owner, you'll find yourself faced with another decision to make. Do you want to operate an independent business, or a franchise?
There are advantages and disadvantages for both, so the trick is to figure out which works for you. To do this, you need to understand the differences between the two ownership models, and reflect on which is best suited to your personality, strengths, and goals.
Franchise vs independent: Operating system basics
When you buy into a franchise, you pay a fee to license the right to operate a branded turnkey business that allows you to sell a prescribed set of products or services that are consistent across all of the brand's locations. An independent business operator however, is responsible for all decisions regarding what they are offering for sale, and how they will sell it. No head office means no fees to pay, but also no support of any kind. You are on your own.
Autonomy vs. Control
In order to maintain brand integrity, franchises work out nearly every detail for how the business should be run for optimum performance, so there isn't much room for operator autonomy. Operators are expected to adhere to franchisor's direction on almost every aspect of the product or service offered, marketing direction, and even what suppliers are used.
Operators, of course, get to make management decisions on the kind of culture they wish to impose, and decide who they will hire, but that's about it. Depending upon your abilities and goals, this could very well be great. If you have little experience in managing a business, or you are not particularly creative or adept at building a brand from scratch, then there is a lot to be said for leaving these decisions to the professionals hired by the franchisor.If you are highly creative, and want a heavy hand in issues of design, developing corporate values, pricing, etcetera, then a franchise is probably too restrictive for your liking. As an independent, you will have to take responsibility for every aspect of your operation, which could mean considerably more work.
Building a brand vs buying one
One of the greatest strengths of a franchise is its brand. Franchises spend considerable effort building and tweaking their brand. If they've done a good job, that brand communicates a simple, but powerful message which promises the consumer a good experience and value for their dollar.
Franchises can also mean a faster ROI. Because the brand is instantly recognizable, you can expect a decent trade from the day you open your doors. You won't have to spend time and resources convincing consumers to try something new, which is a significant challenge for new businesses.
But there is a potential downside. A brand can come under fire for shoddy business practices that can negatively affect every franchise in their operation. Perhaps a spokesperson for the brand breaks the law. Or maybe the brand's supply chain is found to have practices that endanger customers, or poor labor standards come to light. There is plenty that can go wrong.
An independent business owner has an entirely different set of challenges to overcome when it comes to branding - the most notable being that they don't have one. To compete in a crowded marketplace against companies that spend unimaginable amounts of money crafting their image, the successful small business owner needs to come up with a way to get noticed.
This might mean developing a clever marketing campaign to accompany a well-designed corporate image. Or it might mean establishing your business as a small, but personable alternative to the anonymous uniformity of a chain.
Innovation vs stagnation
Innovations is tough for both the franchise and the independent, but for different reasons. A franchise can throw whole departments into the effort to develop and test new products. Despite this, many large companies are notoriously bad at developing exciting new products and services. In part, this is because once a certain way of doing business has become ingrained, it's difficult to change course. Many large companies are now trying to develop strategies routinely used by startups that will allow them to better innovate their product lines.
As for the franchisee in large companies, you are just along for the ride. The best you can hope for is that whatever head office comes up with, it will be good. Odds are it won't flop, but it might not be a glowing success either.
Independents come at the problem in an entirely different way. Without the deep pockets for market research and testing, they have to wing it. Oddly enough, this can give them a huge advantage over chain operations, as they can quickly experiment with new products or services, and pivot on a dime. The only thing holding you back is your ability to think out of the box.
The bottom line
So which is better? Is one model more profitable and less prone to failure? First of all, there is no clear data that suggests either model is more prone to success or failure. And as for costs, there are a number of variables to consider.
Independent businesses are generally more expensive and time consuming to build from scratch when compared to the initial investment cost of licensing a franchise. That said, the independent business owner won't be on the hook for franchise and royalty fees, and they'll have full control over exactly when and how they will invest in the business. And if they get things right, the independent business could become successful enough to become a franchise itself.
The only way to truly decide which option will work best for you is to put in the time researching every possible angle of the two models. Develop a business plan for an independent operation to get a sense of what it will take to build that business from the ground up or purchase one that's for sale.
Learn everything you can about the franchises you might want to license. And don't just research the good stuff. Try to dig up some dirt by visiting sites like unhappyfranchisee.com.
A career as a small business owner can be incredibly rewarding. You just need to know yourself well enough to be sure it's the right career for you.