It’s an exciting moment when you’re ready to enterprise your way into the business world. People often look into business ownership to increase their financial security and to be their own boss. With these motivators, why would anybody choose to buy a franchise rather than start a business from scratch? Purchasing a franchise means paying someone $30,000 and royalty fees– money which could go into your pocket.
People choose to franchise for many reasons. First and foremost, starting a business from scratch is risky and there are statistics to back this up. In the Emyth: Revisited, Michael Gerber states that 80% of start up businesses fail within the first five years. That’s 29% higher than the number of Americans who get divorced. However, when you buy a franchise, that risk of failure drops to 20 percent.
There are many factors that contribute to this latter statistic. I’m only going to discuss four:
We’re on the same team. At first blush, royalty fees seem like a one way street where the franchisor makes their profit off your hard work. It’s important to understand that royalties increase as your sales increase. So, yes, the franchisor does profit in the long run from you buying a franchise. However, his success is contingent upon your success, making him personally invested in giving you the support to help you succeed.
Technology. The majority of small businesses can’t afford the tech support they need to help their business grow and compete with big businesses. In my business experience, we’ve spent hundreds of thousands of dollars developing cutting edge software to run our company. Not only did this cost a lot of money, but it also shifted our focus and resources on tinkering and outsourcing in order to get the software right. Start-up businesses can’t afford to divert their attention from the sales and customer service that will keep their business running.
Network. While it’s true that anyone can expand their network to learn from other industry professionals (especially with access to Google+, Twitter, and Facebook), being part of a franchise network includes you in a community of other franchisees whose mistakes and successes you can learn from.
Branding. When you buy a franchise, you receive a piece of a very large pie. For instance, this year, Coca Cola is estimated to be worth $68 billion. McDonald’s is estimated at $32 billion. (Check out this article http://www.interbrand.com/en/BestRetailBrands/2012-Best-Retail-Brands.aspx to see the value of the world’s top brands) Brand power is made by a symbiotic relationship between franchisor and franchisee as they work together to build that brand and increase the size of their pie.
Having turned a start up business into a franchise, I have watched our franchisees avoid many of the hurdles my partners and I have had to overcome simply because they are part of an established system.
CEO, Five Star Franchising