Blazing your own trail as an entrepreneur is becoming an increasingly popular choice for many people as the pandemic continues to transform workplaces. A great place to begin your entrepreneurial journey is deciding whether you should start a business from scratch or invest in a franchise.
Launching a startup presents some challenges, including finding a unique business idea, growing a customer base, establishing brand recognition, and managing cash flow without guidance. Nine out of ten startups will fail in the first ten years of establishment. Indeed, the road to business success is often filled with unexpected detours, dead ends and sleepless nights.
If you are not comfortable with the uncertainty and risks of starting a business from the ground up, investing in an existing brand is a popular option. Franchising provides a good balance between freedom of ownership and hands-on support from an established business model. It is a proven concept, as entrepreneurs buying a franchise have a higher success rate after five years than those establishing a new startup.
A recognizable brand name
To survive in a highly competitive industry, you need to build brand awareness for new businesses, which usually costs a lot of time and money. Unlike startups, franchises bring a level of brand awareness from day one. A recent report from Harvard Business School showed increasing customer retention rates by 5% increases profits by 25% to 95%. Therefore, having a well-known name is an important selling point for entrepreneurs looking to start a business.
Training and mentorship
Imagine if you’d never practiced swimming without a flotation device. Would you take a risk to jump headfirst into deep water? It would be much safer if you had a swimming coach providing assistance and advice while helping you stay afloat.
That’s what mentoring in franchising does for new franchisees. Not many people have the natural talents or expertise to master all business aspects in a startup world. But when you buy a franchise, you have a partner offering a balance between being a leader in your own right and receiving the vast knowledge and experience of launching, operating and growing a business.
Cash flow & financing
When you take over an existing franchise location, you assume control over an operation that already has a customer base and continued cash flows and profits. By comparison, a startup can take a long time to be profitable. If you are opening a new location, buying a franchise can offer greater security over working capital. As a franchisee, you don’t have to take time building a trusting relationship with suppliers since you will get the best quality materials at an affordable price thanks to a long-term relationship between the franchisor and their suppliers.
Some people may be concerned that investing in a new business tends to be less expensive than buying a franchise. However, it’s often easier for you to get financing to buy a company with a proven track record than to open a brand new one. A franchisee is also granted the legal right and license to use a franchisor’s trademark, proving very profitable.
If you ultimately decide that franchising is the right path for you, be sure to thoroughly research franchisors in your field of interest and their future development plans so that your business can enjoy continued growth and success.