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What Is a Franchise Business, and What Makes It Different From a Startup?

November 29, 2018
What Is a Franchise Business, and What Makes It Different From a Startup?

The true success rates of franchises have long been studied and dissected by those inside and outside of the industry. According to John Pratt of the law firm Hamilton Pratt, speaking on What Franchise, “it has always been said that 80 per cent of new businesses fail within five years and 80 per cent of new franchise businesses succeed in the same period”. While the figure is often debated, there is no doubt that there is security in a franchise business that startups simply don’t experience.

Franchises are following a blueprint; by definition, they are an extension of a proven model. This gives them access to comprehensive market research, and knowledge on what works and what doesn’t, that a new business would have to figure out largely on their own.

If you’re considering a business venture, we’ve provided an analysis of both strategies.

What does a franchise business involve?

Running a franchise means adhering to the guidelines set out for you by a franchisor, yet ultimately being your own boss. Unless you have your own capital, you’re still going to need to apply to a bank or lender for the necessary funding of your operation – however, a good franchisor will support you throughout your entire application process with business advice.

Planning your financial forecasts and displaying a clear understanding of the market is your responsibility, but you will have a wealth of knowledge in the parent company to utilise as you go.

Secondly, you will need to have a marketing strategy. Self-promotion is as important for a franchise as it is for a new enterprise. It’s common for franchisors to allocate advisors to work with you in this area. For example, with Rainbow International, you are given access to a whole host of marketing resources. Franchisees can visibly see what has worked for those before them, including what specifically resonates in your chosen territory.

Networking is expected from most franchisors too. As a franchise business, you need to be able to drum up your own clients and prospects. Involving yourself in local groups in the community maximises your exposure and will garner you new clients (provided your target audience is in attendance or represented).

What are the common misconceptions of owning a franchise?

The majority of misconceptions that prospective franchisees have are over their expectation of success. Those who apply to join the ranks of a franchise are often taken aback if they don’t make the cut. As an applicant, you need to choose a franchise business that is looking for your skill set. It generally isn’t enough to have vague business experience – franchisors will often outline their preferred background and attributes on their websites or application documents.

In his 2016 book, The Franchising Handbook, Carl Reader dedicates an entire chapter to ‘shortlisting’. He emphasises the importance of determining which franchise best suits you. There are various ways for you to interact with your chosen type of franchise, including exhibitions, franchise magazines and online directories. There are clear avenues available for you to reasonably research, so apply to those businesses that suit you to ensure your success.

The second biggest misconception of owning a franchise is that you will be provided with clients upon your introduction to an area. Although not always the case, with the majority of franchises, your role is to build up the business in your chosen location. Unless there is an overflow of clients, or if you’ve purchased a territory for resale, you’re expected to develop your branch of the organisation yourself (with a great deal of support, of course!).

Is there a minimised risk with franchising compared to a startup?

Yes, although perhaps not for the reason that you would think. Franchise businesses do have a higher chance of survival over startups, but it’s more than that. Franchises are in a position where they have a greater degree of sway with lenders. Banks are more trusting of a methodology that is proven, and your franchisor may be able to recommend those that will grant you a higher loan based on your industry.

Consider, too, that you will need to adopt practices to keep your organisation compliant as you grow. That may be how your health and safety precautions protect you when on-site. Alternatively, it could be your HR policies and procedures that you have in place. The majority of franchisors will have an external partner that they can recommend when you sign up. This may seem inconsequential, but adhering to the policies provided by a HR or health and safety team will keep you better protected than most SME businesses.

Lastly, a franchisor won’t usually choose a location unless they feel it would be a good opportunity for development. They will have guidance notes on your broad location, and you can use this as a basic strategy that you can flesh out and mould to your strengths and weaknesses.

If you are looking to enter a commercial venture and are considering a franchise business opportunity, then contact us today. You can speak to a member of our team via our online form.