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Franchise vs Startup: What's More Suitable for You

Franchise vs Startup: What's More Suitable for You

Wednesday December 12, 2018,

5 min Read

A struggling economy has historically been proven to encourage entrepreneurship and new start-up businesses. The time is better than it has ever been for anyone to start doing their own thing. Whether we are tired of working for someone else or simply have our own idea, the information is out there. In the world of internet, classical forms of education do not hold a monopoly over the information market anymore. Anyone can start from scratch, learn their way up and raise a successful idea to fruition. If we have the motivation, time, and are willing to put in the hard work, the sky is the limit. The choice falls on us to choose whether we want to buy a franchise or found a start-up from scratch. For us to decide what the best option is, comes down on our particular situation and chosen industry and niche. In order for us to make that choice, we need to inform ourselves and understand the advantages and disadvantages of both. Only then can we make a calculated decision. Here are the pros and cons for both options to help us make this crucial decision.

1. The definitions

First things first, what are start-ups and their more complicated siblings, franchises? Startups are quite common lately, and more straightforward. A startup is a company that is in its infancy, primarily funded by venture capitalists. These companies try to capitalize on developing a product or service that they have strong reasons to believe is in high demand. At first, these are funded by their entrepreneurial founders, i.e. you. Later on, due to limited revenue or otherwise high costs, these businesses are sustained from crowdfunding operations. That is the gist if of it. On the other hand, franchises are more of a type of licenses granted by the franchiser. In that case, we, a franchisee, acquire the rights from a business (the franchiser) for an agreed upon fee. Now, we have access to proprietary knowledge, processes, and trademarks, all for the ability to sell and service an already established product or service. And, all of that under our business’s name. In exchange, we (the franchisee) pay for the licensing and an initial start-up fee.

2. Start-up, pros and cons

Now we can get into the bread and butter. When it comes to start-ups innovation and creativity are a requirement. No one is going to back up our idea with hard cash if it is something mundane. We have to come up with a unique product or service that will bring a lot of value in everyday lives. The initial costs can be rather small. We can run our business form our basement, garage or something similar. And that can go on for as long as we seem fit and realize the need for an upgrade. Basically, the freedom we can have with founding a start-up is unparalleled, we are our own boss in all areas. On the other side, with great freedom comes great uncertainty. Will our product or service be well received, will it sell good, and will it be sustainable? Statistics are not favorable, as 25% of start-ups do not survive the first year and about 50% make it to year five. For it to survive, we alone have to make it happen, no safety net to fall back on. Long hours, constant effort and learning are all part and parcel with a start-up.

3. A franchise, the advantages and challenges

If all of this seems like too much, no one can blame you. That is where franchising comes into place. It allows us to buy into an existing, proven business model with all the advantages (and disadvantages) it brings. With a license, we can also get the necessary training programs, solid supply chains, and expert support. It is quite different from a start-up, there is a lot of general support and backbone. There are even services designed to connect us with franchise opportunities, depending on where we want to operate. For instance, we can sift through relevant franchise opportunities in Brisbane online, which ties in with our intro being so internet-focused. On the other hand, franchising does come with a cost. Purchasing one can be an expensive move to make, but also have ongoing expenses that reduce our bottom line. There might also be plenty of hidden conditions as well. Most likely we would have to conform to various rules imposed by the franchiser, curbing our freedom of operation even further. In short, we get much less freedom on how we do things in exchange for extensive support and safety.

The bottom line is that people purchase franchising licenses because the models are proven and they work. And for those with big ideas and even bigger knowledge and determination, launching a start-up is an opportunity of a lifetime. After all, with the right knowledge, we can one day dare to not only dream, but become a franchiser ourselves.