When to Franchise vs. Go It Alone
20-11-2020
I’m Brody Sweeney, the founder of Camile Thai Kitchen, an award winning home delivery franchise. This blog is not about my business, but rather some advice for if you’re thinking about franchising, or indeed already involved in it – and want to learn more.
Join a Franchise, or Go It Alone?
When you’re thinking about starting your own business, many people will advise against investing in a franchise. “You have to pay huge fees” is a common reason I've heard, “you won’t be able to make your own decisions,” “you’ll be a small cog in a big wheel.” While these sentiments carry some truth, going the route of full independence (and risk!) comes with its own set of difficulties too. Which path you choose to take depends on many factors, such as personal vision, personality type and entrepreneurial goals. However, a good franchise can be a much better idea than doing your own thing for a large number of people - keep reading to find out why.
1. It will be easier to raise finance for a franchise
Banks love lending to franchises, because they are inherently less risky than lending to an unknown start-up. You’ll be able to borrow more (which isn’t necessarily a good thing – the more you borrow, the more you have to pay back!), but regardless, a franchise agreement will likely provide more favourable terms than you would be offered on your own.
2. You don’t have to reinvent the wheel
Starting a new business on your own is hard. Very hard. Figuring out how it works, sorting out your operating systems, coming up with ideas as to how to market the business, and figuring out what products to sell for takes time, and generally costs money as you try out one strategy over another. For some very few entrepreneurs it seems to come easy, but for 99% of us mortals it’s incredibly difficult to get a business going.
In a franchise, your franchisor and other franchisees have figured out the nuts and bolts of the business, and you can benefit from that knowledge and their experience of operating in your niche area. It means that instead of re-inventing the wheel, you are able to concentrate on building your business locally, hiring and training great talent, and being an outstanding ambassador for the brand.
3. You may be able to attract better quality employees
If I have learnt one thing from my years of experience in business, and specifically in franchising, is that the quality of your team reflects the quality of your business. I spend much more of my time in Camile on hiring and interviewing, then supporting and mentoring our team, than I did in any of my previous businesses.
And it stands to reason that people with many options will more likely go with an established brand (which will look good on their CV) than an unknown start-up. We work extremely hard in our business to create a great environment for our employees to thrive in, one in which they feel a special part of and which they are proud to talk to their friends and parents about.
4. It’s less risky. Period.
For 90%+ of small business owners, starting any new business is fraught with risk. Lots of good business ideas are just that – ideas – and translating ideas into successful businesses is not easy. Mistakes can actually bury you, or you can run out of cash before you get to viability.
Good franchises are the complete opposite. 90%+ of them will be successful. And here’s why. If your risk of failure is 90% or 80% or whatever it is on your own, it’s because you don’t fully understand at the start how the business will work. Your franchisor knows about site selection – lets say that reduces your risk by 10%. And your franchisor won't let you open if you don’t have enough money – lets reduce the risk by 10% for that too. They know what range of products to sell and for what price – let’s take 5% risk reduction for that. All these things the franchisor knows or does chip away at the risk, to bring it down to a relatively low level. There is always risk, but it would be top of my list if I was investing my life savings - or worse, someone else’s – to reduce that risk right down.
5. You will be trained how to run a franchise
Have you ever visited a new business, or indeed an existing business, where it was clear they hadn’t a clue how to run it? A chaotic new business opening means dissatisfied customers, and staff who cannot wait to go work somewhere else.
Having a good idea what to do, and as importantly what not to do – knowing what you should focus on at the beginning, and what can't wait for later, are vital elements in getting your new business off the ground successfully. A new franchisee training course is essentially a start-your-own business course, focused on your exact business.
Being properly trained from the off saves time, money and means you're more likely to hang on to your customers and staff.
6. You will avoid expensive mistakes (mostly!)
My experience of starting multiple businesses as a franchisor was that I made every mistake in the book (the smart thing was tending not to repeat them ?). Some of the mistakes nearly buried me, and it took much longer to get to profit than it could have done. When a new franchisee joins our system, they have the benefit of the learnings from these mistakes, and so should be able to avoid repeating them.
7. You are part of a bigger community / team
Starting a new business can be a pretty lonely experience. There’s not necessarily anyone that you can turn to for advice and guidance, and you're often faced with difficult problems without obvious solutions. In franchising you're in business for yourself, but not by yourself. Getting help with problems from your franchisor, but more importantly from your peers – other franchisees – can be more practical and satisfying than ploughing your own furrow. Being part of something big, the camaraderie, the feeling of belonging can all make the experience of running your own business more satisfying.
8. You will do more business and be more profitable
Franchised outlets tend to do more sales, and make more profits than independents, and that’s despite having to pay the franchisor royalty and marketing fees. Why is that?
Your franchisor will have fine tuned their business system. Gotten out of areas that aren’t a good brand fit, or that don’t make money. Figured out efficient ways of producing your goods or services, how to hire and train staff, and invested in the right things to make your business sign. It has the substantial resources of many franchisees contributing money into the system, to allow it to hire the right people and test new ideas. It’s very hard for an independent start-up to compete against that.
9. Your franchisor's brand means your business will get off the ground quicker
Name recognition can be a huge factor in helping get a new brand off the ground. Customers like shopping with the familiar, and if they have heard about your business, and especially if they have heard good things, it can really help in those critical early days.
10. It will be easier to sell on later down the line
Successful franchisees that are part of a successful brand, will find it easier to sell their businesses, and for a higher price than independent businesses. That’s because these types of business are more attractive to potential purchasers, than most independent stand-alone businesses. There is an old Irish adage about business “the day you buy is the day you sell”, in other words on the day you buy your business, understand how easy or not it will be to sell it, when you eventually want to.
Smart investors get that.
Lots of people can and do set up independent businesses on their own, and good luck to them.
For many others of us, we realise our limitations. We have the energy, the enthusiasm and the smarts to do our own thing, but prefer to do it with an experienced guiding hand, where our risk can be substantially reduced. If you’re one of them, then franchising has to be on your menu of options.
Good luck and stay safe,
Brody
