Welcome to the Small Business Ideas Forum! We are a community of over 100,000 small business folks with over 163,000 posts for you to browse. We pride ourselves on being the friendliest forum you will find and we'd love to have you as a member of our community. Please take a moment and register for a free account. If you need any help, please contact Chris Logan.

Small Business Ideas Forum

Small Business Ideas Forum

A friendly place to share small business ideas and knowledge, ask questions, find help and encourage others that are involved in the small business industry. Topics include small business marketing, generating revenue and small business computing.

Go Back   Small Business Ideas Forum > Inspiration & Ideas > What Type of Business Should I Start?
Register Search Today's Posts Mark Forums Read

Reply
 
Thread Tools
Old 26th January 2011, 08:33 PM   #1
AngelBiz
VIP Contributor
 

Join Date: May 2010
Location: Detroit, MI
Posts: 1,354
Default Benefits Of Buying A Franchise Versus Independent Business

Franchising model helps those who want to get into small business; but do not have prior experience or do not want to start from scratch. These people like the fact that buying a franchise versus independent business will reduce the risk of failure. At the same time, they also question the value provided by franchisor for the amount of money they have to pay to them in terms of initial franchise fee as well as ongoing royalty.

As with any business transaction, it is important that you understand what you are getting in return for the money paid to the franchisor. While franchisor does provide benefits in exchange for the fees they receive; not all of them are equal. In addition, different franchises provide value in different areas depending on their strengths and strategy. You should know why you are buying one franchise over others and set proper expectations before making decision.

In our experience, franchises provide value in 4 categories:

Read more - http://www.angelbusinessadvisors.com...dent-business/

AngelBiz is offline   Reply With Quote
Register or log in to remove this ad.
Old 27th January 2011, 02:47 AM   #2
Biz Optimizer
Member
 
Biz Optimizer's Avatar
 

Join Date: Mar 2009
Posts: 76
Default complex choice - not for the "no prior experience"

It is my experience franchising is not necessarily safer. Even the SBA came out to quiet the fable that franchisors touted: franchises were "less likely to fail". What I found was the franchise is less likely to fail, as the franchisor can re-sell the franchise over and over until they find someone who can make it work. There may be 10/20 franchisees that painfully failed trying to get one started, but the franchise still exists because it was resold.

I've seen stats that many of the financed franchises fail at a rate of 50%+. And to be fair, for every 50% failure there are those below 10%. In my experience, it is those that go in thinking they don't have to understand that are at the most risk - franchise or not. But they are often guided to the franchise world with it's false safety net.

Don't get me wrong, there are cases where the franchise model is the right fit - and a GREAT fit. But, it is a complex decision that can't be made on generalities. It probably shouldn't be made by the "no prior experience" person that is tagged as "right for a franchise" - especially without INDEPENDENT guidance.

For every franchise passing along lower costs - there are those that force the frachisee to purchase through them at a premium. This increases their profit, but adds more risk to the franchisee. For every franchise with good operational rules - there are those with loose ones at best. For every one with a good brand, there are 10 with weak brands and little/no brand support. How does this "no prior experience" person make this decision alone? While good operational procedures reduce risk - royalties increase them. It is complex and not for the "no prior experience" alone.

And then beyond the risk, the "no prior experience" person has to consider whether the investment provides the appropriate return to compensate for risk. The franchisee has to make a return on their investment, over and above royalties - royalties that often equal the average company's profit. They have to make this higher profit in their market - which may be very different than the franchisor started their company.

If you go in blind, you can agree to terms that doom you before you even start. This is true in the franchising and purchasing independent businesses. What you don't know can and likely will hurt you. If you don't know - seek the advice of those that do. Find the right choice for you - franchise or not.

There is no greater joy than buying that first business. Likewise there are few pains that rival watching with great pain/anquish - astonished at how fast the company that was supposed to make money sucks it all away.

Biz Optimizer is offline   Reply With Quote
Old 27th January 2011, 09:21 PM   #3
AngelBiz
VIP Contributor
 

Join Date: May 2010
Location: Detroit, MI
Posts: 1,354
Default

Quote:
Originally Posted by Biz Optimizer View Post
It is my experience franchising is not necessarily safer. Even the SBA came out to quiet the fable that franchisors touted: franchises were "less likely to fail". What I found was the franchise is less likely to fail, as the franchisor can re-sell the franchise over and over until they find someone who can make it work. There may be 10/20 franchisees that painfully failed trying to get one started, but the franchise still exists because it was resold.

I've seen stats that many of the financed franchises fail at a rate of 50%+. And to be fair, for every 50% failure there are those below 10%. In my experience, it is those that go in thinking they don't have to understand that are at the most risk - franchise or not. But they are often guided to the franchise world with it's false safety net.

Don't get me wrong, there are cases where the franchise model is the right fit - and a GREAT fit. But, it is a complex decision that can't be made on generalities. It probably shouldn't be made by the "no prior experience" person that is tagged as "right for a franchise" - especially without INDEPENDENT guidance.

For every franchise passing along lower costs - there are those that force the frachisee to purchase through them at a premium. This increases their profit, but adds more risk to the franchisee. For every franchise with good operational rules - there are those with loose ones at best. For every one with a good brand, there are 10 with weak brands and little/no brand support. How does this "no prior experience" person make this decision alone? While good operational procedures reduce risk - royalties increase them. It is complex and not for the "no prior experience" alone.

And then beyond the risk, the "no prior experience" person has to consider whether the investment provides the appropriate return to compensate for risk. The franchisee has to make a return on their investment, over and above royalties - royalties that often equal the average company's profit. They have to make this higher profit in their market - which may be very different than the franchisor started their company.

If you go in blind, you can agree to terms that doom you before you even start. This is true in the franchising and purchasing independent businesses. What you don't know can and likely will hurt you. If you don't know - seek the advice of those that do. Find the right choice for you - franchise or not.

There is no greater joy than buying that first business. Likewise there are few pains that rival watching with great pain/anquish - astonished at how fast the company that was supposed to make money sucks it all away.
Biz Optimizer

I agree with your points. As with anything there are always two sides of the story. For every successful franchise there are those who do not make it. At the end of the day it is the franchisee who can make or break his business. In fact, I had written another article on the myths and realities of franchising where I addressed some of the points you have raised here. You can find the article here - http://www.angelbusinessadvisors.com...f-franchising/

My point was that franchising makes it somewhat easy to jump start your business because of some of the ground work they will have already done in terms of marketing / brand, operating policies. etc. Of course you have to pay for it in terms of royalty. For someone who has not been in business in his life franchising makes it somewhat easy. Now, one does have to look out for the franchises that are not proven yet and can burn their franchisees; particularly the novice ones. So like you mentioned you cannot generalized for everyone. Like everything failure or success is ultimately determined by individual running the business than the franchise.

AngelBiz is offline   Reply With Quote
Old 28th January 2011, 02:51 PM   #4
dowson12345
VIP Contributor
 

Join Date: Nov 2010
Posts: 145
Default

To set your own business is very hard and time consuming and it is better to start franchizing business as you are likely to have some support.

__________________
D&G Shoes |Cavalli Dress
dowson12345 is offline   Reply With Quote
Old 29th January 2011, 09:13 AM   #5
Biz Optimizer
Member
 
Biz Optimizer's Avatar
 

Join Date: Mar 2009
Posts: 76
Default just expressing the risks

Quote:
Originally Posted by AngelBiz View Post
Biz Optimizer

I agree with your points. As with anything there are always two sides of the story. For every successful franchise there are those who do not make it. At the end of the day it is the franchisee who can make or break his business. In fact, I had written another article on the myths and realities of franchising where I addressed some of the points you have raised here. You can find the article here - http://www.angelbusinessadvisors.com...f-franchising/

My point was that franchising makes it somewhat easy to jump start your business because of some of the ground work they will have already done in terms of marketing / brand, operating policies. etc. Of course you have to pay for it in terms of royalty. For someone who has not been in business in his life franchising makes it somewhat easy. Now, one does have to look out for the franchises that are not proven yet and can burn their franchisees; particularly the novice ones. So like you mentioned you cannot generalized for everyone. Like everything failure or success is ultimately determined by individual running the business than the franchise.
I had read the other posts and wasn't intending to disagree - only to express more loudly the risk to those that don't know. I've seen too many cases of those that thought they could do it on their own - franchised and not. I've seen their agony of failure. They are so focused on the making money part of it and expecting it will somehow just happen - they are blindsided by the anguish when it falls down around their head.

And today we even have all the "licensing" going on - that wants to claim to be like franchising as far as the safety - but doesn't want to follow all those restrictions. I just wanted to express that it is a dangerous place for people that haven't had prior experience and they should be careful - not assume a franchisor will keep them from trouble. Maybe ask for and get advice from someone who can explain the finances and risks.

I even see some of the "TOP RATED" franchises that allow someone to put one in an area where it would be hard to support - and then put another right down the road. Like any product, there are plenty that are willing to take your money and leave you holding the bag. The franchisor knows they both can't survive. Yet they end up with franchise fees and some royalties - though the franchisee may have never seen a dime.

Again - not to disparage franchising - some create a very controlled environment for the newby - but many don't. Some provide a loose environment leaving room for entrepreneurs to make it their own. So I was just trying to implore those that don't know to get guidance along the way - I reiterated many of your points. I just expressed them through the eyes of someone who's seen the failures.

Guess it is just harder for me to see the guy fail who didn't know what he/she was getting into, but got the notion from articles it was safe. Hope that our debate guides some to seek advice from brokers/consultants/accountants/lawyers when they don't know. Unfortunately, it is often hard for us to see what is we don't know...especially harder if articles leave a glimmer of false hope. In business, it isn't luck.

Many failures don't know that they were doomed to fail when they signed the paper - yet they struggle in vain to "fix" it afterwards. If my response got a few to ask a few more questions - maybe seek guidance - that was the intent.


Last edited by Biz Optimizer; 29th January 2011 at 09:16 AM. Reason: spelling
Biz Optimizer is offline   Reply With Quote
Old 29th July 2011, 10:44 AM   #6
Candice Robins
Member
 

Join Date: Oct 2010
Posts: 65
Default Franchise

Investing in a franchise is a good compromise for people interested in small businesses but lack the resources or incentive for entrepreneurialism. It decreases the risk of failure for the initial opening and ensures a stable business plan. However, it is important to be sure that benefits and expectations from the franchiser are met and maintained.

__________________
Search Engine Marketing
Candice Robins is offline   Reply With Quote
Old 2nd August 2011, 01:41 PM   #7
DoodyCalls
Member
 
DoodyCalls's Avatar
 

Join Date: Jul 2011
Posts: 7
Default

A good franchise system can mitigate a great deal of the entrepreneurial risk inherent in business ownership, but success ultimately comes down to the individual.

On a related, but slightly different note: Before making any decision about starting or buying a business, it's important for every entrepreneur to understand that in business, the core products and services being sold are not everything. In fact, in many cases they are secondary to almost everything else.

Take Zappos as the classic example: They sell shoes, but it's not everything they do. Ultimately, Zappos is a customer service company that just happens to sell footwear. Their core product is secondary to their business. Chances are, they could be selling any other consumer product and they would still be Zappos.

A successful business depends on far more than selling a great product or service. It requires an unrelenting focus on every system that supports and facilitates the sale. It requires the entrepreneur to build an entire organization.

What does this mean for prospective entrepreneurs?

Let's say you love canoes and want to spend the rest of your life building them. If that's the case, then you will probably be happier working for a canoe-building company than you will be by starting one yourself. This is because founders must grow beyond their product or service. They must become company builders, not canoe builders.

This is a point that hits home for us. We've written about it in our blog: In Business, The Product/Service is Secondary

DoodyCalls is offline   Reply With Quote
Old 3rd August 2011, 07:42 AM   #8
AngelBiz
VIP Contributor
 

Join Date: May 2010
Location: Detroit, MI
Posts: 1,354
Default

Quote:
Originally Posted by DoodyCalls View Post
A good franchise system can mitigate a great deal of the entrepreneurial risk inherent in business ownership, but success ultimately comes down to the individual.

On a related, but slightly different note: Before making any decision about starting or buying a business, it's important for every entrepreneur to understand that in business, the core products and services being sold are not everything. In fact, in many cases they are secondary to almost everything else.

Take Zappos as the classic example: They sell shoes, but it's not everything they do. Ultimately, Zappos is a customer service company that just happens to sell footwear. Their core product is secondary to their business. Chances are, they could be selling any other consumer product and they would still be Zappos.

A successful business depends on far more than selling a great product or service. It requires an unrelenting focus on every system that supports and facilitates the sale. It requires the entrepreneur to build an entire organization.

What does this mean for prospective entrepreneurs?

Let's say you love canoes and want to spend the rest of your life building them. If that's the case, then you will probably be happier working for a canoe-building company than you will be by starting one yourself. This is because founders must grow beyond their product or service. They must become company builders, not canoe builders.

This is a point that hits home for us. We've written about it in our blog: In Business, The Product/Service is Secondary
While I agree with you that the business is more than just products and services I think it needs to start with product. If the products is not good to begin with no amount of marketing will help you sell it. A classic example of this is Apple. They come up with great products that customers fall in love. They augment that with overall customer experience and marketing, but it begins with the product.

In summary, I believe a great product or service is a necessity, but not sufficient.

AngelBiz is offline   Reply With Quote
Old 3rd August 2011, 07:49 AM   #9
Gary Barzel
VIP Contributor
 
Gary Barzel's Avatar
 

Join Date: Jan 2011
Location: Clifton, NJ
Posts: 165

Default

You need to ask yourself a few questions before going into a franchise business. Does the prospective franchiser have a good background and reputation? Has the franchise operated successfully within several different locations for at least 3-5 years? Are there any complaints or litigation's against it? Is there a solid business model that is both doable and potentially profitable? Both the Federal Trade Commission and the Better Business Bureau have information on various franchises for prospective franchisees needing to conduct background research, so make sure you do your homework first.

__________________
Gary Barzel - Manager of Business Development
FastUpFront - Small Business Loans & Financing
Gary Barzel is offline   Reply With Quote
Reply   

Bookmarks


Similar Threads
Thread Thread Starter Forum Replies Last Post
need help starting business racheldianatina General Small Business Issues 24 11th December 2015 07:12 PM
Help setting up an LLC for the first time wahooka General Small Business Issues 6 12th October 2011 07:41 AM
Separate Entity for A Franchise Business? iKwak General Small Business Issues 1 14th October 2005 07:21 AM
New Member: Benefits for Small business DentalplanUSA New Member Introductions 4 3rd May 2005 03:36 PM



Thread Tools

Get Updates
RSS Feeds:
RSS Feed for What Type of Business Should I Start? RSS for this Category Only: What Type of Business Should I Start?

RSS Feed for Small Business Ideas Forum RSS for Entire Forum
Forum Rules


Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump


Small Business Ideas Forum


 
At Your Business - Small Business Directory
Free Business Forms - Prewritten Documents
 
Search Engine Guide
Small business guide to search marketing

 
Small Business Brief
Fetching the Best Small Business Info


Used Values - Free Links
Blue Book





All times are GMT -5. The time now is 01:58 AM.


Powered by vBulletin® Version 3.7.3
Copyright ©2000 - 2020, Jelsoft Enterprises Ltd.
Copyright 2004 - 2018 - Privacy