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The Advantages of Owning a Franchise vs Starting From Scratch

Someone who is considering starting their own business is confronted with a choice right from the outset - start a business from scratch or buy a franchise. In both scenarios, you are your own boss and make all the important decisions that will ultimately determine how well the business does. But there are clear differences and clear advantages to owning a franchise.

Behind the Numbers - What Are the Chances of Success?

According to an exhaustive study carried out by the U.S. Bureau of Labor Statistics, approximately 20% of new businesses fail in the first 2 years of operation, nearly 45% fail in the first 5 years, and over 65% fail over the first 10 years. Less than a quarter of new businesses make it beyond 15 years.

Unfortunately, when it comes to franchises, we don’t have as clear a picture. Self-reporting studies with a small sample size suggest the success rate is much higher for franchise owners. But to date, no credible large-scope study has been conducted to give us reliable numbers on the success rate of new franchises.

Ultimately, buying a franchise is an investment. And like all investments, it comes with a certain risk.

Increase Your Chances of Success

We have accumulated enough data to gain a solid understanding of why so many new businesses fail to endure beyond the first few years of operation.

Take into Account the Relevant Demographics and Market Considerations

For many entrepreneurs, starting their own business is a passion project. They have an idea for a new company that is born from a hobby or from an anecdotal experience, and they set out to turn their passion into a thriving business. Passion is an important - if not essential - component to success in business. However, a person’s passion or hobby or anecdotal experience is not dependent on market considerations.

In order to ensure that your passion can become a viable business, first you need to do an exhaustive investigation of the market - where it stands currently as well as to trends that indicate future viability.

  • What competition is out there already?

  • Do the demographics of a particular location suggest the business can be sustained?

  • What are the buying habits and income levels of your potential customers? Do they suggest the new business can be sustained?

    There are many variables that need to be considered before launching a new business. It is unrealistic to expect an entrepreneur to conduct the market research as thoroughly as it needs to be done in order to successfully vet their idea for viability.

    This is one of the key advantages of owning a franchise - the exhaustive research on a location’s demographics and market viability are done for you.

    For example, if you wanted to start a home improvement company, you would first need to gather data on the local population - are their enough homeowners in the area? Does the median income level correspond to the product or service you are envisioning? How saturated is the home improvement market already in the area?

    For example, Kitchen Tune-Up reviews census data and adjusts based on the ages of homes, the average household income, and other pertinent factors to create and distribute viable locations for their franchise owners.

    The chances are that most entrepreneurs don’t conduct this level of investigation. They skip this important first step and simply follow their passion. This is one of the main factors that contributes to so many new businesses failing to make it beyond 5 years of existence.

    Draft a Realistic, Achievable and Flexible Business Plan

    Goals, strategies, timelines, investment funds, benchmarks - these key elements to mapping out the route of a successful business can be overwhelming for someone just getting started. More often than not, entrepreneurs set out with a business plan that is not grounded in a solid understanding of the current economic reality. The business plan is then quickly abandoned in favor of improvisation and reaction - rather than initiation and anticipation.

    It is understandable why so many entrepreneurs set out with a poor business plan - after all, they are navigating uncharted waters, and they’re doing this alone.

    When you buy a franchise, you are also buying a tried-and-true market tested business plan - one that has been tweaked and fine-tuned over years, if not decades.

    Be a Part of a Winning Team

    As a franchise owner, you are the boss. Your decisions and actions will determine how well the business does. However, you are also a part of a team. There are other franchise owners in different locations that can share their experiences and insights.

    And, often, when the franchisor is buying or negotiating with supplies for all their franchisees, they are able to get a far more competitive price thanks to the sheer volume of the purchase that comes with buying for several businesses as opposed to one.

    Being a part of a winning team has its advantages. But it does not suit everyone’s personality type. There are simply entrepreneurs who aren’t interested in being part of a team and for them, owning a franchise is probably not a good idea.

    The Takeaway

    Entrepreneurs who decide to own a franchise rather than start from scratch greatly increase their chances of success. They are joining a winning team and can get training and support when needed. Plus, they benefit from the increased buying power a franchisor has when negotiating with suppliers.

    While the advantages may seem cut and dry. The choice really comes down to personality type. If you are a lone wolf or are seeking the thrill of venturing out into uncharted waters alone, the safety and benefits of owning a franchise should be of little interest to you.

    On the other hand, if you find the idea of being part of a team appealing, owning a franchise might be the right path for you.

    It’s worth exploring your options. Contact Kitchen Tune-Up and find out more about the franchise opportunities available to you.

     

    Published: by Jill Hansen

    Category: Informational