Jim Judy

Jim Judy

Franchise Business Consultant
Franchises Less Risky Than Startups

Are Franchises Less Risky Than Startups?

As a franchise consultant, I get this question regularly from candidates trying to decide if they should explore entrepreneurship through franchising or try opening an independent business. Traditionally, franchises have been considered safer bets than startups because franchise businesses offer unmatched levels of support along with proven business models of success.

 

However, do a search of success rates for franchise business vs. independent startups and you’ll get a wide range of answers, none of which can be considered conclusive. However, a recent study posted on entrepreneur.com revealing why small businesses generally fail confirms what I’ve believed all along:

Franchisees SHOULD have higher success rates than independent startups.

 

Why should? Because some candidates select franchises for the wrong reasons without doing their due diligence. And while franchise businesses offer a blueprint for success, they can’t make franchise owners follow it or take advantage of all of the resources they have available to them.

 

To increase your chances of success as a franchisee, you must follow these steps.

 

Select the right business for you and your community. Trying to select a franchise by searching the internet or because you like a product or service personally, can be a disaster for myriad reasons, but money problems and market apathy are huge. According to the study on entrepreneur.com, 82 percent of small businesses fail because of cash flow problems and 42 percent because there was no market for their product or service.

 

If you’re starting your own business, how do you know how much money you’ll need to survive? What indicators do you have as to whether or not there is a market for your product in your community?

 

Franchises have this information available. They can tell candidates how much capital they’ll need to start, how much they’ll need for the first year and how to make sure they don’t run into cash flow issues. They also have experts who know what elements must exist in an area for a franchise to be successful, including business location, density of market and necessary income levels for the community. Exploring these variables with franchise candidates is one of the most important things we cover to make sure they steer clear of two of the major reasons businesses fail.

 

Follow the success model of the franchise. The reason that a company is able to franchise and succeed in so many places is because they have already developed their model for success, but believe it or not, some franchisees still insist that they know better. In a survey of 101 failed business owners, almost one in five (17 percent) said they failed because they lacked a business model. Another 18 percent said it was due to pricing and cost issues. Franchises not only offer a business model; but a proven business model. Franchisors help keep costs down by working out deals with suppliers and offering guidance as to what equipment is necessary and what isn’t. They’ve already learned from their mistakes and are passing on those lessons to you so you don’t have to make them again.

 

Take advantage of the franchise’s support system. Check out this laundry list of why small business owners say their business failed:

 

  • 23 percent failed because they didn’t have the right team running the business.
  • 14 percent failed because of poor marketing.
  • 9 percent failed because of a bad location.
  • 8 percent failed because they didn’t use their network or advisors.

 

Franchise systems offer support in all of these areas, they have corporate teams, teams in the field and other franchisees available for you to ask questions and take advantage of resources. They offer conferences, webinars, on-site visits and third-party resources to help you build your team, market your business and choose your location among other services. Your network of support is in the tens if not hundreds, you just need to use them.


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