Franchise Weaknesses & Strengths
After dreaming about owning your own business for years, you’ve finally saved up the capital to launch your new venture and made the decision to jump into the business world. Your final decision is whether to purchase a franchise or launch a stand-alone business of your own. Whether you prefer life as a franchisee or a solo entrepreneur is largely up to how you view the strengths and weaknesses of a franchise operation.
Franchises with successful locations have had time to iron out their business plan, address unexpected problems and make sure operations run smoothly. Because of this, franchisees plug directly into a finely tuned system and don’t need to spend the first few months they’re open massaging their business model as sole proprietors do. Because of this, franchises have a lower failure rate than independent startups do.
A franchise’s experience and success rate come at a definite price. Franchise fees for large corporations can be huge: Franchisees pay $2 million just to get the rights to the Krispy Kreme name, according to Valencia College. After purchasing a location, a franchisee must cover all normal startup costs associated with opening a new business. Because of this, many franchisees end up investing more startup capital into their businesses than do solo ventures, according to Julie Bennett of “Inc.” magazine.
Any business owner can agree that advertising is an expensive commodity. That expense is shared by all members of a franchise when the home office develops marketing campaigns, allowing individual franchisees the advantage of plugging into a world-class marketing machine with a budget to match. For example, McDonald’s commanded a $2.3 billion marketing budget in 2010, according to “The Chicago Tribune.” No startup burger joint can compete with these resources.
Allowing the head office to make business decisions that affect your franchise is part of buying a franchise contract. Because most franchise agreements cede everything from pricing guidelines to décor and approval of a location to the franchiser, franchisees may be ordered to make changes to their location, their business model or their operations without the leeway that independent entrepreneurs take for granted.
Regardless of the specifics of their franchise agreements, all franchisees still own their own companies. They’re still their own bosses and, as long as they follow the guidelines set forth by their franchise agreement, they have leeway to run their location as they see fit.
A franchisee owns his own location, but he doesn’t operate completely free from other owners. Because of this, poor service, shabby locations or inferior products delivered by other franchisees can impact the entire chain. This so-called coattail effect means that franchises with less oversight and corporate control may allow irresponsible franchise owners to harm the company’s brand.