Franchise vs. Startup: Pros & Cons

Franchise: A ready-made roadmap to riches; Startup: Where you build your own path!

You’re sure that you’d like to be your own boss, but you’re not sure if it would be better to establish a new company from scratch or purchase an existing franchise. You can choose the best solution for your position and personality by making a summary of the benefits and drawbacks of franchise vs startup.

In this post, we discuss the primary challenges that franchise companies must face as well as the steps that franchise executives can take to seize the opportunity presented by these hurdles.

Pros and Cons of Owning a Franchise

As a newbie, a franchise is a business arrangement in which a franchisee, an independent entity, purchases an already-existing company endeavor from a franchisor and establishes their own location. Let’s talk about the pros and cons of owning a franchise.

Benefits of Buying a Franchise

When done right, franchising offers the chance to invest in an established, profitable business model that has a strong supply chain, a track record of accomplishment, an effective training program, and professional technical assistance. With success percentages as high as 90%, some of the most well-known franchises have very low failure rates.

Buying a franchise gives you access to a fully operational firm that is just waiting for you to take over. Franchising offers a quick and simple route to become a business owner if you have good attention to detail, can follow instructions, and feel at ease with established procedures.

You could be able to buy an already-running franchise or start from scratch in a new site, depending on whatever franchise you choose.

If you choose the first option, you can take over a company that already has a customer base, financial flows that are documented, and employees.

Also, franchising offers a well-defined exit strategy. You can sell an established, well-known company to another prospective franchise owner when you’re ready to retire. Would you rather launch a fully functional company right away, or would you rather build your own? In either case, you could consider franchising.

Disadvantages of Wining a Franchise

Franchising has its share of difficulties. Acquiring a franchise can be a costly endeavor, frequently involving expenditures between $500,000 and $1 million. Additionally, franchises have recurring costs that lower your take-home income. There are recurring fees to be paid to the home office, demands (like remodeling at a hotel or lowering pricing for a promotion at a restaurant) that deplete profits, and supplies that frequently need to be bought at exorbitant costs.

Even basic numbers on franchise failure rates, which range from 10% to 20% on average, can be a little deceptive. While some franchises crash and burn at a rate of more than 40%, others fail at a rate of only 1%, potentially giving you a 99% chance of success. It is obvious that not all franchises are made equal, so before you commit, do your research. It’s also critical to remember that investing in a franchise is akin to acquiring a success blueprint, which is only effective if followed.

Pros and Cons of Starting Your Own Business

Owning a franchise is a wise decision if you want to develop your knowledge and abilities under the guidance of knowledgeable mentors.

It could be advisable to launch your own company if you want to take a more independent approach to your quest. The most important advantages and disadvantages to take into account for franchise vs startup when choosing are shown in the table below.

Pros of Starting Your Own Business	Cons of Starting Your Own Business
It is a wonderful way to explore employment options if you have no experience in the business.	Although you are the franchise's owner and boss, your freedom and inventiveness are constrained by the franchise's rules and guidelines.
The business already has a strong brand, which makes it simpler to attract customers and turn a profit.	High initial costs may apply, and certain businesses demand payment in full and without the use of borrowed funds.
You're investing in a well-known company whose procedures, systems, and operations are set up to support your success.	If you have to pay rent, royalties, service fees, and other expenses, the costs can mount up. This could become a hardship if you don't have access to funding.
Plenty of room to grow your business by acquiring other franchise locations.	The franchisor has access to and shares all financial data.
Franchisors offer practical assistance and direction.	Not every franchisor offers the same degree of direct assistance. It can be difficult if you don't have any business expertise at all.

Is Buying a Franchise Better Than Starting Your Own Business?

Buying a franchise can have several advantages over starting your own business, including:

Support: Franchisors provide ongoing support, training, and guidance
Established systems: Franchises have proven business models, training programs, and supply chains
Brand recognition: Franchises benefit from established brands and customer loyalty
Lower risk: Franchises offer a turnkey business model that can help lower risk
Economies of scale: Franchising networks can achieve cost advantages through bulk rates and credit opportunities

FAQ's

Are franchises more successful than small businesses?

Franchises generally have a higher success rate than small businesses, with some studies showing a success rate of around 90% compared to 15% for small businesses. According to Budget Blinds, 85% of franchises are still in business after five years, while independent small businesses have a success rate of 80% after the first year, 50% after five years, and two-thirds fail by ten years.

Is owning a franchise a good side hustle?

The tested business plan that franchisees adhere to is one of the advantages of pursuing franchising as a side gig or in general. When you sign a franchise agreement, you are joining a company that has already progressed beyond the more challenging stages of beginning a business from the ground up.

Can I become a millionaire from franchising?

Yes, it’s possible to become a millionaire from franchising, but it’s not guaranteed. It requires growing into a multi-unit organization, which can be achieved with the right knowledge.

Final Thoughts

Franchises are bought because the business concept is successful. It provides cautious business owners with a reliable, tried-and-true methodology for managing a profitable company. They also have to follow someone else’s business plan. Starting your own startup offers the chance to achieve both financial and personal freedom for individuals who have a great idea and a firm grasp of business operations. The option of which model is best for you belongs just to you.

To collect more information read the below blogs regarding franchising: