You are at a crossroad of sorts, when you have made up your mind to get into the entrepreneurial zeal, and the dilemma of starting something of your own or taking up a Franchise business is gnawing in your belly. I understand the same, having gone through the dilemma and solving it for myself. Refer to my article 5 Reasons to Start Your Own Business to get my perspective on when it makes sense to start your own thing.
To help you with the perspective of what makes a Franchise Opportunity more attractive, read through the 8 Reasons to Start a Franchise Business.
- Research & Test Pilot: Someone has already put in the time, money and effort to understand the industry, market size, business opportunity, advantages, disadvantages, margins, investments, and many other such things. The Franchisor has put in the investment for the initial few set-ups cum projects and has seen the business work on the ground. On your own this would have been a big risk as their wouldn’t have been any going back after the investments have been put up, and god forbid you made the wrong choice, you would be stuck with it for life. The advantage of a Franchise business is that you learn everything about the model from the Franchisor and if required some may even have detailed discussions with existing Franchisee partners where you can talk about daily operations and understand if this suits your purpose.
- Learning & Evolution: Business models evolve with time. Meaning when the Franchisor would have started his first project vs when he might be on his 50th or 500th project, the business model would have evolved much more. Eg – Tumbledry is a laundry and dry clean Franchise business, but they evolved from a Laundry only brand to a Laundry + Dry-clean Brand within the first 6 months of their first store going live. After the evolution, their partners generate more revenues and are much happier having a larger pie of their customer’s business. The key benefit here being, that the Franchisor, by virtue of being in this business, would have had immense learnings on what is working and what is not, and basis the same would have tweaked / evolved his business model to make it a profitable enterprise for all its Franchise partners. Whereas doing the same for you would always have at the cost of the learning curve.
- Brand Pull: Imagine starting your own store and creating awareness about your brand and waiting for customer calls, vs starting your Franchise store and getting customer calls and walk-ins on day 1 of business. The latter is possible with a Franchise brand as the same has been in existence for a while and customers’ awareness is good. The savings on the marketing monies and faster break evens are the distinct advantages that one gets when one chooses to Partner with a Franchise brand as the Brand pull brings customers faster. Creating a brand of your own sounds extremely exciting and bold, but it is neither for the faint hearted nor for someone without deep pockets.
- Training & Know-How: The Franchise brand has been in existence and is ready to kick-start your operations. The SOPs (Standard Operating Procedures) for project launch, equipment installation, briefs for the contractors, Branding elements etc. is ready and can be executed at a break neck speed. Time to market or Time to Go-Live is very efficient when all the SOPs are clear. Next is when you start running the store and kick-off the operations. The Franchisors generally provide extensive training, (sometimes even trained manpower), and train you and your staff in sales pitch, operating the CRM, accounting, delivery of product or service and other operational aspects. In case you start your own business, you learn all of this step by step as you move along, sometimes creating inefficiencies in your operations. Citing the example of Tumbledry Franchise, it has an extensive 255 point training checklist that it executes for all its franchisee partners upon launch thus enabling them to be productive from day one of business.
- Marketing: Developing marketing elements like a Website, Mobile app, and creatives for various occasions like Diwali, Eid, and Christmas are a cost line item. However when you partner with a Franchise brand, all these come as a part of the package at either nil or very nominal cost. Most of the Franchisors have their own Digital marketing teams in place who create and run brand awareness campaigns or business development campaigns on the social media for the brand, and the rub off is enjoyed by all Franchise partners. For a small business entity, this is all investment of recurring nature, while with a Franchisor in most cases it is not a chargeable expense.
- Consumables: Every business requires consumables or raw material for delivering any product or service. The Franchisor by virtue of the scale at which it operates is always more likely to derive benefits of scale vs an independent business. Just imagine McDonalds buying potatoes for finger chips and a stand-alone fast food outlet buying potatoes. Who do you think would get a better price and quality? The Franchise partners get the benefit of economies of scale that are created by the Franchisor and the input costs of the business become lower. Since the Franchisor is a regular buyer and buying on behalf of so many Franchise partners, the suppliers try to maintain the right quality checks else they risk losing the business, whereas a standalone business entity might not able to command either lower prices or consistent quality.
- New Innovations: Being state of the art in business is akin to staying relevant to the consumers. The Franchisor brands of repute are structured internally to have dedicated resources (people) scanning the global industry for best practices. In case not doing this, the teams are dedicated to finding ways to reduce cost, increase revenues and solve operational problems. This structured investment is extremely important to bring in new innovations in the business. At Tumbledry, we struggled a lot in removing “Haldi” (Turmeric) stains using German chemicals. The Germans didn’t understand that India is full of adulterated ingredients and therefore the Color-Mixed-Haldi in India is difficult to remove using their Chemicals. Tumbledry laboratory staffed with Chemical and Textile engineers solved this challenge by creating a mix of indigenised chemicals that help in removing “Haldi” stains. Such value additions to business are a consistent feature of good franchise brands, helping their Franchise partners in creating more value for their consumers.
- Financing: Banks are generally wary of financing unknown businesses or first time entrepreneurs. However when there is a successful business model running at multiple places, the opportunity to get the investment financed through a bank becomes much easier. In quite a few cases, Franchisors have tie ups with lending institutions or NBFCs and enable the Franchise partners to get the finance generated for the initial business investment. Getting capital for your business allows you to deploy your own funds in business development and customer retention giving you that extra edge in establishing your business faster than a self-run business financed through savings.
The benefits listed above do come at some cost. The Franchisors generally charge a One-time Franchise or Brand Fee and recurring royalties that range from 3% to 15% of the business revenue. However considering the benefits, these costs turn out to be good investment in the business. When considering taking up a Franchise opportunity with any brand, it is always prudent to do due diligence about the brand and decide only after you have understood everything and have all your queries or doubts cleared.