Franchise or Startup: Which Should You Choose?

by John Burke

2 min read

Starting your own business allows you to become your own boss; when you work for yourself, the sky is the limit. Rather than being told how much you’re worth and having to beg and grovel for a raise, you’re in complete control of your income based on how successful your business becomes.

While running a business can lead to financial freedom, it also presents a host of challenges. Perhaps the biggest one is giving up the guaranteed salary you receive when working for someone else. You also have to wear many hats as a small business owner, given that pricing, marketing, budgeting, and day-to-day operations all represent duties that fall directly on your shoulders.

For these reasons, many entrepreneurs choose to open a franchise rather than launch a startup from scratch. Franchising lets you piggyback off a recognized brand name and provides a turnkey system for running a business. On the downside, you often face many fees and restrictions that don’t apply to a startup business owner.

Brand Recognition

Perhaps the biggest advantage of buying a franchise is that you own a piece of a recognizable brand. Your local McDonald’s, for instance, is actually a franchise. You can imagine how much easier marketing is for the owner of the local McDonald’s franchise compared to the mom-and-pop fast-food hamburger restaurant down the street that lacks such a strong brand identity.

That said, as a franchise owner, you also inherit any baggage or negative goodwill from the parent company. For example, when Chipotle had its E. coli scare in 2016, its few franchise owners, since most Chipotle restaurants are company-owned, suffered declining sales.

Proven System

Companies that offer franchises usually have proven marketing and pricing structures in place. Consequently, inexperienced business owners have higher success rates with franchises, as they can plug into a proven system rather than navigate all the complexities of running a new business on their own. Moreover, many franchisers do a lot of the heavy lifting for their franchisees, such as running TV and radio spots in cities where they maintain franchises.

Less Freedom

The downside of owning a franchise is that while you’re technically your own boss, the franchise agreement you sign typically spells out a host of rules and regulations that you must follow. In most cases, you’re unable to alter the product line, change your prices, or conduct any marketing activities that aren’t approved by the company. Not to mention, franchises don’t come cheap, and the company takes a cut of your revenue every year.

As a result, highly creative types often find the startup model a better fit. The best startup business ideas can grow into multibillion dollar companies, while a lower ceiling tends to exist for franchises. If you want full creative freedom for your business, you’re better off developing a unique startup business plan as opposed to purchasing a franchise.

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