Posted by Pamela Swift in Franchise
There is a big difference between being an entrepreneur and owning a franchise. When considering purchasing or starting a small business it is wise to understand the differences so that you can make good choices for your situation. A franchise has much less control over product, strategy and marketing, but has less risk. An entrepreneur controls their fate but does not have the advantage of brand recognition and a ready-made market.
An entrepreneur dreams and dream and creates a business from it. This includes feasibility studies, market studies, start-up strategy, funding, strategic planning and business planning. The entrepreneur has tremendous latitude to develop the business according to their own vision and subsequently to respond to the market for the product. The owner develops the leadership for the business and in the end controls the critical decisions.
The franchise owner must be a great manager and accepts leadership from the franchisor. Marketing, product, strategy and policy decisions are made by the franchisor and the franchise learns to manage the direction and materials they receive. Leadership for the franchisee is more at a management level; who to hire or fire, how to schedule, and how to implement franchisor policy.
Carpet cleaners are a good example. You could become a franchisee or you could purchase or start your own carpet cleaning company. In the former, all of the structure, supplies, market and vehicle are provided. In the latter, the business owner must develop and implement it all from scratch.
When an entrepreneur starts a company many complicated variables come into play. Issues like staff, supplies, policies, operations, marketing, start-up, and funding all have to be decided upon and implemented without the support of a larger company. The trade-off for an entrepreneur is that they get to pick their territory, their products, their market, and their operations plan. The entrepreneur has no idea how long it will take for their product to penetrate the market and make a profit. Startup may be slow going, until customers find “Charlie’s Carpet Cleaning.”
When a franchisee begins business, often the location, the product, the market, the operations and the policies are already complete and ready to go. The startup may be significantly faster due to the brand and franchisor marketing already in place. Everyone knows “Stanley Steamer” carpet cleaner from TV and print ads.
The entrepreneur sets the strategic direction for the company and can change directions on a dime. The standard operating procedures, policies and procedures are developed by the owner and are tailor made to fit the business and they can be changed as quickly as they were developed. The owner can be as involved or as distant as they wish depending on who they hire and how they are trained.
The franchisee manages the operational and strategic directions of the franchisor. Changes are made very slowly, even if market demand is driving for a change. Franchisees cannot change policy or standard operating procedures. At the same time, they don’t have to create them and they rely on the experience and success of a larger company who has time tested them.
The entrepreneur has to rely on instinct and if they are lucky, marketing research to develop brand. Even if the market demand is strong for the product, that doesn’t mean that the product will sell. It requires marketing expertise and marketing strategy for the long haul to make it work. The life cycle of a product with no brand is greatly extended compared to the life cycle of a franchise product.
The franchisee has a ready-made brand that may be nationally recognized and loved. There is no need to create demand because the demand is already there. Sometimes the only marketing a franchise will do is put up the store and the sign.
The ROI for an entrepreneur is unlimited, but also highly unpredictable. The ROI may not come quickly. The end game for an entrepreneur is also highly unpredictable. Many businesses have no value except for any assets the company has in product, equipment or buildings. May be difficult to count on a business as a plan for retirement, depending on the type of business and the success it enjoys.
For a franchisee, the ROI is limited and more predictable. The franchisor has lots of data and experience and usually can predict the life cycle of the business and the ROI. The end game may be to sell the franchise back to the franchisor or another franchisee. Value is most likely going to there.