Hi Jonathan, you've asked a popular question as many of our members have wondered whether it is better to start their own franchise or go off on their own. We have a couple of great expert articles that I think you would find helpful Avoiding Franchise Failures: Doing due diligence on an established business model and Five Franchise Pitfalls to Avoid. I encourage you to read those to get some expert perspectives. While a franchise can often times be successful, simply having a known brand name does not guarantee success. You know your market better than anyone else, and as you mentioned royalty fees (franchise fees) can take a large part out of your profits.
Please let us know if you find these articles helpful. I am sure that some of our helpful members will also chime in with their great advice.
Best of luck to you!
Be careful. The old adage that 95% of Franchises succeed and 50% of businesses fail is a misnomer. Franchises re-consume and resell failing franchises. It isn't that 95% of people buying franchises succeed. The franchise model doesn't even have to make money.
Supposedly the franchise model is to help the weaker business people succeed - and the right ones can. But many won't - and the weaker business people won't be able to tell the difference. If you aren't capable of doing it yourself, get someone who understands to verify that the numbers make sense and the business model seems viable. Or lean more toward the higher priced proven models.
Those are good things to think about. Thanks for sharing, BizOptimizer!
I've had experience creating my own brand as well as owning a franchise, and I think there are advantages to both. The thing I didn't like about owning a franchise was all the rules and regulations that went along with it. You can't market here because another franchise owner owns this area. You can't use the company logo in this type of advertising, etc. You get the idea. The positive is that you're buying into a proven system and you don't have to reinvent the wheel so to speak. Just follow the game plan and success will come. Starting your own brand on the other hand is probably a little more risky overall, but in my opinion, a little more rewarding if it works out. Just be prepared for more trial and error as you work out all the kinks on your way to creating a success business.
Hope this helps!
The risks of a new franchise system in terms of set up and sustainability are enormous. You must have the financial capacity to survive for a long time and reinvest into it. If you have the lasting funds, the drive, and the commitment it is less risky. There are many concepts for sale where the original owner just ran out of funds or ran out of steam and could not follow his dream. I am a firm believer in the value of a viable concept that comes up for resale that is working; not necessarily a turnaround as I believe only about 25% of those actually work out with a positive outcome.
As for a US franchise being taken to a foreign country, the answer is even more bleak as the risks are so much higher. I know, I took an established franchise(Subway) to South Africa, and it failed and continues to do so from what I gather 15 years later, yet franchises are still sold even when the economics do not make sense. There are many reasons for this that I will not get into here, but this established brand has failed in many countries and nobody talks about it. Those who know, know! There are also success stories, but you should know all the facts, not just the glorious one.
You have to know the breakeven analysis model well and the critical success points to establish reliable projections in both directions and thereby create a sensitivity analysis.
It is a long topic!
Fayaz Karim, MBA,CPA
From what I am reading, you seem to be advising:
-speak to other franchise owners (and to any who are no longer with a franchise)
-listen to others
-make lists of all the pros AND cons you hear
It sounds like anyone who is considering a franchise, should really take their time and do the research work to be as informed as possible.
So let's say I had enough resources to buy a Subway Franchise would you suggest I do so in a well located area with lots of exposure and traffic or would you prefer I simply create my one in a foreign country which has similar demographics of the Subway Clients base and based on market researches has tremendous potential for such ventures.
Lets assume the two options are feasible while the second one is by far less expensive now and in the future. After all, why pay royalties fees? Any idea or thought would be very appreciated...kind of confused here.