So you’re ready to go it alone?
Welcome to one of the most exciting chapters of your life!
Working for yourself can be one of the most rewarding experiences there is.
There can be difficulties with taking the plunge for yourself, however, especially if you have a number of responsibilities & obligations. This is where running a franchise business can really help. If you’re deciding whether to plough into your own startup or take on a franchise, here are a few perspectives that might help.
Startups
A startup is a business that you would start in order to bring your own vision of a business to market. It’s setting off in uncharted territory, hoping to find undiscovered riches.
The biggest benefit of starting from scratch is that all of the profits belong to the business owner. This means that the owner can keep more of their money and take bigger risks. Additionally, since the startup is not tied to a franchisor, the business owner is free to make their own decisions about the direction of the business.
However, startups can be riskier than franchises. Startups require more resources upfront and the success of the business depends entirely on the business owner. Additionally, it can take longer to get a startup off the ground, and the business owner may have to wear many hats and learn as they go.
What are the main risks when starting your own business?
When starting your own business, there are a number of things that you’ll need to guard against. The main risks can be summarised as follows:
Financial Risk – Starting a business requires an initial investment of money, and there is no guarantee of success or profitability.
Poor Planning – Not having a business plan and failing to do the necessary research and market analysis can result in poor execution of the business concept.
Legal Risk – There are a number of laws and regulations that must be followed when starting a business, and failure to comply can lead to legal issues.
Management Risk – Poor management of the business can lead to financial losses and inefficient operations.
Competition Risk – The market may be crowded with competitors, making it difficult to stand out.
Cash Flow Risk – Poor cash flow management can lead to financial problems and a lack of funds to cover the costs of running the business.
The E-Myth
One of the biggest dangers of starting a business for oneself is highlighted in The E-Myth by Michael Gerber.
The E-Myth focuses on the idea of the “entrepreneurial myth”—the belief that entrepreneurs are born, not made. Gerber suggests that 95% of people that start in business are ‘technicians’ rather than business people – by this, he means that they love doing the work that they do & want to be able to do it without being plagued by their boss or office politics.
The problem with this is that people that run their own businesses can’t just ‘do the work’. They’ve also got to be the cleaner, the bookkeeper, the accountant, the secretary etc, at least while the business is starting out.
Gerber says that, instead of resenting their boss, the vast majority of people that start their own businesses become their own boss & end up resenting themselves – at least your boss will let you go home at the end of the day or take a holiday – if you are your own boss, you might not be able to grant yourselves that luxury.
In the E-Myth, Michael Gerber says that the solution is to run your business like a franchise – creating procedures for everything that can be handed over as the business grows.
Why is franchising better than independent business?
Interestingly enough, a franchise can solve a large number of the problems above as well as being a much more palatable form of people working for themselves.
Consider someone in their 40s with a family working as an estate agent. They enjoy their job but feel that they are constrained by the boss & the company they work for.
They could work for themselves but they would have to start from scratch. They’d have a period of time where they’d have no income & they’d have to do all of the work of growing a business, including, registering it, undertaking the work to become compliant, ensuring they have the employment contracts & employee handbooks for when they begin to get running, marketing & networking & so on.
At the same time as this person has no income & a number of outgoings, they will have a number of personal obligations – a mortgage, utility bills, living costs, the costs of supporting their family etc.
A franchise, particularly one that offers a ‘hot start’ (where you can step into a business that is already up & running) can save this person time, energy & stress, give them an income from day one & save them from having to learn from their mistakes.
Rather than running a startup like a franchise as Gerber mentions, running a franchise is a simple way for someone to pick up an idea and to drive it forwards in their own style.
So simple is this formula for success that franchisees can become formidable businesspeople. Consider Atul Pathak, who recently retired after running 43 McDonald’s sites in the south of England, employing more than 3,500 staff. Mr Pathak built such a successful business that McDonald’s bought the business back from him. In addition to running a successful business, Mr Pathak has donated over £1m to charity over the last decade, a legacy that speaks to his having control over his business & his family’s immediate needs & being able to create a meaningful legacy with the simplicity that the franchise offered him.
The world’s largest franchisee runs over 1,400 franchises in more than 80 countries, a truly entrepreneurial feat.
If you’re considering buying a franchise in the UK, you can find the support you need for whatever level of ambition you have, whether it’s taking over the world or whether it’s providing for your family & ensuring you have a saleable asset in retirement.
What is a franchise?
Franchising is the process of buying a business concept and brand from an established company. The franchisee pays an initial fee and ongoing royalties in exchange for the right to use the company’s logo, advertising, and business systems. They buy a ‘franchise’ which is the right to run the business in a particular location.
This model allows franchisees to benefit from the proven success of their franchiser’s brand, products & business processes. Franchising is a great option for entrepreneurs who want to be their own boss but don’t have the time or resources to develop a business from the ground up.
To learn more read our Franchisor vs Franchisee: What is the difference article.
What makes franchising differ from starting your own business?
The biggest benefit of franchising is that it provides a turnkey business opportunity with a built-in customer base. The franchisor has already done the legwork of creating a successful business model, so the franchisee can hit the ground running. This can save time and money, and significantly reduce the risk of failure. Additionally, franchisors typically provide training, marketing, and other resources to help franchisees get started and stay successful.
Starting a business from scratch, or a “startup”, is a more involved but potentially more rewarding option. Startups require more time and resources up front, but offer more flexibility and control. Unlike franchising, startups are not beholden to a franchisor’s business model. This allows entrepreneurs to be creative and innovative, and create a business that is uniquely tailored to their own strengths and ideas.
Starting a business from the ground up and owning your own business is a dream that many entrepreneurs have. But starting a business from scratch can be a daunting task.
As franchise opportunities mature, the franchisor will work to ‘derisk’ the business model, spending time & energy in order to maximise the success of any future franchisee.
How do franchise businesses derisk their business model for franchisees?
There are a large number of ways in which franchise businesses can reduce the risk that someone starting in business will face. These include:
Providing ‘hot start’ business opportunities – this means that the franchisee can purchase a business that is already established. The hard part for this business has already been done & the franchisee can focus on growing it rather than worrying about whether it will survive.
Providing help & support with finance – franchise business can provide access to finance that those looking to start their own business can not get. The franchise opportunity often represents a ‘better bet’ to banks & the franchise business will have spent time developing relationships with funders in order to help their franchisees.
Offering Flexible Financing – Franchisors can provide flexible financing options to their franchisees to help them manage their cash flow and reduce their upfront costs. This could include things such as deferred payments or interest-only payments.
Providing Training & Support – Franchisors will provide training and support to their franchisees to ensure they have the skills and knowledge needed to run a successful business. This could include things such as training on business operations, marketing, and customer service. This support will enable the franchisee to learn from the best practices throughout the business & provide franchisees with a business development manager & mentors who have already successfully grown their franchise business.
Providing Compliance & Legal Support – Businesses that work in industries that have strong or changing compliance landscapes will benefit from a franchise that has a compliance team to provide guidance & best practices to the franchise as rules change over time. Rather than having to keep up with regulation themselves, the franchisee will be able to take advantage of the franchisor’s provision of changing policies, procedures & contracts & even any legal support that the franchisor may offer.
Provide Risk-Management Strategies – Franchisors should develop and employ risk-management strategies to help protect their franchisees. This could include things such as establishing a reserve fund in case of unforeseen circumstances, comprehensive insurance coverage, and implementing safety procedures and protocols.
Providing a Clear Exit Strategy – Franchisors will be able to offer a clear exit strategy in place in case a franchisee decides to sell their business. This could include purchasing back the franchise or offering a buyout. A franchise business will be run as a turnkey operation and will have been developed in order to make it easy to sell – it should be much easier for a franchisee to find a buyer than a typical business owner as their business has been developed to be purchased & as the business will already have a market for franchisees. This will mean that, when the franchisee wants to sell or retire, they will have developed a valuable, sought-after asset.
Franchise or startup? What’s right for me?
If you’re deciding between a franchise & a startup business, you might want to consider these questions:
What is your appetite for risk? If you feel you will be risking your family or your home in order to start up a business, you might be better suited to taking on a franchise, especially one where you can take over a ‘going concern’ that is already generating an income. If you are able to take financial risks
Can you afford to lose the money you’ll invest in the venture? All businesses and all investments carry an element of risk. That said, starting your own business is statistically more risky. It has been reported that almost 60% of small businesses fail within their first three years in the UK. By contrast, according to the British Franchise Association/Natwest Franchise Survey, 93% of franchisees report profitability & fewer than 1% of franchisors close per year due to commercial failure.
Are you a ‘big picture’ person or do you prefer to get stuck into something that works well & make it sing? This relates more to your personality than to your resources. If you prefer to provide the ‘initial spark’ & have a unique selling proposition that will make your new business venture stand apart from the competition & find a new audience, then you might want to consider starting your own business. The beauty of franchising, however, is that you can step into something that works and save yourself the ‘decision fatigue’: the model has been demonstrated to work, you just need to pick up the ball & run with it.
Do you play well with others? This is another personality-related question. You will be your own boss when running a franchise but you’ll have to run your business according to what you’ve agreed with the franchisor: their model works & their brand is valuable & you’ll need to act in a way that enhances this value rather than going off & doing your own thing. Although this can seem restrictive, the franchise will share information & insights with you in return, enabling you to benchmark your business & to see where you can improve or generate greater profits. Many franchisees find this extremely valuable for improving their financial performance and business profitability.
How long can you afford to wait before your business provides you with a living? It might take over 18 months to provide your business with a living. In many instances, the barrier to entry for a new business is just that bit more than the owner is prepared to pay: if anyone could start in an industry and make money everyone would. Your competitors will make it hard for you to break into an industry & you’ll also have to learn a lot as you go. If you’ve got the patience, resources & support of your family to go through the valley of the shadow of business death, you can do well. The problem is the time it takes. In the first few years, with few customers & limited reputation you might find it hard to gain momentum. Once a business is mature, a 10% increase in turnover & profitability can mean a lot of money. When you’re starting a 200% increase in turnover might not mean much if you’ve started from zero.
Pros and Cons of starting a new business
Pros of Starting a New Business:
- You have complete control over the business, including its direction and operations.
- You can choose the type of products or services you will offer.
- You can create a unique brand that is all your own.
- You can benefit from the financial rewards of being an entrepreneur.
- You can make decisions based on what is best for the business in the long-term.
Cons of Starting a New Business:
- You have to develop a business plan and secure funding.
- You have to wear many hats and may not have the experience to do everything required for the business.
- You may find it difficult to compete with larger, established businesses.
- You may not have the resources to market and advertise your business.
- You will have to take on the risks associated with launching a business.
Pros and Cons of buying a Franchise
Pros of a Franchise Business Model:
- Benefit from an established brand and reputation.
- Benefit from the guidance and experience of the franchisor.
- Access to an established customer base.
- Access to proven business systems and processes.
- Access to the franchisor’s marketing resources.
Cons of a Franchise Business Model
- You will be required to pay fees and royalties to the franchisor.
- You may not have complete control over all decisions that affect the business.
- You may be limited in terms of the products and services you can offer.
- You may be required to adhere to strict regulations and policies set by the franchisor.
- You may be required to pay for certain services that are provided by the franchisor.
Franchise or startup in the estate & lettings industry
In the estate and lettings industry, startups can break through but there are a number of hurdles that you’ll need to clear. These include:
Startup costs: Aside from normal startup costs, you’ll have to pay for licences for platforms such as Rightmove or Zoopla that can cost a significant amount & you won’t get the advantages of economies of scale that a larger business might have. Agents find that these pieces of software can cost up to thousands of pounds a month & mean that they need to sprint off the starting line. In addition, you will likely need some management software in order to manage your sales & lettings.
Compliance costs: In order to stay on the right side of the law, it is important that your business remains compliant. This will not only include having the relevant contracts but it will also include keeping up-to-date with changing legislation & ensuring that you are handling client funds in a compliant manner. In our experience, very few independent letting agents are compliant & the risks of being found out are not worth the costs financially or to your reputation. Our franchise team visit annually, checking compliance in a number of areas including: client account procedure, deposit balancing, EPCs, gas safety checks, tenancy agreements, terms of business, redress membership schemes. This provides peace of mind for our franchisees. If you are contemplating starting your own business, you will need to consider how you can get the same independent assessment of your performance in order to keep you on the right side of the law.
Marketing costs: In order to attract customers, you will need to demonstrate that you are excellent at marketing. They will trust you to market their property as well as to sell or rent it out &, unless you are excellent at this, you might struggle to distinguish yourself from the competition.
Read our articles on Everything you should know about having a property franchise and Is now the right time to invest in a property franchise?
Is it better to run your own business or a franchise?
The answer to this question is that it depends on you & your situation.
That said, a franchise is your own business. You have support but it’s your baby. You have obligations (but then so do all business owners).
Many franchisees relish the simple formula that a franchise business offers – they are able to take a system that they know works and just apply it to a new territory. This can really make things simple and can leave the franchisee free to focus on adding value to their business rather than getting hung up in minutiae & issues with compliance & other things that the franchisor can provide support with.
A large number of franchisees then find it easy to add another franchise and another, leveraging their time & effort for greater profit.
A non-franchise business is truly your own. You can stand or fall by your own efforts & ideas & you will get 100% of the rewards. As the majority of businesses fail within the first 3 years, however, it is important to remember that it will take time & energy in order to get to a point of profitability – you’ll have a lot to learn & you’ll be responsible for all aspects of the business, not just the doing of the work.
If you’d like some help in discovering what might be best, we would be happy to have a discussion with you. Please book a chat with us. We’ll happily sense-check your plans or help you to see what you might need in order to get started in business & to help you avoid any potential pitfalls. Whether you decide franchising is right for you or not, get in touch via our live chat or by booking a discovery meeting & we’ll be happy to help.
