Some of us who dread our day job may dream of starting a business and becoming our own boss one day so that we can have more control over our creativity and time.
But at the same time, starting a business can be daunting and may stop many of us from making an attempt. If it’s your first time starting a business from scratch, you have to be prepared to deal with multiple aspects of running the business, including those that you may not be familiar with. On the flipside, with a franchise business, you can have a proven business model with guidance. This turnkey solution may give you assurance and confidence when starting a new business and lessen your worries about the non-operational aspects of the business, such as marketing and human resource functions.
Here are some of the differences between a franchise business model and starting a business from scratch, to help you understand and decide on which business model might be suitable for your first business.
Benefits Of Starting A Franchise As Your First Business
Let’s start off by identifying the benefits of starting a franchise business as your first foray into business.
You Will Be Buying Into A Recognised and Trusted Brand
First off, buying into a franchise means you get to have a piece of the brand recognition and trust that has been built-up over time. Rather than having to build your own customer base and create awareness and trust for your brand from scratch as a new business, you can leverage the franchisor’s reputation and brand value to gain immediate customer acceptance and adoption.
For example, you could run the retail and F&B franchise businesses of global brands like Subway and 7-Eleven or even local small brands like Wee Nam Kee Hainanese Chicken Rice, and get immediate traction due to the familiarity of the brands.
Read Also: What Do You Need To Know Before Setting Up A 7-Eleven Franchise In Singapore
You Will Have A Proven Business System
Second, a franchise provides you with a tried-and-true system for running your business. Most franchisees would be required to undergo a few weeks to months of training to understand the different aspects of running the business. For some franchise businesses, you could even work for a short stint in other franchisees’ outlets to gain some experience.
In most instances, franchisors would provide an operations manual, which may differ in length and content and would include information such as the franchise system’s visions and goals, the day-to-day operational procedures to ensure uniformity of customer experience, payroll and accounting matters, customer service, and other must-know information or procedures as a franchisee.
This takes away the guesswork and puts the focus on doing the things that will generate the best possible results or returns.
You Will Have Stronger Buying Power And Greater Economies Of Scale
Most businesses are either selling a service or a product. And if you are selling a product or are in the retail business, then you would need to have strong buying power to keep the cost of goods low.
This is one of the advantages of running a franchise business as opposed to running an individual business. Your purchase as a franchise will be grouped with other franchisees, giving the parent company (or franchisor) stronger buying power. This allows you to benefit from the greater economies of scale achieved, depending on the size of distribution the brand has.
Drawback of Starting A Franchise As Your First Business
Now, let’s look at some of the drawbacks of starting a franchise business.
You May Need A Large Initial Investment To Start A Franchise
Starting a franchise business may be more costly, depending on the brand of the franchisor. The more popular brands may charge a higher franchising fee, which is in addition to the initial setup cost of setting up the business according to the franchisor’s requirements.
You may also be required to pay ongoing royalties of a certain percentage of your monthly or annual revenue.
These additional costs could increase the overall cost of starting your business.
You Must Follow The Headquarters Directive In Terms Of Operating The Business And May Not Have Much Flexibility
The very aspect of franchise models (i.e. that they all operate in the same way to ensure uniformity across different outlets) may stifle your ability to impose your own stamp on your business.
You would not be allowed to unilaterally make any changes to the appearance of the stall or add or remove new items/products. You may have to strictly follow the directives of the franchisor and execute as instructed.
Read Also: MOS Burger At One Fullerton: Why Do Brands Like MOS Burger Have Different F&B Outlet Concepts
Your Business Image Is Closely Tied To The Brand Image
In a world where we are connected closely by social media, any mishandling or negative news created by the franchisor brand may affect your business. For example, a negative marketing campaign in one country or the remarks or actions of senior management of the franchisor could negatively affect your local franchise business, as people may avoid your business because of its association.
Benefits Of Starting A Starting A New Business From Scratch As Your First Business
Now that we have seen some of the benefits and drawbacks of running a franchise business, let’s now look at the benefits of starting a business from scratch.
You Can Start A Business With Little To No Money
There are many ways of starting a business from scratch. Some business models do not require any upfront capital as it involves pre-selling. For example, you can start an online drop-shipping business with a relatively small amount of capital and grow your business slowly. With an online drop-shipping business, you do not need to pay for any fixed costs like the shop rental or hold a big inventory, which will save you on the capital required.
You Will Have Full Control And Vision Over The Business
As the business owner, you have full authority over the decision-making of the business. This gives you the power to execute your vision as you see fit and make any changes without having to go through with an external party.
Read Also: Building Asia’s Largest Marketplace for Parents: How Luke Lim Found His Calling in SuperMom
Drawback of Starting A Starting A New Business From Scratch As Your First Business
As in all cases, there are certain drawbacks to starting a business from scratch. Here are some that you need to take note of.
You May Not Have Relevant Experience To Deal With All Aspects Of The Business
If you are new to starting a business, more often than not, you may not have the knowledge and experience to deal with the multiple aspects of running a business, such as understanding the legal and regulatory requirements, staffing and human resources, marketing and sales, logistics, operations, and finance.
This would imply either hiring more people who are skilled in these departments or investing more time in learning and understanding how to perform in these roles. This could lead to trial-and-error, which may end up costing more time and money to learn and bridge the knowledge gap.
You May Not See Instant Success
While most may start their business in the hope of making a million dollars in revenue in the first year of operations, the reality might be the direct opposite.
It could be tough to see instant results, especially if this is your first foray into business. You may uncover many gaps in knowledge and experience in running a business that could affect short-term results and profits. Moreover, you may need to spend more time building your brand awareness and trust between your customers and suppliers to gain traction.
Read Also: Top 10 Financial Terms Every Business Owner Needs To Know To Build A Profitable Business
So, Is The Franchise Model Better Than Starting On Your Own?
The best model depends on which suits you more.
If you are someone who prefers to follow rules and structure and feel your strength is more suited to executing instructions, then the franchise business model could be suitable as your first business. This provides you with a tried-and-true business model that can shorten your learning curve. You can also subsequently adapt these procedures and systems as you become more familiar when venturing to other businesses.
On the other hand, if you are someone who prefers starting and experimenting with new ideas and enjoys the freedom of expression and exploration stage, then you might be more suited to starting your first business from scratch under your own terms.
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