Starting a business is a risky undertaking. Will there be adequate demand for your product/services? What is the best way of acquiring customers and growing your business? These are some of the very difficult questions that entrepreneurs face. Purchasing a franchise allows you to remove some of the uncertainties that come with starting a business. The franchisor has already proven that there is demand for its product/service through its continued expansion. The franchisor has also developed a blueprint of recommended actions to achieve success. This will allow you to focus on the execution of the business plan rather than on creating one from scratch.
People are naturally risk averse. If given the option between eating at McDonald’s or Tom’s Burgers, most people will opt to eat at McDonald’s because they know what they can expect their burger to taste like. Tom’s Burgers may have higher quality ingredients and better tasting food, but potential customers may fear that they will not like Tom’s food, or that the preparation is not up to par with McDonald’s. Tom’s will need to spend a considerable amount of time and money in order to acquire customers and develop a positive brand image. While most franchises don’t have the worldwide brand recognition that McDonald’s has, the same basic principles apply. Franchising allows new business owners to establish credibility more quickly with customers and therefore grow revenues more rapidly.
Independent business owners must often learn through trial and error. This can be a very long and expensive process. New franchise owners will receive hands-on training directly from the franchisor for a period of time that usually ranges between 1 to 4 weeks. New franchisees will be taught about all aspects of running the business (i.e. marketing, operations, financials, etc.) from experienced owners. This mentoring process is extremely valuable and gives new owners a strong vision of the actions they need to take to be successful.
When you own a franchise you are in business for yourself, but not by yourself. Franchises have dedicated staff to provide ongoing assistance to their franchisees. This could be in the form of ongoing training, webinars, monthly newsletters, industry research, etc.
One of the goals of franchisors is to add new franchisees so that they can increase their revenues. Therefore, it is in the best interest of the franchisor to help potential franchisees obtain financing. Although few franchisors provide direct financial support, they can often times refer you to a lender that has a favorable opinion of their brand and are therefore more likely to approve your loan application.
Location, location, location. If you are opening a retail business, the location of your business will tremendously impact your probability of being successful. Franchisors will assist you in determining where is the most ideal location for your new business. They have learned from the experience of previous owners what the best designs and locations are for their brand.
Economies of scale are created as franchises add more franchisees because they have the ability to purchase products/services in larger quantities. This increases franchises bargaining power and allows them to take advantage of more favorable purchasing and negotiating terms.
What customers should you target? How should you target them? These are questions to which the franchisor already has answers. They have well-established methods of acquiring customers that have been honed over time. This will save you a great deal of time and resources.