The franchising and startup business models are two paths to launching a new business. Both involve starting a company, leading it from inception to some point of success, and then selling your stake or transferring control to another entity.
However, the processes for launching a franchise vs. starting your own company with the intention of remaining at the helm are very different. Both options have pros and cons that must be considered when choosing between buying a franchise vs starting your own company. When evaluating these options, you will want to weigh what you value most in an opportunity: financial security or autonomy. Understanding the many facets of this decision is essential before moving forward with either venture.
In this blog post, we’ll explore the differences between buying a franchise vs starting your own company so that you can make an informed decision which is best for you as an individual entrepreneur and not just as an investor.
The Basics of Buying a Franchise
A franchise is a business model in which the rights to run that business are transferred to an individual who is called a franchisee. In exchange for these rights, the franchisee pays the franchisor an initial fee and then an ongoing royalty based on the franchisee’s gross sales. There are many types of franchises available for purchase — everything from fast-food chains like McDonald’s to cleaning services like Merry Maids.
To ensure you are investing in a company that can succeed, it is important to do your research. You’ll want to investigate the franchisor, the franchisee support system and the competitive environment the business operates in. There are also certain legal protections that must be in place when franchising, so it is important to understand the Federal Trade Commission (FTC) franchising regulations.
Starting Your Own Company
A company that is started from scratch is typically referred to as an entrepreneurial business as opposed to a franchise. In this path, you will begin the company with a business plan and the intention to remain as the primary stakeholder for the long term.
When starting your own company, you will probably be responsible for all the costs associated with getting the business off the ground. This could involve securing financing to fund the initial cost of launching a new company. However, it is important to acknowledge that you will not be entitled to any protection under business or franchise law in this scenario.
Legal liabilities and obligations that come with starting your own company will be entirely your own. This could include being on the hook for any employee disputes or lawsuits that may arise. However, starting your own company is an excellent way to retain full autonomy over the business. It is also an option that allows you to diversify the risk of your overall investment portfolio.
The Pros of Starting Your Own Company
Full Autonomy – While it is important to be aware of any liability associated with starting your own company, you have the ability to choose your partners and employees at will. This also means that your success is entirely on your own shoulders.
Lower Financial Barrier – The upfront cost of starting your own company is typically much lower than purchasing a franchise. You will only have to pay for what you need upfront, whereas, with a franchise, you will be required to pay a large sum upfront.
Ability to Customize – When starting your own company, you have the freedom to customize the products or services offered to suit your clientele and the market.
The Pros of Franchising
Widely Recognized Brand – Franchises already have brand recognition, so you will not have to do any of the marketing yourself. This can save you a lot of time and money in the long run.
Consistent Clientele – With a franchise, you will be provided with clientele that is already familiar with your brand. This means that you will have less difficulty finding customers for your business.
Less Risky – Starting your own company involves taking on a lot of risks, especially if it is new to the industry. By choosing an established franchise, you are investing in an idea that has been tested in the market and shown to be successful.
The Cons of Starting Your Own Company
Higher Risk – When starting your own company, you are solely responsible for the success or failure of that business. This means that in the event of a lawsuit, you are the one who will be responsible.
Larger Initial Investment – Although the financial barrier to investing in your own company is lower, you will still likely need to secure financing to get your business off the ground. With a franchise, you will only be responsible for the initial franchise fee associated with purchasing the rights of that brand.
Lack of Protection – Unlike when you buy into a franchise, there will be little to no legal recourse if you are mistreated by vendors or customers.
The Cons of Franchising
Lack of autonomy – When purchasing a franchise, you are buying into a pre-established business model. This means that you will be greatly limited in terms of how you can customize the business.
Higher Financial Barrier – Franchising comes with a hefty price tag. Franchisors expect very large upfront payments from their franchisees, which can feel risky for would-be entrepreneurs.
Lower Control – As a franchisee, you will be bound by the rules and regulations laid out by the franchisor. This could include how your staff members look and act, how you brand your company, and how you market your company.
The decision to buy into a franchise or start your own company comes with its fair share of pros and cons. Both paths can be risky, but they can also be very lucrative when done right. Ultimately, your decision between a franchise and starting your own company comes down to which option you value most.
Having one of the lowest franchise fees in the industry, Window Medics is one of the cheapest small businesses. We offer extensive support to all of our local Window Medics franchises to ensure that you have everything you need to succeed.