Starting a business from scratch requires a lot of time, effort, and, of course, capital to build a brand, establish operational systems, and attract customers. Amid these risks, franchise businesses have emerged as an attractive alternative for many aspiring entrepreneurs looking to enter the business world. With established systems and a recognizable brand, this business model offers various advantages that conventional businesses don’t. What are they? Here’s a look!
What is a Franchise?
Quoting Investopedia, a franchise is a business model in which the owner of a trademark or business system (franchisor) grants the right to another party (franchisee) to run a business using a trade name, products, operational system, and business support that has been proven successful.
In other words, a franchise allows someone to run their own business by “piggybacking” on the reputation and systems of an established business.
In return, franchisees typically pay an initial fee and recurring royalties to the franchisor. The fees compensate for access to the brand, business knowledge, standard operating procedures (SOPs), training, and operational support.
The International Franchise Association (IFA) adds that a franchise is more than just a brand sale and purchase relationship, but rather a long-term business partnership. Therefore, to maintain brand consistency, franchisors provide comprehensive guidance on how to run the business according to the parent company’s standards, from product and store layout to customer service standards to marketing strategies.
And to comply with the legally binding contract, franchisees are required to maintain the reputation and quality standards of their brand. Although bound by the franchisor’s rules, this business model is still widely chosen because it can be a quick way to start a business with lower risk than building from scratch.
The Benefits of Franchising Compared to Starting a Business from Scratch
Starting a business from scratch offers complete freedom, but it also presents many challenges. On the other hand, franchising offers a safer and more systematic path for anyone looking to own their own business, even without prior experience. Here are 15 advantages of franchising.
1. Proven Business Model
One of the main attractions of a franchise is its proven business system. Everything from standard operating procedures (SOPs) to workflows and marketing strategies are readily available and can be implemented immediately, increasing the chances of success.
2. Established Brand
Franchising offers the immediate benefit of using a brand name that’s already widely recognized and trusted by consumers. This speeds up customer acquisition and market expansion because they already know what to expect from the product or service being offered.
3. Lower Risk of Failure
Statistics show that franchises have a lower failure rate than businesses started from scratch. This is because the system has been tested in various locations and market conditions.
4. Support and Training from the Franchisor
Franchising isn’t just about selling a name; it also provides initial training, operational guidance, marketing assistance, business location selection, and regular consultations. Some franchisors even provide a complete package, including equipment, suppliers, and a management system, so you don’t have to build everything from scratch.
5. Customer Base Already Established
Franchises come with a loyal customer base that’s already familiar with the product. So, you don’t have to build a customer base from scratch—which is often the biggest challenge in building a business.
6. Collective Purchasing Power
Through a franchise network, you can purchase raw materials and equipment at lower prices because purchases are made in bulk by the central office or through authorized partners. This lowers operational costs and increases profit margins.
7. Ease of Access to Financing
Because franchises generally have a track record of success, banks and financial institutions are more confident in providing loans. They view franchisees as a safer investment than new, unproven businesses.
8. Higher Profit Potential
Successful franchises tend to have higher profitability than independent businesses. The combination of a strong brand, operational efficiency, a large customer base, and an integrated marketing system allows for faster and more stable return on investment and net profit.
9. Ready-to-Use Business
The most difficult stage in building a business is usually the beginning. However, franchising allows you to skip this stage because all the systems are ready-to-use and ready to be implemented.
10. Exclusive Territorial Rights
Many franchises grant franchisees exclusive rights to a specific territory. This means no other branches of the same brand can open in your area, minimizing internal competition (franchise encroachment).
11. Easier Business Scalability
A franchise system allows you to open more than one unit with relative ease because all systems, standard operating procedures, and support are already in place and standardized. In other words, franchising provides a faster and more scalable path to growth.
12. No Business Experience Required
For beginners, starting your own business can be intimidating. However, with a franchise system, the franchisor provides comprehensive training so you can run a business even with minimal experience.
13. Can Compete with Big Players
By joining a franchise network, small businesses receive support in the form of strong branding and proven marketing strategies. This allows them to compete with major players in the same industry.
14. Marketing Support from the Center
Franchisors typically run national marketing campaigns across various media outlets, including TV, social media, and digital ads. As a franchisee, you automatically benefit from these campaigns.
15. Access to Networks and Collaboration with Fellow Franchisees
In a franchise network, you’re part of a business community. This allows you to share experiences, strategies, and solutions with one another. This interaction creates a collaborative and supportive business ecosystem.
Franchising offers many advantages that are difficult to achieve when starting a business from scratch. It’s no wonder this business model is increasingly popular, especially among MSMEs seeking rapid growth with minimal risk.
If you want to manage a multi-outlet or franchise business, simply download the Labamu app and use the Franchise feature, which can help you monitor inventory across all branches, generate comprehensive sales reports, and even integrate a POS system. Download it now via Google Play or the App Store!
