Franchising offers the perfect balance for many entrepreneurs: the freedom of being the boss, strengthened by the peace of mind that comes from investing in a proven business model.
And while there are risks involved with any business, opening a franchise offers more security than starting an independent business from scratch. The fact that a prospective franchisee is joining an existing company gives them the opportunity to perform rigorous due diligence before they sign the franchise agreement. This means they are informed, knowledgeable and have more realistic expectations than owners of start-up businesses.
This all puts the franchisee is a strong position to achieve success. But, when considering franchise opportunities; is bigger best, or are there more benefits to investing in a niche franchise business?
Established brand or new kid on the block?
Big, well-known names provide franchisees with a valuable brand and a tried and tested operating system. The safety net that this can offer an inexperienced franchisee is very attractive. But big doesn’t always mean best, and the potential success of a franchise opportunity cannot be determined purely by its size or how recognisable the brand is. Newer, more innovative franchises can offer a quicker route to profitability than some of the most popular and famous brands.
For a franchise to be a success it’s good to know the definition of a franchise; It must be able to measure up in today’s competitive market by meeting consumer demands that other businesses can’t rival. Whether this is a niche franchise opportunity or a well-established brand, is irrelevant.
If you’re interested in buying a franchise, it’s essential that you carry out thorough research before investing to ensure that you’ve found the right business for you. A crucial element of this due diligence is the consideration of what you want to achieve as a franchisee.
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If you’re seeking security and dependability, then a famous brand with national or global presence may be the right choice for you. If, on the other hand, you’re excited by becoming an early investor in a niche franchise that appeals to a very specific demographic, a lesser known franchise would be more suited to your objectives. But, what are the other factors that you should consider before you sign on the dotted line?
The price tag
As you’d expect, investing in a franchise with a recognisable brand name is likely to cost much more than a lesser known franchise. Although buying into a new franchise opportunity can be exciting, the truth is that there is going to be less awareness of the brand name, a smaller customer base and a business system that is still be honed by the franchisor. The fact that the franchise is less polished is rightly reflected in the price tag.
Although it can be tempting for inexperienced franchisees to choose the lower cost franchise option, if saving money is the only reason for selecting the franchise, you may be disappointed. A newer franchise may, in fact, have additional expenses applied after the franchise agreement has been signed than a more established option. With an emerging franchise, the costs involved with setting up the business, such as fitting out premises and purchasing equipment, may be higher. The reason is that a franchise that has built up more contacts is likely to have improved buying power and benefit from efficiencies of scale when it comes to building work, therefore making set up costs more affordable.
The trick is to consider the total investment cost when considering which franchise to purchase. It’s a common mistake to only take into the account the initial franchise fee when reviewing opportunities. Only when you have a full understanding of set up costs, ongoing fees and the amount of working capital required, will you know how much it will cost to fund your franchise from launch through to profitability. This is the case for all franchises of any size.
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Having said all this, some things are as good as they seem. Franchisors that are just building up their franchise business will want to appeal to quality franchisees. Offering an excellent franchise package for much less of an investment cost than a more well-known brand is a great way to be recognised as a viable alternative.
Buying any business comes with an element of risk, but investing in an emerging franchise can increase the odds of failure. This is one of the most tempting reasons to invest in a big brand with a stable and secure franchise system. Their professionalism, training, support and supply chain are often of a higher quality than that of a newer franchise.
The quantity and quality of support that a franchisor offers their franchisees have a considerable influence on limiting the risk of business failure. Receiving guidance from an experienced franchisor in aspects of the business such as location selection, recruitment, training, marketing, and operational support is invaluable for first-time franchisees in particular.
As appreciated as this support is, and despite the number of resources that big franchises have at their disposal, there is a danger that any assistance offered is spread thinly between a vast number of franchisees up and down the country. Although a newer franchise may not have the luxury of a large team of support staff, they have fewer franchisees to attend to. This means that they can devote more time, energy, and individual attention to each franchisee, therefore increasing the chances of success.
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Risk versus rewards
Investing in a niche franchise may lead to more challenges being faced, but with higher risks come even greater rewards. With an emerging franchise, there’s likely to be more opportunities to express your creative side. Franchises all over the world are full of entrepreneurial franchisees that have had the confidence to share ideas and create a name for themselves. In fact, the Big Mac was developed by a McDonald’s franchisee. It’s often these brave and innovative franchisees that go on to become franchisors later in their careers.
This level of creativity is difficult to achieve in a more established franchise. The more a franchise grows, the more rules there are for franchisees to comply with. The franchise system will have been changed and improved over the years, and now the operation manuals document precisely how every element of the business should be run leaving little room for innovation.
There’s also an increased chance of growth with a lesser known brand. Franchisees can develop alongside the business; gaining confidence, expertise and skills as time goes on. Getting on board with a franchise from the very early days puts you in a strong position to capitalise on any expansion opportunities as they arise. As an experienced franchisee that has in-depth knowledge of the franchise, you’re likely to be offered first refusal to buy any additional franchise units.
Weighing up the pros and cons
There are advantages and disadvantages when it comes to investing in both bigger brands and niche franchises. But for you to become a successful franchisee, you need to decide which is the best opportunity for you. Your decision will depend on your appetite for risk, your desire for creativity, your long-term ambitions and your eagerness to embrace any opportunities that may come your way.
Whatever the size of a franchise, most franchisors will do anything in their power to help their franchisees succeed. You can find just as much encouragement, passion and competence in a niche franchise as you would in a global brand – for example a Subway franchise. So, take your time, do your research and be confident that you’re choosing the right franchise investment to suit your needs and your dreams.