Should you buy a franchise or start a business from scratch? Watch to the end for the pros and cons of starting a business vs. investing in a franchise business in 2022.
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00:00 Should you buy a franchise or start a business?
00:57 Entrepreneurship CON: You need an idea.
01:03 Franchising PRO: Existing, established brand.
People often come to the idea of a franchise simply because they say to me, “I don’t really have an idea. I’m not opposed to starting a business on my own. I just don’t know what I would go do.” Then, you have to figure out how to bring that idea to market. There is a lot of trial and error that goes into figuring out how to make money, like clearly identifying who the customer is, what that customer will respond to, and figuring out the messaging and branding that’s will attract that customer avatar. You have to figure out how many of those customers you need to build a positively cash-flowing business. There’s a lot of guesses going into that work.
01:30 Entrepreneurship CON: Advertising trial and error.
01:35 Franchising PRO: Follow a proven roadmap to success.
2:01 THIS is why 90% of businesses fail.
That failure statistic that 90% of small businesses fail before their fifth anniversary is not a statistic that’s owned over here in the franchising world. We would never have new franchises if we didn’t first have entrepreneurs because every franchise business starts out as an entrepreneurial investment. If you’re one of the lucky ones with proper capitalization and a good model that you can bring to market and turn into a successful business, more power to you. But the average person that comes to the idea of wanting the freedom, control, and financial stability that business ownership should create does not have the heart for entrepreneurship. And this is where franchising can win with its ready-made toolbox and proven business plan.
4:35 Franchising CON: Is franchising more expensive than a startup?
When the franchisor says, “Hey, you need to have $50,000 set aside in working capital for your first year of marketing,” that’s because they know that it’s going to take you about $50,000 to get that phone to ring enough times that you then have a positively cash-flowing business. So, you’re buying down the learning curve of starting a business by partnering yourself with people who’ve already figured it out. They’re giving you this toolbox, and you pay for all of that with your initial franchise fee. Now, the franchisor is going to be able to train you, so you don’t have to have industry experience to be successful. You don’t even have to know how to own a business because the franchisor can train you on that. So, the idea in franchising is that you’re in business for yourself but not by yourself. That entrepreneur over here, they are all alone, working it out a day at a time, trial and error at a time.
6:03 The biggest PROs of franchising.
6:35 Entrepreneurship CON: LONG timeline.
Entrepreneurs are typically starting businesses where they are the center of influence. They’re leveraging their network, their idea. They’re the ones bringing it to market. It takes years and lots of money for entrepreneurs to be able to get out from underneath that and scale it to where the wealth can really be created. In the franchising world, I can take a franchisee who has the dream to scale to multiple units, and within a few years, they can have multiple units up and running because no one location needs the owner in it.
7:18 Creating an exit strategy.
7:41 Franchising PRO: Validating with existing franchisees to predict your success.
I coach all of my candidates to consider their exit strategy. Before you even invest in the franchise, I want you to know what your potential exit could be. So, franchise businesses typically sell for higher multiples than their mom-and-pop counterparts. Why? Well, because there’s more proof because the buyer coming in doesn’t just have to take your word for it. There’s a whole bunch of other franchise locations where they can validate the earnings!
If you are ready to begin your franchise investigation to find the next big American brand backed by a leadership team that inspires you, then I want to be your Daly Coach.
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