Why Franchising Works
Franchising offers a lot of benefits to investors looking to go into business. The many positive aspects of franchise ownership can all be essentially condensed into one simple core benefit – the assumption of less risk by the investor. This isn’t to say that franchise ownership is completely risk free. As with any investment, there is a chance of loss. However, the chances of succeeding with a franchise and of turning a business into a profitable venture quickly is much greater than the chances of doing so with an independent business.
Over one half of businesses fail within the first 5 years. By and large, the majority of new businesses that do not make it through those first critical years are those that operate independently. Franchises succeed more often and begin showing profits earlier. So just what is it that gives franchises so much of an edge over those independent businesses?
There isn’t just one reason that franchises are usually safer investments than going into business independently. Rather it is an accumulation of several contributing factors that, when put together, create a picture of a safer and more solid investment. While each of this factors contribute in their own right, it is only when all are well represented by a franchising organization that the effects are felt most by the franchisee.
Probably one of the best known benefits to franchising is brand recognition and loyalty. When an independent business is started up, the owner has to work very hard to reach his or her intended customers, to let them know what products and services are offered by the new business and to arouse interest in them. The franchise owner has little of this concern. If the franchisor has been around for any period of time then the public is most likely well aware of the products and services offered and probably has a good impression of the business.
This good impression engenders brand loyalty. It’s a simple product of human psychology. People are more amiable to what they know and less inclined to try something they are unfamiliar with. This means that when confronted by a decision to use a franchise of a known and trusted name or to use an unknown independent, the average customer will go with the familiar franchise. This means the franchise owner has to work much less to bring in customers than the independent does.
Brand recognition and brand loyalty are created by means of another benefit of franchising – marketing. Franchisors are usually able to advertise on a much grander scale than any independent owner could ever hope to. In essence it is very much as if all franchisees were pulling their resources to advertise together.
Franchise owners also benefit from buying into a solid business plan. Much of the failure that occurs during those first tumultuous 5 years of business ownership occurs because of owner error in establishing a business model. Even someone with a lot of business sense can make an error in judgment. For the franchisee, those errors have already been made and overcome by previous franchisees and by the parent company. What remains is a tried and true plan of business.
