Is Buying A Franchise A Good Investment?
At some point in a professional’s career (if not right in the beginning), the thought of starting one’s own business usually comes to mind. The idea of being your own boss, setting your own schedule, and having a significant amount of equity in a [profitable] company is a sought after lifestyle. While it is important to celebrate the successes of entrepreneurs, it would be foolish to only glorify the winners, and not recognize the potential downside of starting your own business.
It is widely noted that there is a high failure rate among startups, with varying statistics that say as high as 90% eventually fail. While there are blurred lines on what the true failure rate is, few would disagree that it is well over 50%; and among the survivors, you must question how many are comfortably profitable, versus fighting tooth and nail to stay afloat? Surely, the entrepreneur’s dream isn’t to hustle 7 days a week just to merely keep their business in existence. But, the reality is that this is the much more likely outcome than building the next Amazon or Apple.
Buying into a franchise is a great way to pursue your entrepreneurial passion, while mitigating the downside risk of starting your own business. This option is often overlooked by aspiring entrepreneurs, who view franchise fees and royalties as money that could be kept in their pocket if it was their own business. If you consider what that franchise fee and royalties are giving you access to however, you may find you have a bargain on your hands.
First, you may be purchasing brand recognition, where just by having a certain name on your restaurant, gym, etc. customers will start walking through your door on day one, because they associate your company name with a particular level of quality. Secondly, you enter a business with a supply chain infrastructure already in place, so determining where to source food, equipment, and more at bulk discount pricing is already taken care of. Third, you are gaining access to the playbook for your business model - if you follow the guidance of the franchisor, you should have a much higher chance of success than if you were doing it on your own. Remember, if you were starting your own business, the process of building a brand, establishing a supply chain, and going through the trial and error of how to operate profitably are both time-consuming and expensive. Instead, for the cost of a one-time franchise fee and a small percentage of ongoing revenue, you skip the early stage years of a startup company that can often sink the business, and receive the keys to success before you even open your doors.
It’s evident that there are clear advantages to buying into a business with an experienced executive team that has done all the due diligence in terms of processes, procedures, market testing, and so on. In addition to the insight of a team with a proven history of operating in the space successfully, you enter into a franchise network with leveraged buying power that will only increase as more franchisees join the system. Your access to this system is coming at much lower costs relative to what the franchisor paid, and what you’d pay as an independent business owner because the experimentation and analysis has already been completed.
While just like startups though, the statistics on franchise success rates vary by source and case study. However, at Oakscale we believe that by matching candidates and their skill sets to the right franchise concepts, in the appropriate local markets, that franchisee success rates are significantly higher than independent startups. For those interested in becoming a franchisee, we are currently assessing candidates for Xpresso Delight, the largest and fastest-growing coffee service franchise in the world.