How To Start Your Own Business: Franchise vs. Startup

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You’ve saved up well. You’ve put in your two-week notice. Now, it’s time to jump into the deep end.

You’re going to start your own business.

It’s one of the most invigorating steps you’ll take throughout your entire career. But it also leaves you with one big question: should you start a small business from scratch? Or open a branch of an established franchise?

As you might have guessed, there are pros and cons to each path. From startup costs to equipment sourcing to risk management, you’ll need to carefully weigh each option.

Fortunately, we’re here to help.

Let’s learn about the differences between starting your own small business and opening a franchise and discover which path is right for you.

How To Start Your Own Business Franchise vs Startup

Starting Your Own Business: UK Guide

Risk Management

Any worthwhile business endeavour entails some degree of risk, whether in financial capital, opportunity cost, or both. This also strikes one of the most defining contrasts between choosing to open a new franchise or create your own startup.

If you’re a bit more risk-averse than the average entrepreneur, you’ll likely find the cost-benefit calculation of franchising quite appealing. In the best franchise opportunities, business owners already have an established, proven business model to lean upon.

You know that the formula can work. The only obstacle to overcome is ensuring that it will work at your new branch.

On the other hand, startups entail a far greater amount of risk. Often, you might have to shell out tens or hundreds of thousands of pounds to cover the initial startup period.

As you’re designing logos and uniforms and hiring and training employees, you’ll still have to form a marketing plan. Simply put, your responsibilities will be enormous and you’ll have complete control over your successes and failures.

So, if you’re dead-set on carving your own path despite increased risk, then forming a startup is the way to go. If you’d like a bit more of a safety net, you’re probably best suited for the franchise route.

Being Your Own Boss

If you’re thinking of starting your own business, chances are you’ve had a few sub-par experiences as an employee in your time.

As the old adage goes, if you want something done well, you just might have to do it yourself. Well, the situation’s a bit more complicated if you decide to become a franchisee.

You’ll have to operate your franchise in compliance with your franchisor’s conditions. This might include sharing your financial information with your franchisor and spending a set percentage of your budget on marketing and advertising.

While this takes a great deal of the work burden off your shoulders, it also limits your control.

Starting your own small business, on the other hand, gives you total free rein to do whatever your heart desires. You’ll have the ability and responsibility to formulate new ideas to grow your business and push it to new levels of success.

If your plans and execution are top-notch, you’ll find your company soaring. If they’re not… well, let’s not think about that.

All in all, if being your own boss is a dealbreaker for you, then go the startup route. If you can live with giving up some of your freedom, then take a closer look at franchising opportunities in your area.

Startup Costs

To start any new business endeavour, you’ll need a hefty investment. This is one area in which you’ll find great variation between franchises and startups, from a few thousand pounds all the way to upwards of a million in business loans before you even open your doors.

As a franchisee, you’ll need to send a monthly or quarterly royalty fee to your franchisor in exchange for using their licenses and permits, typically as a percentage of gross sales.

If you choose the startup route, you can say farewell to those set-in-stone royalty, marketing, and advertising costs. Instead, you’ll likely have to apply for a start-up loan, consider your monthly expenditures, and come up with a game plan on your own.

For instance, if you have a slight surplus at the end of the month, should you invest that in growing the brand through a marketing campaign or stow it away for a rainy day? That’s a call only you can make.

Fortunately, as a franchisee, materials and supplies will be relatively affordable. Most franchisors have established, long-standing relationships with quality suppliers at fair, reduced rates. All of those market research decisions have already been made for you.

As a startup, you might find it difficult to source your initial equipment as you form new relationships with unfamiliar suppliers and develop your company’s persona and position within the marketplace.

person tending to plants

Success Rate

Perhaps the most significant factor to consider is the average success rate between franchises and startups. After all of the long hours and late nights, how likely is it that your new business might not only survive but thrive?

FranNet conducted a study that illustrated that 85% of new franchises are still in business after five years. Meanwhile, that number is around 38% for startups.

This means that the average franchise is two to three times more likely to succeed over the medium to long-term when compared to a startup.

After all, franchises have a tried-and-tested business model that has found success across many different locations and markets. A startup has to figure out its strategy from scratch and recalibrate while in motion.

If you feel you have the next Facebook-level business idea, then the “average” success rate goes out the window. If you’re not quite as certain, then it’s probably worth taking another look at the franchise opportunities in your area.

Time to Profitability

Due to their instant name recognition and established business plan, new franchisees typically reach profitability quicker than small businesses. They also usually offer a defined exit route for franchisees once they’re ready to move on to their next career move.

For startups, simply staying afloat after a few years in business calls for a major celebration. You’ll likely need to put in long hours over 6 or 7-day work weeks and run a tight ship.

Of course, if you are able to reach profitability as a startup, there won’t be any royalty payments to prevent your margins from reaching the stratosphere.

person working as barista

Start Your Franchise With Franchise Local

There are few bigger life decisions than the ones you’ll make in starting your first business.

Ultimately, the only thing you can do is take your time, mull over your options, and speak honestly with your friends and family. See if you’re able to parse out which path most closely aligns with your personality and future goals.

Do you strongly value a fairly certain bet with limited upside? Or does your blood pump thinking about the next billion-pound idea? Is your vision uncompromising or are you comfortable putting your wishes aside on occasion in service of the larger establishment?

If you find that starting a small business is right for your specific needs, then go all in. If instead opening your own franchise seems the path for you, then follow that direction with everything you’ve got.

To learn more about the ins and outs of franchising, read through our news and resources pages. Discover the most profitable franchises in the UK right now and read through our collected interviews with industry-leading franchisors.

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