What is the difference between a Franchise and Traditional Business

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Do you realize that there is a huge difference between a Franchise and a Traditional Business?

When you decide to start a business of your own, it could be a tough task to choose from the different categories, types and business models available in front of you. Broadly you may either want to start something completely of your own which we can call as a traditional business model or alternately choose to buy a franchisee business option from an existing franchisor. Both these options have their own pros and cons.

Learning about these different business models is of utmost importance before you ring the bell and take that plunge. A traditional business may give you the complete right of ownership over your business and help you to get that emotional feed of satisfaction, however, along with the emotional satisfaction, it is the profits and business success that one needs to also see to sustain her or his business in the long term.

In line with these thoughts we tried to analyze as to how a franchisee model scores over a traditional business and the benefits that the franchising model offers you as a franchisee.

The below table explains the difference between a franchise business model versus a traditional business

Sl. No. Details Franchisee Option Traditional Biz
1 Opportunity & Concept In a Franchisee Option, the Concept is already existing & proven in the marketplace. In a Traditional Business, one needs to do trial and error – should have or develop an expertise in each & everything
2 Systems & Processes Tried & tested systems and processes already in place and running. All systems needs to be newly created and processes designed
3 Support Support would be available on going from the Company / Franchisor Everything has to be managed and learnt by self. No external support at roadblocks
4 Marketing Materials and Designs All the marketing designs, collateral will be provided by the company. Tested already. Just have to use them All designs need to be newly designed and tested until it works effectively. Also expensive as many versions need to be tried
5 Time required to start Can start the business operations immediately. Needs lots of time to initially set up with lot of trials and coordinate for everything from materials to logistics to finance to recruitment to more.
6 Risk Risk is mitigated with proven & working systems in multiple locations already. Risk is relatively higher as no part of the business has been time tested. Everything has to be newly tried on assumptions and beliefs.
7 Regular Updates, development Upgrades & innovation. The Company would provide regular Updates and also focus on regular R & D and innovation for new upgrades. Everything needs to be handled by self. No other person or company would help with upgrades or updates
8 Business Plans, Projections, Marketing guidance, Training & more Franchisee is provided complete hand-holding in all these by the Franchisor One needs to completely device their own plans and discover marketing approaches or get trained separately
9 Investment – Need & clarity Focused, planned & clearly aware of the initial and recurring investment as the same is already tried elsewhere. No clear idea. Appears less initially, but can be much higher as there are lots of trials to be made and new vendors to associate with less volume
10 Wisdom from others experience, Feedback system, testimonials & evidence Expert opinion and feedback shares along with testimonials from existing community of franchisees No way to gather any feedback or wisdom from others nor expert opinion
11 Established brand recognition, ISO Processes,IP, Trademarks etc. All franchisees can benefit from these processes, trademarks, IP and brand value provided by the franchisor. As it would be an independent new entity, brand recognition would take few years along with confirming to Processes, trademarks, IP etc.
12 Challenges, Productivity & chances of success Business & success systems and processes already being laid out, one focuses to improve potential & profits intrinsically and benefits from challenges solved by peer group. Existing and working model enhances chances of success. Unforeseen, unanticipated, new challenges at every step. Can get into a roller-coaster ride, hence affecting productivity and bottom-line. Statistics prove, more than 90% of new businesses fail in the first couple of years.

According to a report by KPMG India, the Indian franchising industry which was worth at $13.4 billion in 2012, is expected to grow 4 times or quadruple in the next 5 years. Another data on Franchise India estimates the Indian franchising industry at $22 billion and growing at 30% or more annually.

With the pros and cons, industry growth and business potential for each of the business models, you should be able to choose the option that suits you based on your mindset, your goals and expectations and the one that would be comfortable for you to handle or manage.

In fact, before you even take the next step or choose between these models, take a paper and pencil & jot down a list of all the reasons, as to why are you wanting to get into a business in the first place. This will clarify the objectives & help you in the decision making process further.

Watch out for more articles to help you learn and unravel the mystery called business.

Did this post help you gain more information and help you in the process of decision making?
Did it give you good insights for your next level decisions?
Do you have experiences that either match the points mentioned above or even the contrary?
Whatever be it, we would appreciate if you do share your experiences, ideas and thoughts in the comment box below. It may help the future readers of this blog with additional inputs ????

All the Best in deciding your business model

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