Why you should consider owning a franchise. Rachel Elnaugh writes exclusively for TFM
In the first in a series of exclusive columns for The Franchise Magazine, entrepreneur and ex-Dragon Rachel Elnaugh explains why budding entrepreneurs should consider franchising
Individual entrepreneurs might emerge from the Dragons' Den burned by their experiences, but one of the great things to come out of the show and others like it, is that they have awakened a new spirit of enterprise in Britain.
According to recent research by NatWest bank, 17 million people in the UK are now thinking of starting their own business, with 30 per cent planning to act on their idea in the next three months. That's over five million new businesses coming to a high street near you! The sad fact is, statistically two thirds of them will falter within their first two years. Of those that do survive, only around 250,000 will achieve anything like material success with the rest struggling just to keep their heads above water, earning the equivalent of less than the minimum wage.
These days I spend most of my time working within the small business sector and as a result, receive lots of emails from entrepreneurs who have taken the plunge and are now a year or two in, and frankly struggling to make their new business work. The most common problems being firstly underestimating the costs involved in setting up a business from scratch, and secondly underestimating how difficult it is to market a new product or service in a hugely competitive and crowded market.
Over 3,000 people have now taken my free Entrepreneurial Profiling Test which I created to help people understand what type of entrepreneur they are, and over 80 per cent profile as types who should seriously consider opting for a franchise instead of taking the plunge with a completely new business. Generally these types fall into two categories:
- 'Execpreneurs', who are typically emerging from the corporate world where they are used to working within a system and having lots of infrastructure and support;
- 'Lifepreneurs', who want the flexibility of being their own boss but are fairly risk averse and frequently underestimate just how much energy, effort and capital it takes to get a completely new business off the ground.
My suggestion to people that they should consider franchising is frequently met with hostility, as if in some way franchising is not a 'proper business' or it suggests they haven't got what it takes to be a 'proper' entrepreneur. However I think there are huge benefits to entering business via the franchise route, particularly if it is someone's first dip of the toe into what are frequently shark infested entrepreneurial waters. Most people's business journeys are roller coaster rides, which endure for a lifetime and feature many different projects and ventures over the years. This journey is made a lot easier if they don't experience a 'wipe-out' with their first business.
A little known fact is that most new start-ups take a good two years to come into profit - a long time to wait while you still have to support your lifestyle, especially if that includes a mortgage plus a family. Franchise owners on the other hand frequently find themselves making money after only a month or two of opening. Those hankering after making millions would be well advised to look at the Rich List, and see that most fortunes are normally amassed over one or two decades of enduring effort and investment, with youth long since gone!
A newly acquired franchise which is run successfully for a year or two can always be sold on, or run by a hired manager, while the entrepreneur uses the money and experience to set up their dream business from scratch. Simply put, it's much easier to make a business work on your own once you have made one work under the wing of an already successful franchise.
Not only are you provided with a ready made, well known brand identity, supply chain and operating system (things which alone can cost tens of thousands to put in place to any sort of professional standard), you also don't have to find out what marketing works by your own often expensive process of trial and error. That alone will save you a fortune in wasted advertising spend. It's important not to underestimate the value of the practical training, guidance and good old fashioned moral support that is provided not just by the franchisor but from co-franchisees. Many small business owners find life extremely lonely, especially during the early, often very difficult years of start up.
Another common cry of new business owners is that funding for small business is almost impossible to come by, but banks are much more receptive to lending money to fund a tried and tested franchise. The reason for this is that banks hate risk - given that the failure rate of franchises is less than five per cent compared to the fall-out rate of something like 65 per cent for normal business start ups, plus the fact that most established franchises offer buy-back schemes, this means that the bank can be reasonably sure they will be repaid the money they lend you.
Of course there are certain entrepreneurial types who simply aren't suited to franchising. These tend to be the 'Alphapreneur' mavericks who can't bear to operate within someone else's rules or the 'Passionpreneurs' who are highly energised and need space to create their own business visions. Yet less than 10 per cent of people fall into these categories, and even then franchising is still an option to consider but from the angle of creating a business which, once successful, can then be templated and franchised out with them as the franchisor, rather than the franchisee.
Cynical types may view franchising as a way of extracting large lump sums for an already successful business. I prefer to view it as a supreme form of collaborative working, sharing know-how and proven systems with others for mutual benefit. Yes, there are still a few rogue franchises out there who continue to bring down the reputation of the industry, but if you find the right business it could be the start of a long and fruitful entrepreneurial journey.