So you have made the bold decision to leave your job and open your own business – the question is do you go at it alone or do you buy into a reputable franchise?
This is a conundrum many business owners have had to face at one stage or another, especially in the tough economic climate of recent years.
Given statistics such as those released by Absa a few years ago, which reveal that a staggering 63% of small businesses fail in the first two years of trading, pending business owners need to make careful considerations when starting up.
To add to these gloomy figures, research company World Wide Worx in 2014 found that 38% of small and medium enterprises are unprofitable in this country, with a further 62% only managing small profits.
This begs the question – which is the best way to go and what are the advantages and disadvantages of either approach?
One upside of becoming a franchisee is that the business owner faces less risk as they are buying into an already proven business model. A downside is that a franchisee is bound to operate their business according to the restrictions put in place by the franchisor, only able to offer the products or services listed in the franchise agreement.
Entrepreneurs however face all of the financial, intellectual and emotional risks of starting the business alone. Despite this, entrepreneurs also have the freedom to steer their businesses in their own direction based on their unique vision or dreams. But how does one decide?
Cash Converters’s managing director, Richard Mukheibir, said the key was for one to know their business’s personality, so as to better choose which route to go.
Mukheibir stressed the importance of carefully choosing between the two, making sure that the business owner is fully aware of how comfortably he or she fits into either business model.
“Make no mistake about it, being an entrepreneur or a franchisee are not interchangeable, although their extremes are at either end of a varied spectrum of approaches to business,” Mukheibir said.
“There are major differences between the two. Recognising them and working with them will prevent you from setting yourself up for failure, whether as an entrepreneur or as a franchisee.”
Differentiating between the two, Mukheibir said that an entrepreneur is someone who starts a business completely at his or her own risk.
Chasing the personal thrill of making themselves known to their particular target market, entrepreneurs also enjoy the task of building up a name for themselves and their business.
Franchisees, on the other hand, are more reassured by buying into a proven business model.
By joining into a franchise, a beginner in the business world will have the opportunity to learn and build from established names in the market.
“If you prefer to limit your risk more, you are likely to fall instead somewhere on the franchisee end of the spectrum. This is the opportunity to use a franchise’s foundation of know-how, from accounting to marketing, to build a business for yourself but not completely by yourself.
“You would enjoy the security of a franchise’s business framework, whereas an entrepreneur wants to devise and build that framework for him or herself,” he explains.
“If you are a natural franchisee, the thought that entrepreneurial new businesses fail at the rate of about seven out of every 10 gives you sleepless nights. Instead, buying into a proven business model reassures franchisee personalities. It reduces risks to within your comfort zone and increases your chances of being successful.
“If you are an entrepreneur at heart, though, you are not comforted by the thought that about 90% of new franchisees succeed, thanks to the support of an established business model, brand and the market knowledge that is part and parcel of a franchise. Entrepreneurs will instead see a franchise as imprisoning his or her creative business vision and will kick against it,” he said.
The owner of Friesland, Kishore Cassiram, which opened its doors just over 40 years ago – said he had enjoyed that very freedom which being an independent entrepreneur had afforded him.
The ice-cream manufacturer said while remaining independent, made it somewhat harder to keep up with technological advances in the market, the key to any business was being hands-on in all areas of operation.
“I’m involved in everything to do with my business, from making the ice-cream to selling it, I am there,” he said.
“I don’t just leave the running of the business to employees, I do most things myself. My business is not just like a franchise where you open a shop, employ a manager and put that person in charge of everything. I’m here every single day making sure that operations run smoothly.”
Cassiram said it was important to know your target market and interact with them on a personal level.
“I greet each and every customer that comes into the shop, I thank them and wish them well. That creates a relationship with customers which makes them loyal.”
McDonald’s franchise owner in Amalinda, Collin Williams, agreed that the type of business one entered into should be based on one’s personality traits.
Williams says there are three types of people in the world: Those who have a vision and don’t mind taking risks. Then there are those who are keen to take some risks but need some kind of guarantee and there are those who only enter into things which have a clear outline of how they will end – from the outset.
“That being said, opening a business ultimately depends on your risk appetite,” he said.
“Joining into a McDonald’s franchise means that your market research is done for you, your equipment is bought for you and the construction is done for you. You literally just receive the keys and step into your business with everything ready to begin trade.
“Starting out on your own is a lot harder. You need to have a unique service and a really strong selling point to do well.
“There are some downsides to joining a franchise too, like the franchise fees. You have to contribute to marketing too. In the end you pay like 20% of your turnover towards fees. But then you have to ask yourself, would I have this turnover if I didn’t have the backing of the brand? So its really a catch-22 situation and it’s up to you to decide,” Williams said.
Mukheibir said franchisees are granted a certain amount of freedom in order to adapt and develop their business model, based on the franchise guidelines.
He said franchise opportunities were also vast.
“So it is important to explore this and interrogate what suits your ambitions and your personality before you sign on,” he said, adding that the Cash Converters model also required a more hands-on approach.
“The Cash Converters model, for example, works best with franchisees who are hands-on, have good people skills and some entrepreneurial flair for sourcing and marketing stock.”
Despite the differences in their business approaches, the business owners agreed that success of any business required hard work and dedication.
“You have to give your business your all. You have to dedicate yourself to the success of your business if you want to succeed. Because of my hard work, Friesland now has two new branches. One is in Hemingways Mall and the other is in Grahamstown,” Cassiram said.
Mukheibir said: “Whichever route you choose, it is vital to work hard and always believe in your business. Whether you choose to be an independent entrepreneur or to build your business within the greater security of a franchise, belief in the need for your business and its product, as well as belief in your understanding of the market around you, will be key factors in your success.” — email@example.com