From sure-fire formulas to unique offerings, both franchises and independent businesses have their strengths and weaknesses. Augment your business by knowing what works for the "other kind" of small business operation and why.
By Chad Preston
There are many paths to small business triumph: You can introduce a product or service that no one else offers, put a spin on an existing commodity that no one else has yet, or apply your business smarts to a successful model that is a tested winner in the marketplace. But whether you are an independent entrepreneur or an operator of a franchise, it’s important to note that both have their advantages and drawbacks. Being aware of what works on the ‘other side’ — no matter which kind of business you run — can increase your chances of continued success.
Sharad Mehta, owner and president of Cherry Hill, N.J.-based Tannenbaum & Aalok, a business brokerage firm, says that neither business model is superior to the other. “It entirely depends on the owner of that particular business — his background, his experience and most of all his approach to doing business,” he says. “Some people are very uncomfortable with franchise operations because the franchisor, in a way, is a partner, therefore you’re not completely independent.”
Get Structure and Support
According to Mehta it is easier to take strategies from a franchise and apply them to an independent business rather than vice versa. “A good franchise has developed a system,” he says. “It has a proven system. The entire operation is systemized and has been simplified. It’s easier to learn from a franchise because you can go and find out that it’s the same in every store; what sells and what doesn’t sell, what sort of packaging they do, the marketing and promotions they are doing and what’s attracting customers.”
And there are other advantages that a franchise has that may not be available to an independent business simply because a franchised operation has more money and more available resources. Mehta says that franchise brand recognition and marketing power provide significant advantages. He says in the hospitality industry, for example, the big name flag is much better than an unknown one. “If you’re driving around and you see Howard Johnson or Comfort Suites, you can expect certain standards and it’s the same thing with restaurants, you see a familiar name and you expect a quality or standard that you have experienced before — good or bad,” he says. For a non-franchise operation, name recognition is only as good as your business, he adds.
“I think we’ve learned a lot from working in the franchise, things we never thought of before, in terms of marketing and how to measure your success with various advertising or marketing programs,” says Tony Scaletta, owner of a PremierGarage franchise, a Phoenix-based garage-enhancement company, and Scenic Window Wells, his independent business. “You learn a lot about metrics, things that are more complex business concepts that I think most people who start a small business don’t have to begin with. You’re going to get the benefit of a very professional look to the business — logos, marketing materials.” He adds that it can sometimes be harder to achieve big-name-quality marketing and advertising for a smaller company. “You don’t have the funds to do what it takes to hire the right types of outside services to get that same look and feel.”
A good franchise company has an exhaustive training program, Mehta says, adding that not only do they train you, they also require testing to see whether you have the business acumen to run the enterprise. “They really want you to understand how that business should be run,” he says. Scaletta agrees, saying that with franchising you’re paying for a lot of knowledge that your predecessors have gained through experience. “You have a dealer network to access whenever you have questions,” he says.
In addition, Mehta says that an independent entrepreneur, in most cases, doesn’t have someone doing applicable research in their particular industry. “If you are so busy running your own business, you don’t have the time, and you have to invest your time and energy in constantly staying on top of the marketplace,” he says. “Someone in the corporate headquarters of a good franchise is constantly thinking about not only quality control, but ‘What else we can introduce?’”
“With the business we started from scratch, we really had to invent the wheel over and over again and we really didn’t have anyone to turn to for a lot of questions that came up,” Scaletta says. “So you find yourself really relying on just yourself and sometimes that can be a bit frustrating.”
Independence Has Its Advantages
But Mehta says a franchise is limited in many ways, citing the formalized structure that can be so helpful to that kind of business. “The biggest advantage of being independent is you control every aspect of that business from beginning to end: where you want your business, what you want to sell at what price and how you want to market,” he says. “If you’re an entrepreneur, you want to do things on your own. You want to introduce new items, and you can’t do that [as a franchise]. Franchises sell certain things prepared and approved and systemized by the franchisor.”
There are other drawbacks as well. You’re limited by the set pricing of the franchise products and by how you promote pricing, Mehta says. “The marketplace is changing and you can’t react fast enough if you are part of a big global franchisor,” he says. “[The franchisor] needs to make those changes. As an entrepreneur, you can come up with your own product and expand,” he adds. “Therefore the sky is the limit.”
In addition, most franchise stores require a periodic update, such as renovations every five to 10 years and those can be expensive, he says. The biggest limitation of a franchise is that you can own multiple franchises and grow outward in your region but it’s not always your choice, Mehta says. The other territory around you may be assigned to other franchisors of the same company. An independent company has the freedom also to entertain offers from larger companies who may want to buy you out, he adds.
“You have to live within the parameters of how they operate their system,” Scaletta says of franchises. “And at times, an entrepreneur who has the desire to do something differently may feel they have a better approach or better solution, but you’re limited because you committed to stay within that system, whereas as an independent business you can pretty much do what you want, when you want to do it, because there’s nobody to answer to.”