Why a Franchise Model is Better than Sole Proprietorship

Most franchisees I work with originally had the idea to start their own business - someday. Eventually, that seed grew into more and more of a desire to branch out on their own, before they finally landed on the franchise model.

Many Hand & Stone franchisees have experience building businesses for other people, and assume those skills can translate to developing their own company. Executive experience is a great indicator of future success, but running a business also involves skills in different areas, not just specializing in accounting or human resources and leaving the rest of your business up to someone else.

Additionally, many people who are great executives, and even great entrepreneurs, still have trouble developing a distinct, revenue-generating concept.

A franchise can help solve several of these issues by providing a proven, replicable model for success in terms of a business concept and furnishing tools to shore up your skills when it comes to key aspects of the business you may not have experience with.

Is franchising the best choice for your career? Here’s what franchising entails and how it differs from a sole proprietorship model.

Traditional Franchising

Franchising is a business concept which essentially allows others to pay for the use of a brand and business concept. Franchises allow their owner-investors to exert a pretty high degree of independence over their business, while ensuring some operational consistencies and providing a model for success. A franchise typically requires an initial fee, plus ongoing royalties.

 There are many benefits to the franchising model. Among them:

• A higher chance of success than in a sole proprietorship. For example, over 90% of Hand & Stone locations are still open after 24 months in business.
• A shorter time from investment to opening. No need to reinvent the wheel; a franchise provides a replicable model of a business concept, allowing you to take concrete steps towards opening in a shorter period.
• Included training and support. Even if you are investing in an industry in which you are unfamiliar, being trained in a particular model with set you up for success.
• Location scouting assistance. Having established multiple sites already, your franchise should be able to guide you towards a location that will attract their target demographic.
• Recognizable branding. A major attraction of franchising is an established brand with a built-in customer base.
• Group purchasing discounts. Unlike a sole proprietorship, national and regional bulk discounts can help your business pay less for supplies.
• An established business model. Need we say more? Others have found success by following a business model that is proven to work.
• Cooperative advertising campaigns. Pooling money into advertising to benefit multiple locations is more economically advantageous than going it alone.
• A network of fellow franchisees. Your fellow franchisees should be willing to help you achieve success, which will buoy the overall brand.
• Assistance with securing funding. Many established franchises have access to funding sources. When you are qualified financially by the franchise, it becomes easier to qualify for their funding as well.

A franchise model sounds great, right? Are there any downsides? Depending on what you are looking for and how you like to work, there may be. Let’s take a look:

• A lack of independence in certain decisions, such as design. A franchise will want you to stick to their own branding and design elements, within certain parameters, and will make your location a recognizable part of their company, regardless of your own vision.
• Specific services that must be provided, and possibly things that cannot be offered. Some franchises will have core service or retail offerings and allow you to improvise additional services to bring in more income. Others are more strict about offers so as not to dilute the brand or focus on something that is not their core offering.
• Mandatory marketing promotions may not benefit you as an owner. This is especially true for products and services with tight profit margins.

Franchise owners have to determine on their own if they can live with any of the supposed downsides, or if the benefits are worth the trade-off.

Researching a franchise

Surely, not all franchises are created equal. What should you look for to determine a franchise is successful overall and will make YOU successful as well?

A replicable model. Do the financials make sense? Can you evaluate the financial projections and see if they are realistic? Research other franchisees and see what they say about income. Don’t only rely on the top-grossing owners in the business, either; try to find those who earn an average income and even those who have struggled.

Economies of scale. Ideally, you want to grow as much as possible, and adding more locations will allow you to do this. You should closely evaluation your preferred franchise to see if it will benefit from economies of scale. Will additional locations help your business by being able to service more people, closer to where they need you to be, or will it hurt your current business? Does the franchise ensure a uniform experience, leaving each customer with a favorable impression, or does the value and experience vary widely among locations?

Consumer appeal. What is the market like for the franchise? This isn’t necessarily a deal-breaker, as franchises targeting niche markets can be quite successful, depending on other factors, but a large and/or increasing consumer base is a good sign you will find success with a particular franchise. Be sure to gather market research to confirm your franchise’s consumer demand and marketplace claims.

Other types of business models that are not sole proprietorship

Finally, there are other models that are sometimes referred to as “franchising,” but don’t provide the benefits you get with a true franchise model. These models can be the right fit for some people, but only traditional franchises provide the true benefits above, along with greater income growth potential.

Licensing

If you choose to license a product or business, you get the name and trademark
for an upfront fee. You can choose to create the product yourself, buy it elsewhere, or come up with a completely new item or system. Alternatively, you may purchase a specific business model, but not branding or a trademark, which makes it difficult to establish your own reputation. Furthermore, a licensor has little ability to control a licensee’s business, which means other people who are investing in your space may have various quality standards and issues that affect the brand. 

Non-franchise business opportunity

This type of business opportunity usually involves a one-time, up-front fee with no ongoing royalties, which is appealing. For that fee, you get a blueprint of a business, along with a kit of set-up instructions and materials, as well as a preferred sales strategy. This is kind of a “business in a box” scenario. While the low fees and ease of set-up sound nice, this option doesn’t provide you with any kind of support, including training, marketing, upgrades, additional services, or group purchasing.

See if Hand & Stone could be the right franchise for you

I would love for you to join our franchise team. If you’d like a more detailed look at what you can expect with Hand & Stone, check out our franchise guide, which will give you some comprehensive information on becoming a Hand & Stone owner.