Start-up vs franchise - Which is best for you?

Maybe you’ve dreamed of being our own boss for many years, but you’ve finally decided it’s time to take the next step. One important and difficult decision is deciding whether to start a franchise or take the start-up route. To make it a little easier, we’ve summarised the advantages and disadvantages of each.

Start-up vs franchise - Which is best for you?

Start-up

Advantages:

• Don’t have anyone to answer to. You can decide when you want to work and what role you want to have and, crucially, there is no one to report back to. Whilst franchising often provides the flexibility of deciding your own hours, the franchisor gets the final say of how the business is run.
• Creative control. This is the better option if you are incredibly creative and want to be able to make all of your ideas a reality. Founding a start-up involves innovation and imagination, and if you have your own business concept that you want to realise, this isn’t really possible with franchising.

Disadvantages:

• Higher failure rate than franchising. Independent start-ups have relatively high failure rates, making them a riskier option. It’s been found that 25 percent of them fail in the first year and 50 percent of those left fail within five years. But with high risk comes high return, especially if you find a niche in the market. Take, for example, Uber and Airbnb, where the founders are billionaires.

Franchise

Advantages:

• Recognised brand. Brand awareness comes with the name from the get-go, which means more customers are likely to visit in the early stages and therefore increase sales.
• Higher success rate. Franchisees can operate under a proven system and receive comprehensive training and ongoing support.

Disadvantages:

• Less freedom. There are quite a lot of restrictions and you need to adhere to certain guidelines set out in the franchise agreement.
• Fees. There is an investment cost and ongoing fees that have to be paid to the franchisor.

If you think that taking the franchise route is the best option for you, you may be wondering how small franchises can compete with big brands.

Although you might think it’s impossible to compete with huge, international brands, there are still plenty of ways in which you can build a loyal customer base. Smaller businesses can be very successful if they can find a way to differentiate themselves from the biggest franchises and focus on building brand awareness on a local level.

>> Read more:

• Why Small Franchises Are a Good Investment
• Franchise Brands: Why Is Brand Consistency So Important?
• Which Is Best? Big Brand Name Or Niche Franchise?
• The Best Businesses Come in Small Packages

10 tips for how small franchises can compete with big brands

1. Draw attention to the quality of your products/services

The brand visibility and ease of big chains

Large franchises can rely on brand visibility and convenience to retain customers. For example, if a large restaurant franchise brand is present in just about every neighbourhood you can think of, people might dine there for two reasons: they know what the brand is and they live nearby. These customers may not necessarily be eating at this restaurant because of the quality of its food or value for money. They’re choosing it because they know what to expect and they don’t want to take a longer journey/walk to go to a competitor further away.

Focus on always maintaining high-quality

Therefore, it's essential for small franchises to focus on the quality of their products/services and delivering the best customer experience. So, for example, a large pizza chain might use pre-frozen pizza bases so that it can sell the highest volume of pizzas in the shortest timeframe. These pizzas may be cheaper than what you could afford to charge. However, if all your pizzas are freshly prepared with the highest quality dough, your customers may be willing to spend a little more if they know the pizza will taste better. What you lack in scale and national/international presence, you can make up for with a delicious food offering and unique dining experience.

2. Offer your customers something new

Think of something that your customers wouldn't be able to receive at the biggest franchises. It may be your products/services, or it could be your style of customer service that differentiates you from everyone else.

For example, imagine if you were a small Italian restaurant sourcing your wines from your large family-owned vineyard in Italy, which doesn’t sell its wines to any wholesaler. It would be difficult for a large brand with dozens of franchises to offer something so authentic. And, when people dine at your restaurant, they’ll know they can order wine that they won’t be able to drink anywhere else. Therefore, choose your target market carefully and take this into consideration when choosing where to locate your franchises. Conduct thorough market research and look into the demographics of the area. If you’re offering high-quality, quick-service food for customers on a budget, you might want to set up in a highly populated student area.

3. Personalise your customer service

If you want to achieve a loyal customer base, one of the best franchise ideas is to personalise your service. Many of the biggest franchises will struggle to do this because they tend to have higher rates of staff turnover, so it's more difficult for staff to get to know their customers.

Small franchises will often have the same staff for years at a time, and this creates an opportunity to provide a more personalised customer service. For example, a café franchise may have a loyal customer who always likes to order the same drink or cake on every visit. Sooner or later, the only word you'll need to ask the customer is ‘usual?'. This will achieve two things: it will save you time, and you'll make the customer feel valued. The little things like this are what creates a pool of brand-loyal customers.

4. Be flexible

Continuing with the café example, imagine if someone arrived just as closing time was approaching. A big, well-established café brand could easily get away with saying, “Sorry, we’re closing”, but a small franchise might want to look at things differently.

Imagine if this were a new customer who had just moved to the area and was looking for a new café? If you were too rigid and decided not to let the customer in, you might have two problems.

Firstly, you’d lose all the business that this customer could have given you over an extended period. Even a few coffees a week can add up to a lot of revenue in the long term. For example, over three years, the customer could have spent £1,170 buying three coffees costing £2.50 a week.

Secondly, you could receive a bad review on Facebook or Google, which could deter other people from coming to your café, resulting in more lost revenue. However, if you were a little more flexible and offered the customer a coffee to take-out, the outcome might be very different.

5. Localise your online marketing

Choose key words carefully

It’s a good idea to focus on less-competitive words and phrases because the most popular search terms will often be dominated by the biggest franchises, which have much larger marketing budgets. For example, if you’re a new café franchise in London, using regional keywords like ‘Café in [neighbourhood]’ rather than ‘café in London’ may be more useful for improving your online visibility. The search request for a phrase like ‘café in London' will usually yield results for very famous cafes or articles from high-profile publications and newspapers on the best cafés in the city.

Focus attention on local area - the power of word-of-mouth marketing

Instead of spending a lot of money advertising your business in a prominent publication, consider local media like community newsletters. These will not only be much cheaper, they'll help you reach out to a local demographic so that you can make a name for yourself in your area. Plus, once you get customers and provide them with excellent service, they might be willing to recommend you to their friends and families. For small franchises, there’s nothing more powerful than word-of-mouth marketing.

Connect through activity in the local area

Another exciting way to connect with your audience is to talk about a local event such as a festival or post a blog on a relevant topic (e.g. a restaurant franchise talking about healthy eating. Even talking about an unusual weather event, such as a rare spring snowfall or a summer heatwave can be a great way to strike a conversation with your customers.

6. Adapt to change quickly

One of the biggest advantages small franchises have over their larger competitors is that it’s much easier to change different aspects of their business without causing too much disruption. Imagine how much time and money it would cost for McDonald’s to create a new bland slogan and logo. The largest franchises also face far more obstacles when they need to adjust their marketing or businesses systems, whereas smaller brands can implement new franchise ideas quickly. This means you can move with the times easily and diversify and adapt your offering depending on trends and fads. Make the most of this; you might even be able to offer your customers something that the big brands haven’t yet.