Posted on Oct 17, 2011
For Potential Franchisees: Should You Go Big or Small?
When you think of franchises, you probably automatically think of the really big names - Subway, McDonalds, Pizza Hut, Century 21 Real Estate, etc. You might be surprised to hear that 60% of franchises have fewer than 50 locations and do not fall under the mega-sized franchise category. When getting started in franchising, the decision of which company to go with can be daunting. Here are a few helpful comparisonsthat may help you better understand the difference between a large corporate brand and a smaller business.
Large companies like Dunkin' Donuts or Burger King have thousands of locations, an experienced managerial staff, and concrete evidence to their success. Because these types of franchises are so large, they do offer more co-operative benefits. There will most likely always be an answer to any of your questions, because they have seen it all. Franchisees will accrue the benefits of powerful advertising reach as well as better name and brand recognition. When a Wendys franchise opens in a new location, there is very little chance that the local client base won't know the name before it's even been constructed. There will also be preferential treatment from suppliers and lower operating costs through volume purchasing.
With the big brand, there is a lot of cushion, and it can be considered a pretty low risk investment. On the other hand, these franchises know this about their company, and therefore probably charges a very high entry cost. In addition, many of these huge companies are in flat markets, meaning they can guarantee instant customers, but there isn't too great of a chance of growth in the business. Also, because there are so many of these franchises, the chances of finding a good location are much lower. On the operating side, large franchises tend to become more authoritarian and bureaucratic as they grow. They found a strategy that works for them, and they tend to not want to change that, so some franchisees find that even the smallest decision will be made by the franchisor. On the one hand, this could be frustrating for someone who wanted more independence, but some people enjoy this type of control and decision making.
While large companies ensure large payoff, but with considerable authority, small franchises offer a very different blend that might be right for you. Because there are so many smaller franchises, the opportunity for a variety of choice is much higher. Small franchises tend to be in an uncrowded industry, and therefore have more of a niche market. While you might drive down a strip and see a Wendys, Burger King, Starbucks, Dunkin' Donuts, and McDonalds all within a mile of each other, you most likely won't see seven decorating franchises piled on top of each other. Management tends to be flexible and therefore the franchisee has more independence. In addition, the contracts are more flexible, with less entry cost and more royalty fees as the company improves and grows.
On the other hand, a small franchise will not be the well-oiled machine that comes with a large franchise. There is higher risk with a less known brand, and both you and the franchisor will have to experiment with advertising and attempt at name recognition. There may be moments where you don't get a lot of support from your franchisor and you will have to figure it out alone. You probably won't have the same preferential treatment that comes with a larger company, so wholesale prices will undoubtedly be higher.
There are pros and cons for both sides, so the most important thing is to look into whatever franchise opportunities you are considering very thoroughly. Talk to other franchise owners, come up with a good strategy of staying in contact with the franchisor, and make sure that the company fits your lifestyle.
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