Startup vs franchising – your first venture into business

Entrepreneurial Australians always seem to be in the market for a great business opportunity.

They often face a big question up front, though. Should they establish their own independent business, or does it make more sense to join the world of franchising? Going it alone often sounds appealing. However, according to the Australian Bureau of Statistics, more than 60 per cent of small businesses cease operations in the first three years. Such a statistic explains why many wannabe business owners prefer to buy a franchise. Why are they so popular?

• Bigger can be better – perhaps the greatest benefit of franchises is that they offer the independence of small business ownership with the advantages of a big business network.
• Tried and tested – the strategies and systems in the best franchise models have been finetuned, minimising some of the potential risks.
• Support structures – good franchisors understand the importance of providing ongoing training programs for their franchisees that fast-track their skills and mitigate the chance of costly mistakes, as well as delivering support that covers marketing, operations, finance, technology and other critical areas of any business.
• Brand clout – franchises typically have an established reputation and image that attracts customers from day one, whereas a startup largely has to rely on local goodwill in its initial period.
• Financial strength – banks understand that lending to a proven franchise network is safer than backing most startups, however with lending being tightened up get started on talking to your preferred lender.
• National marketing strategies – joining an established national brand lets individual franchisees benefit from a deeper pool of marketing funds that typically delivers more bang for their investment buck than any independent advertising campaign.

 

Such strengths have allowed Laser Clinics Australia, the global leader in the aesthetics industry, to set up more than 150 clinics in Australia during the past decade, as well as a strong presence in New Zealand and the United Kingdom. In 2019 alone, the brand delivered more than  3.7 million treatments and welcomed more than 268,000 new clients. Its award-winning model has become a benchmark of success for a franchise business in Australia.

Of course, there are also risks and challenges with some franchise models, including restrictions as to where you operate, the products you sell, and the suppliers you use. There is also the prospect of ongoing franchisor fees, along with having to follow policy decisions with which you may not agree.

However, this is often balanced out by factors such as having established products and services or bulk-buying deals for shop fittings or equipment, along with access to operations manuals to streamline the way you run your business.

As with any business opportunity, a potential franchisee should do their homework. That includes understanding the Franchising Code of Conduct, which outlines rights and responsibilities when dealing with a franchisor. It is administered by the Australian Competition and Consumer Commission.

The code covers issues such as disclosure requirements, good faith obligations requiring all parties to exercise their powers reasonably and not arbitrarily, a dispute-resolution mechanism, a cooling-off period for potential franchisees, and procedures for ending a franchise agreement.

The key, if you do decide to pursue a franchise, is to align with a group that has runs on the board. Just as Laser Clinics Australia has provided wonderful business opportunities for many franchisees, opportunities exist in many sectors for people who want to fulfill their business dreams.