Franchising Versus Starting Your Own Entity

My personal opinion is that unless you are an expert in the field you’re going to be entering and you really know this industry well, starting a franchise is a far more productive venture with a higher rate of success. The failure rate among small business owners is extremely high within the first two years of operations, while proportionately franchises are the inverted opposite.

Some things a franchise experience will give you are: management expertise in your industry, name recognition, marketing, and a host of other things the average small business just can’t afford. The biggest thing they will give you is a system. Just take a look at how well McDonald’s runs. They have systems in place for everything. While McDonald’s is a restaurant, they are designed so that a high school student can cook all of the meals they offer on their menu, unlike most restaurants that require highly specialized chefs and cooks. Since McDonald’s is well systemized, they achieve predicable results from millions of employees at thousands of restaurants worldwide.

The restaurant industry has the highest failure rates among small business. A common mistake people make when opening a restaurant is that they have never worked in one. To me it’s unbelievable someone would get involved in the business without at least first operating a similar business. Yet, I have friends who have made this mistake more than once. They open a restaurant, having never worked in a restaurant, don’t know how to cook, and really don’t know the first thing about the business. And then six months later, they’re shocked that their businesses failed. This is why my personal opinion is if you’re going to start a new business, having never been involved in a similar business, then you should buy a franchise.  Pay the premium upfront.  You will have long-term success.

Obviously, there is a premium you have to pay for getting involved in this franchise organization. The numbers really speak for themselves, as somewhere around 90% of all restaurants fail in the first two years of operations, compared to franchise restaurants having a 90% success rate. Not to mention an exit strategy if at sometime in the future, you want to sell your franchise.

The drawbacks to franchises are the significant upfront cost involved, and revenue sharing. If you’re doing this in a transitional stage of your life you may not want to put at risk several hundred thousand dollars for your business venture. There is however, an alternative to the franchise model, which also lends itself to many systems. That is the agency model, most commonly use is in the insurance, and real estate industry. There are many industries that lend themselves to this model. My first business venture with Hertz was an agency setting, I got all the name recognition and many of the upfront costs were covered by the Corporation. My responsibilities were scaled down from typical franchise. The upfront costs were minimal, and I was able to take advantage of the systems that were in place.

In this alternative you could look to the leader in the industry that you’re interested in getting involved and check to see if you could sell their product. If they have an agency model already in place or if you could implement a hybrid of working as an affiliate, this will allow you to take advantage of the systemized procedures that they’ve already done. Learn more about the industry. Of course there are disadvantages to franchising and agencies.  The disadvantages would probably primarily be in the amount of control you have over your operations, the corporate office will dictate what your office looks like, the products or services that you’re able to offer, and to some extent how much money you’ll be able to make. Alternatively, going out on your own, or starting a franchise. Especially if you’ve never endeavored into an entrepreneurial venture is a great way to get your feet wet, while the same time having systems and security in place.

The Three Legged Stool

The idea in this concept is to lead a healthy, happy, and well balanced life. This requires that you have three legged approach to your life that is very well balanced. A concept that was first shared with me by, Tom Hopkins over 25 years ago, and then a very dear friend of mine, Dr. Azam Arastu, (A world renowned scientists that would put most people’s resume to shame.) reiterated a few years ago during a conversation.  It is a basic structure, concept he called “the Three Legged Stool, to a Balanced Life.”  Reality is, it’s impossible to have stool that stands on its own if it only has two legs and all three legs need to be the same length. A well-balanced life is like a three legged stool.  It has to have all these aspects of equal weight and equal strength to support the load that’s placed on it.  View the illustration below:

A balanced life has to consist of all three elements. The analogy of the ‘three legged stool’ is so apropos in that, if you made a four-legged stool, then you can position yourself in some corner of the stool and still sit. However, just like a tripod, if you remove one of the legs from a ‘three legged stool,’ it won’t stand. It should be the same way in our lives too.  If you remove one aspect or ‘one-leg’ from life, then you are living an out-of-balanced life.

When you’re writing your goals, review them to ensure they’re balanced. In order to have a balanced life you have to have a well proportioned all three aspects of your life.

Financial, look at where you are right now what your financial goals are for the next 20 years. What are they going to be in 10 years, in the next five years, the next two years, next year, the next 12 months, month by month, or tomorrow. There has to be a step down throughout each one of these fields which are in equal proportion to each other. It’s impossible to have a balanced life without having all three elements of your life incongruent with long-term objectives in mind. Keeping the ends in mind when we start a project is a key element to successfully see through. Where you are in 10 years should be halfway through your 20 year achievement goal, equally in five years you should be a quarter of the way to achieving your goals. This congruent pathway has to follow through all the way. How much money do you want in your savings account, what type of investments are you going to make, are you going to own rental properties. These are all questions that need to be answered and your pathway.

Family, where you want to see your family in 20 years, how many children are you going to have are you going Grandchildren, are you going to be married. What is the status of your family life again keeping these things in track and in mind as you go through them will allow the little riptides in our life’s not turn into tidal waves. Keeping the balance aspects of our lives on a daily basis is critical to achieving long-term objectives. Imagine every day not just where you are but where you will be keeping a balanced insight is critical to making sure that you’re achieving your objectives.

Career, be careful not to confuse career with financial success they’re completely separate issues. Your career will be the way that you earn money, your financial strength will be what you do with the money you earn. Don’t make the mistake of assuming you’re going to start savings for your financial future once income starts to increase. Look at your career path as a means of building a strong income, and look at your finances as a means for which you can invest your income. Again, keeping in mind it’s a 20 year path and where are you right now the work you plan on going. Are you going to own a business, are you going to sell the business you have to, or you going to leave the business to your children. These are all questions you should answer so you have a clear objective in mind when you’re working towards your goals.

Life is about balance, every aspect of life demands that there be balance between the highs and lows, the victories and defeats. It’s impossible to have success without a clear understanding of humility of defeat. Look at your life, and make sure that you’re building a three legged stool. You can put all of your energies into career in financial success and neglect your family, in the short term you might get by with that strategy. However, the long-term repercussions of the balanced life will certainly lean themselves to your suffering.

I wish you well, and hope that this message resonated with you. Strive for balance in all areas of your life.


Robert Fox