Franchise vs. Startup: Which One Should You Choose?

Smiling waiter taking order from customer at counter

For some people, working for someone else isn’t the best option. If you are one of them, then the thought of starting your own business might have crossed your mind quite a few times already. However, how do you know which route to choose? Do you get a franchise or start your own business from scratch?

To help you make up your mind, here are some advantages and disadvantages of each option:

Advantages of buying a franchise

  • Easier. Franchising is relatively easier than building a business from scratch. If you buy a franchise, you’re purchasing a proven system that has gone through multiple stages of testing.
  • Support. Franchisees are backed by the company they bought the franchise from, to an extent. In addition, there are reputable franchise consulting companies that aim to help franchisees reach the highest level of success.
  • Brand recognition. If you buy a franchise, the majority of what you’re paying for is the brand name. Depending on the franchise you get, you won’t have much trouble trying to get the brand recognized.
  • Exit. When you decide to retire or venture into other businesses, you can sell the franchise to another owner or back to the company without much hassle.

Disadvantages of buying a franchise

  • Expensive. Since you’re buying a ready-made business, it’s bound to be more expensive. Typically, a franchise will cost between $500,000 to $1 million.
  • Limited freedom. As a franchisee, you won’t have much leeway with modifying the business as you like.
  • Corporate mishaps. Everything that happens on the corporate level is out of your control if you’re a franchisee. Scandals, disasters, and public backlash can have detrimental effects on your business.

Advantages of a startup

employees discussing

  • Freedom. By starting a business from scratch, you have the freedom to incorporate any and every great idea that you have.
  • No bosses. Your business, your rules. You call the shots, you manage your own time, and most importantly, you are the boss.
  • Lower expenses. Unlike a franchise, a startup will cost significantly less. Small business loans range around $15,000 to $20,000, but you can start a business with less than $10,000.
  • Building skills. Since you make all the decisions, you’re also responsible for everything that results from those decisions. This can help hone your skills as an entrepreneur, something that is crucial for your success.

Disadvantages of a startup

  • Risky. A startup almost always comes off to a rocky start. Even if you pull through the first few months, there’s no guarantee that your business will stay afloat for the next few years. The stability of your business will depend on your skills as a business owner, among many other factors.
  • Low brand awareness. Since your business is new, you need to work hard to let people know and recognize your brand.

Your choice depends on many factors. But if you want a proven model, go for franchising. However, if you want to operate on your own business model, running a startup may be a better fit for you.