Weighing up the odds, start your own business or invest in a franchise?
By David Nelson of Mr Franchise
The Pareto principle (also known as the 80/20 rule) states that, for many events, roughly 80% of the effects come from 20% of the causes. Management consultant Joseph Juran originally suggested the principle and named it after Italian economist Vilfredo Pareto, who noted the 80/20 connection while at the University of Lausanne in 1896.
121 years later the rule can still be seen in many aspects of business, 80% of sales coming from 20% of customers etc. Well another “rule” is that whilst 80% of new start businesses may be deemed to fail while 20% succeed, when investing in a franchise 80% of new starts are likely to succeed whilst 20% are likely to fail.
Leaving the stats. to one side why is there such a marked difference between the success rates in the franchise sector and none franchised new start business? And, more importantly, what lessons could be learnt from what on the face of it would seem a safer bet. Regardless of the apparent much greater success rate a franchise will not be the right choice for many. The new entrepreneur may want to keep total control of all aspects of their business or have a unique product or service they want to launch, in either case a franchise would not be the right choice. It is worth recognising the key facts that help the franchise sector to be more successful, because if we can do that then can we have the best of both worlds!
There seem to be key factors that help new business owners in the franchise sector (franchisees) be more successful. Firstly, they seem to be more realistic with the amount of capital they will need to make the business viable. This is mainly because they are following a path already followed and so their business plan is far less based on assumption, in other words the benefit of hindsight and experience. Secondly, they are more visible from day one with an established brand and so have a far higher chance of being competitive. Lastly they benefit from a robust support structure that is relevant to their business and its challenges.
So whilst many business plans in the franchise sector are a documentary of what has been proven possible before and professionally created, many plans in the none franchise sector are essentially a work of fiction as they are a view of what may be and are often the first plan the new business owner has experience of creating.
So the lessons to be learnt are pretty straight forward, if franchising is right for you it will be the safest option but for many it just may not be right, so don’t be reliant on the odds and become a statistic. Control the odds through accurate business planning based on the use of, whenever possible, experienced professionals and research resulting in a much more focused action plan.