Shopping for a franchise would be easy if there weren’t so many different types of franchise systems. Because of the diversity, you are faced with making difficult decisions that have an important impact on your business future. One of those decisions involves choosing whether to sign with an established franchise or one with lots of potential but less business experience. As with most decisions you have to make in business, there’s a trade-off involved. An established franchise gives you security with less chance for failure, but doesn’t give you as much of a chance for rapid growth.
On the other side of the business spectrum, an up-and-coming franchise with lots of potential does give you the opportunity for fast growth, but at the expense of the security and support you would get from an established franchise. Because it’s a trade-off situation, make every effort to examine the advantages and disadvantages of both systems when deciding which one will work best for you.
The advantages of a slow-growth franchise system are that the franchisor is usually an established company with a conservative business plan that calls for steady, gradual growth. This type of system offers a great deal of support to its franchisees in the form of marketing, choosing the right real estate, training, and financing. These franchises usually have a business history that you can see, and other franchisees that you can talk to regarding their experience with the franchise.
Overall, the basic advantages of slow-growth franchising are:
- Name recognition
- Proven marketing methods
- Strong business plans
- Good training program
- Experienced management teams
- Solid history as a business
- Lots of personal attention
The main disadvantage of a slow-growth franchise system is that it doesn’t give someone with a lot of franchise experience the chance to reap a larger reward for this experience. If you have many ideas, enjoy taking chances, and are looking for faster return on your investment, then you might feel held back by an established slow-growth franchise. The questions you need to ask are, “Why is the franchise growing slowly?” and “Is this part of the franchise’s business plan or does it reflect a downturn in the marketplace?”
The basic disadvantages of a slow-growth system are:
- Saturated market
- Higher franchise fees
- More competition between franchisees
- Less overall opportunity
- Slower return on your investment
Fast-growth franchise systems often offer you the chance to be on the ground floor to what could potentially be a highly profitable growth opportunity. Because they are usually in the beginning stages, fast-growth franchises can reward those with franchise expertise. It might be possible to acquire several franchises and further increase the return on your investment. The questions you need to ask regarding a fast-growth franchise are, “What is fueling this growth?” and “Is it consumer demand or strong financing?”
The advantages to fast-growth systems are:
- Higher market potential
- Lower franchise fees
- More flexibility for franchisees
- More opportunity to expand at a faster rate
The main disadvantage of a fast-growth system usually lies in its inexperience. Often, the business model has yet to be proven, and new franchise outlets are the proving ground. Products and services that begin with hot sales and rapid growth can sometimes reach their peak faster and oversaturate the market. You need to examine the franchise’s growth charts to see where in their cycle they are in regards to sales and market potential.
The disadvantages of a fast-growth franchise system are:
- Lack of name recognition
- Less experience
- Little or no history
- Less franchisor support
- Higher risk of failure