Why Isn’t Franchising the First Choice for Entrepreneurs?

Every year, more than 5 million people in the US apply for a business license. Yet only 15,000 new franchise locations open annually. Why isn’t the franchising industry capturing more of those looking for business ownership opportunities? Why do these budding entrepreneurs not take advantage of the benefits inherent in joining a franchise? 

Let’s look at some of the reasons people don’t naturally turn to franchising.

10 Reasons Why Franchising is Overlooked

Franchising is Limited.

For those of us steeped in the industry, it’s hard to remember a time when we didn’t understand all the ins and outs of franchising. But for many individuals who have not been exposed to the industry, franchising is only made up of fast food chains and retail stores. 

When people think of a franchised business, they understand their neighborhood fast food joint, the local quickie mart, or hardware store are probably franchised, but they don’t realize all the other opportunities available from home services to tutoring to hotels. 

Franchising is Restrictive.

While a well-established franchise brand will have guidelines and rules franchisees are expected to follow, many looking to start a business believe that they will have little autonomy if they choose a franchise. The belief that a franchisor will stifle their creativity and independent spirit can discourage people from pursuing this path. 

Franchising is Expensive - To Start.

Even for those who are interested in franchising and understand the benefits they can take advantage of, the raw numbers can be intimidating. With investments ranging from tens of thousands to several million dollars, many potential entrepreneurs believe they can’t afford to open a franchise. They may even believe that it’s less expensive to go out on their own, not realizing - and underestimating - all of the costs associated with starting from scratch.

Franchising Can’t Be Financed.

For those pursuing business ownership, financing is often needed to get their concept off the ground. Most people don’t realize the extent of support available to those looking to open a franchise. From franchisor-provided programs with preferred vendors to SBA loans to discounts for veterans, first responders, and others, there are many ways to help make the dream of owning a business more affordable when you choose a franchise brand.

Franchising is Expensive - Long Term.

Much like the belief that the average entrepreneur can’t afford the initial investment to buy a franchise, many also believe that the cost of royalty payments and fees will be cost-prohibitive over the long term. They may also be confused about why they are paying these fees, believing they are not receiving anything in return.

Franchises Fail More Than Start-Ups.

It’s hard to believe, but this is a common misconception. According to industry statistics, 95% of franchises succeed compared to only 50% of start-ups. The truth here is that perception is reality, and the perception that franchising is risky can prevent individuals from pursuing it as an option. Helping entrepreneurs understand why franchise businesses are so successful must be part of the marketing strategy.

Franchising is Complex.

Starting a business is a huge step for any individual. For those looking at franchising, trying to get their arms around the vernacular of the industry and all of the legal documents they need to review can be so intimidating that they just step back from the idea altogether. From the FDD to the franchise agreement itself, there is a lot for first-time franchise owners to comprehend.

Franchising is Just Buying a Name.

One of the benefits most people understand is that buying into a franchise brand means you benefit from an established brand name and reputation. What they fail to realize is all the other ways they will benefit. Perhaps the most important benefit of franchise ownership is a proven business model that has already been established. No start and stops. No trial and error. The framework is in place for success right from the day they open their doors.

Franchising isn’t Supportive.

One of the greatest advantages of franchising is that you are in business for yourself but not by yourself. Too many people simply overlook all the benefits they will receive from a franchisor if they purchase a location. From start-up support and training to pre-vetted technology and national ad campaigns, the value of the support provided to individual location owners cannot be underestimated.

Franchises Aren’t Profitable.

Not all prospective business owners understand just how profitable owning a franchise can be. They look at the initial investment, ongoing fees, and everyday business expenses, and don’t see where the profit will be. While the FDD should paint a clear picture of profitability for existing locations, helping future owners understand what they can expect and how they will be profitable is essential.

Understanding why potential business owners aren’t considering franchising is essential to finding ways to communicate with prospects. It’s also necessary for crafting educational marketing messages that break down these objections so entrepreneurs don’t turn away from the industry before they ever get started.