“Reaping all the profits, shouldering all the headaches.”
Tradeoffs: Start from scratch, buy a business or a franchise.
We celebrate entrepreneurs almost as much as we do sports stars and celebrities.
What is it that’s so attractive about being an entrepreneur?
If you’re like me you’ve probably slapped your head and muttered to yourself,
“What the heck I had that idea years ago.
I knew I should have …”
For every Steve Jobs or Elon Musk there are millions of others like us who weren’t driven or who ran out of money before they launched their next Apple or Tesla.
Or Facebook, or Google, or Twitter, or …
Did they have anything in common with all the other entrepreneurs like artists and musicians who didn’t make a life for themselves?
A lot of people told them over and over again that they wouldn’t make it.
But they persisted one day longer and then the magic hit.
What about you?
Do you have the determination, motivation and know-how to make your own dent in the universe?
So, maybe you aren’t toiling away in Silicon Valley or Silicon Beach.
And you don’t know anything about code-writing or app development.
And, even if you don’t have the luxury of burning through huge piles of VC cash without a viable, tangible business model, don’t worry.
Starting a business from scratch still can be very attractive to you if you enjoy the control and creativity you’ll have doing it your own way.
- You get to create your own system from scratch.
- You make all the decisions.
- Call all the shots.
- And, when you succeed you’ll love the feeling of accomplishment no one else has.
- Instead of paying somebody else royalty, licensing or franchising fees, what you make is what you keep.
- You reap all the profits.
- And maybe best of all, you’ll face a lower barrier to entry.
Work from home or your garage.
Save on expenses until the business can support it.
But, you have to be realistic, you know?
You’ll be completely on your own from start to finish.
That means you’ve got to figure out how to start and run your business, and then everything else — you have to manage through all the ups and downs.
After you tap your friends, family and “fools,” and max out your own credit card limits, there’s always the work involved to obtain additional financing — preparing a complete and detailed business plan.
And you’ve got those make or buy decisions.
For the expertise you don’t have, but desperately need to survive, should you hire someone or should you employ independent contractors?
What about sales?
You aren’t in business until you have customers.
So most of your sleepless nights involve marketing and sales problems.
Oh, and what about the competition?
When you build your business from scratch you’ll need to differentiate your business everyone else.
And by others, there’s a distinct possibility that your competition has been established in your marketplace.
And, you may be up against franchises with their already optimized business acquisition, operations and customer identity.
Why are the odds of stacked against start-ups?
Usually because it’s so difficult to establish a completely new concept and system from scratch.
That’s why buying an existing business or franchise is traditionally less risky.
You still get to be boss and call all the shots.
And, the advantages for the right person, let me count the ways.
- First of all if you’re in it for the long haul you’ll encounter a much lower risk of failure.
- In the short term you’ve got a business that deposits money into your account on day one.
- You buy an established customer base who you can cultivate to send you even more with referrals and references.
- Unlike 90% of those startups who have fun but run out of cash too soon, you’ll be able to secure financing from the outset.
How can that be possible?
Every aspect of your business is proven.
In fact, sometimes a seller will lend you support and financing assistance.
While startups can, well start up, for next to nothing in a third bedroom or garage, buying a business requires an initial investment to buy it and to pay for all those business transfer costs.
You’ll need experts to help you to evaluate the business opportunities and hidden problems that may have inflated the selling price.
Some receivables may later turn out to be non-collectable to you after the sale.
Oh, and expect to lose 5 to 10% of your customers within the first 12 months after you close the deal.
Talking about closing the deal, understand that under 50% of transactions initiated actually close for a wide variety of reasons.
Better to find out what those potential pitfalls are up front in your due diligence assessment.
- You’ll be buried in as much information as you can gather just to find a suitable operating business that you want for sale.
- Then you’ll want to be certain you agree with all those factors that went into valuing the business fairly.
- If you are convinced, then you need to successfully negotiate before you close and transfer ownership.
The good news, though, is that tens of thousands of small business sales occur every year with little or no real problems.
And the new owners and the sellers both realize their goals.
But, you must be fully prepared and knowledgeable for this success to occur!
What about buying a franchise?
Isn’t that a less risky option?
Well, yes and no.
Overall, there are pros and cons to every investment you make in life.
Every franchise company is different.
You must decide on a case-by-case basis if the investment you are going to make is safe or not.
The International Franchise Association kept statistics on the success of franchises.
Their studies showed that franchisees had a success rate of 95 percent versus a failure rate of 85 percent for non-franchised businesses.
But, their statistics turned out to be inaccurate.
More and more franchises sprung up.
Not necessarily only those like the McDonald’s of the world.
Research the market
Franchises shouldn’t be too young, nor should they be too well-established.
If a franchise is either, you may be heading into a risky investment.
But, let’s face it.
One of the most attractive features is brand awareness – consumers more likely already know about your product or service.
- You usually won’t have to spend a lot of effort looking for customers.
- And, that my friend quickens the return on your investment.
- Another pro for buying a franchise?
- You’ve got a proven, turnkey system with support from day one.
- Your franchise organization offers ongoing management and technical support for you and your business.
Therefore, if you run into any issues, they should be able to help you resolve them.
If you’ve joined forces with a younger franchise their support may leave you underwhelmed.
Since franchises are broken out by territory there shouldn’t be as much competition in your area.
You will be receiving rights from the franchise company to market in a particular location.
Couple that advantage with lower inventory prices through the collective buying power of the franchise – for inventory and equipment – and you’re on your way to more profits, faster.
Who wouldn’t want that?
What about finding employees you can trust?
A franchise business with a recognized name will have greater recruiting pull than an unknown business entity – attractive to a more talented and skilled workforce.
It can’t be all blue sky and sunny days, right?
- Well known brand names don’t come cheaply.
- Expect higher start-up costs – often beyond the means of many would be franchisees.
- You might be better off as an independent business person focusing on building a strong business operation instead of buying a top-tier franchise.
- Surprisingly you can encounter a bunch of fees you hadn’t even considered.
- Usually you pay royalty fees in exchange for the support that is provided.
- Therefore the profit will not belong completely to you; but should be worth the support you are receiving from the company.
- Make certain those fees are disclosed in your early due diligence phase.
- A great deal of research needs to be done prior to making a decision on which franchise to buy.
You want to avoid making a poor franchise choice.
Find out about any litigation history, for instance.
Also check with other franchisees about their experiences and any red flags like a high turnover of units or broken promises.
Not every franchisor has the ability to provide market or field support.
Find out ahead of time.
And finally, how do you feel about being your own boss, but not having complete freedom with the decisions you make?
A majority of entrepreneurs say they couldn’t wait leaving the corporate world for starting their own business, because they got to call all of the shots.
Since the franchise system is already in place, you will be required to follow the setup, leaving less room for creativity and your own decision-making.
How much flexibility, autonomy and creativity do you crave?
Are you willing to tradeoff some of your entrepreneurial freedom for a sustainable future in one of those bucket list resort towns?
(5) Choose the ‘Preneur’ business model that brings out the best in you – freelancing, consulting, franchising, Internet marketing or establishing a Knowledge ATM.
An excerpt from Book Two in “The Knowledge Path Series” dedicated to helping you make more money from a lifestyle businesses you’re truly passionate about.