Entrepreneurs and franchisees share many common attributes including being business savvy, drive, and a desire to create wealth. The fundamental differences between them have to do with vision and risk appetite.
According to Investopedia, “An entrepreneur is an individual who takes the risk to start their own business based on an idea they have or a product they have created while assuming most of the risks and reaping most of the rewards of the business.” While they describe a franchise as, “a type of license that grants a franchisee access to a franchisor’s proprietary business knowledge, processes, and trademarks, thus allowing the franchisee to sell a product or service under the franchisor’s business name. In exchange for acquiring a franchise, thie franchisee usually pays the franchisor an initial start-up fee and annual licensing fees.”
That said, franchisees are a subset of entrepreneurs. Franchisees piggyback on the vision that was developed by the franchisor and thereby lower the risk that always accompanies pure start-up plays.
Vision
It might seem easy to come up with an idea for a business. However, it is not easy to come up with a complete vision for one and then execute that vision. It takes a lot of time and effort to think through the unfilled demand in the market, what the product or service will be, how to set the price, how to market and generate leads, and how to fulfill orders once they come in.
Entrepreneurs who choose to license their brand and business systems to others through a franchise model are called franchisors. Franchisors have been through the process of creating a vision and establishing a successful company. They have an end-to-end business model that works, and they sell franchises to increase their market reach. This part of their go-to-market vision allows for expansion through licensing rights as opposed to taking on the operating expense of hiring a sales team.
The franchisees, who license the brand and business processes from the franchisor, are also entrepreneurs. However, their vision is to jumpstart their business by latching onto one that has already worked out the kinks and established a market presence. This is particularly attractive for those who are looking to achieve positive cash flow quickly, as the bulk of the start-up costs has been invested by the franchisor.
Risk Appetite
The risk appetite of entrepreneurs is higher than the average business person or corporate employee. Starting a business from scratch is not for the faint-hearted. According to Embroker.com, about 90% of startups fail. Ten percent of startups fail within the first year. Across all industries, startup failure rates are close to the same.
In addition to the failure rate, it takes time to get a business up and running, and not all entrepreneurs have the same appetite for risk. For example, franchisees tend to be more risk-averse than franchisors—they are buying into a proven business system and brand. In a sense, franchisees are operating as entrepreneurs with guide rails. They are choosing to take risks on the go-to-market side, while substantially de-risking the delivery and business process side.
This can be a very rewarding entrepreneurial model because it takes much less time to launch, and it can be scaled quickly. In addition, it provides the franchisee with a group of colleagues who are all building similar businesses—this allows for camaraderie and sharing of best practices.
Setting your goals
When deciding whether to start a business from scratch or acquire a franchise, it is important to set clear goals. If you find yourself longing to get out of the corporate environment because you are burned out and want to control your destiny, consider whether you have a vision for what you want to build and whether you have the time and funding to get through the start-up phase, keeping in mind the failure rate.
Leaving the corporate rat race and jump-starting your entrepreneurial venture through acquiring a franchise may be a great fit. This is especially true if you enjoy having some structure and being part of a team but want to be your own boss and own an asset that creates wealth beyond a paycheck.
