New versus Established Franchise Opportunities – Which Way Should You Go?
By: Eric Parker and Anita Du Toit – Directors | Franchising Plus
What to buy? An established brand name or an unknown startup? Do you take the safe road or do you take the short-cut – it’s riskier but it might get you where you want to go faster? Or would you rather toe the line, follow the cautious route and opt for tried and tested franchise opportunities?
The franchising sector worldwide is made up of two essential groupings.
The Big Guns
Like the McDonald’s, the PostNets and the Nando’s; those who have hit the big time; they have hundreds of stores, are well-established, with good reputations.
The Start Ups
The new and not-so-new franchise concepts that are either just starting, have just taken off or are on their way to becoming recognized brands. They say franchising is the stone that is thrown which starts the ripple effect of a new trend.
Whether it’s the trend in gourmet burgers or a new body-shaping workout gym or a franchise that is harnessing solar, franchising has always been in the forefront of breakthrough trends.
The Franchise Dilemma
Finding out whether it is better to buy into a new franchise concept or opting for the well established, is like the chicken and egg scenario.
In talking to franchise consultants and experts, and considering the strict international guidelines adopted by FASA (Franchise Association of South Africa) on assessing and acquiring a franchise, one tends to forget that every franchise concept started with that one big idea, that first pilot operation, the first franchisee who acted as a guinea pig, the ten more who also took the risk before the franchise picked up momentum to become a recognized brand.
Which personality are you?
The answer to this dilemma may lie with whether you are the type of personality that is suited to taking the higher risk or whether your reasons for wanting to buy a franchise lie in the tried-and-tested business format that well-established brands have to offer. Eric Parker of Franchising Plus believes that there are two categories of franchisees:
Appetite for risk – those that suit the “developmental” stage of a franchise – i.e. they are franchisees that have a greater entrepreneurial flair and are prepared to take a higher risk, with the promise of higher rewards. This is the person who gets as excited by a new franchise concept as the developer, is keen to roll up his sleeves and help make it work, whatever it takes and above all, understands and is prepared to take the initial risk. These are the franchisees that are, in effect, helping to build the brand.
Risk averse – those that suit the “maintenance” stage of a franchise – i.e franchisees who join a well-established franchise because they want the security of a sound business format and are happy to follow the tried-and-tested formula laid down by the franchisor. These franchisees are, in effect, helping to maintain and sustain the brand, for their benefit and that of their franchisor.
Advice for each type
Established franchise – talk to as many franchisees as possible to get a feel of whether they enjoy what they are doing and above all whether they are profitable.
New concept – don’t even consider getting involved if the franchisor doesn’t have pilot operation that’s been in existence for at least one year, preferable two or three as well as having at least one or more separate company stores, joint-ventures or franchisees.