Question

Do you believe all new entrepreneurs have the skill sets to own and operate a business? Please explain. Can you explain whether franchises are lucrative for new entrepreneurs? Please provide real-life examples in your response. What are the disadvantages associated with franchises?

Answer 1

I don't think all new entrepreneurs are equipped with the skills to run one's own business. Very few start-ups eventually become successful and profitable in the long-run. According to a study by Forbes, less than 10% start-ups eventually become successful. Entrepreusnhirp requires a blend of skills including patience, long-term view, understanding of rules of business, interpersonal skills, etc. Many entrepreneurs lack the required skills because of which more than 90% start-ups fail.

Franchises can be lucrative business options for new entrepreneurs. A franchise provides an already established brand, business processes, operational systems, etc. to a new entrepreneur. In addition, the risk involved in a franchise is much less as the business model is already tried and tested and the entrepreneur gets access to trade secrets, technical know-how, suppliers, distribution channel, etc. Therefore, a franchise reduces risk and provides an established business model to an entrepreneur.

Following are the disadvantages of a franchise:

• It reduces the autonomy of the entrepreneur as he.she has to work under certain set processes and procedures
• The entrepreneur needs to pay commissions and franchising fees, which reduces profitability
• The entrepreneur faces restrictions regarding the products to sell, the suppliers to use, the distribution channel to use, the material to use, etc.
• The agreement needs to be renewed periodically
• Profits need to be shared with the franchisor