Question

Franchised businesses are more successful. Then why do certain people prefer to start their own businesses? Take the example of a Pizza Place for instance. (Hint- I know a pizza place in my neighborhood that withstood the onslaught from growing franchises; you can also use non-pizza business that you know which is not franchised). Franchised businesses, in general, are more successful than non-franchised ones. Why so?: Discuss a franchise that you may be interested in buying with a proper defense.

Compare a franchised business versus non-franchised business using an example.

Answer 1

Franchised businesses are more successful than non-franchised businesses because of the following reasons:

• In a Franchise business, there are significant entry barriers with regards to eligibility for getting the franchise and also capital requirements. This implies that only driven and qualified entrepreneur take up these opportunities thus mitigating chances of failure.
• The parent organization, which provides the franchise opportunity, is involved in setting up the business and working out the plan and setting up processes and systems. This structured approach also improves the chances of success.
• The brand and reputation of the parent organizations helps in capturing market share and acquiring customers.

I am interested in buying a franchise opportunity for opening a McDonald’s outlet. This is a hugely lucrative opportunity albeit with a high capital investment initially. The reasons for the same are:

• High chances of business success given brand image of McDonald
• Training and handholding by the parent organization to kick start the business
• Extensive training and incubation facilities
• Guidance on identifying location and setting up the facility
• Exclusive territorial rights over business thus blocking competition

The above factors definitely improve the chances of success for a business to thrive and thus it is highly lucrative to opt for the franchise under McDonald’s brand as it comes with high return and low risk advantage.

In comparing the business of a franchise against a non-franchise, the following points may be pointed out for the case of a burger outlet:

• Franchise business has backing of a strong parent entity such as Burger King or McDonald. Non franchise business faces difficulty to start up and are not backed by anyone.
• Franchise can leverage brand image of the parent which is not possible for non-franchise
• Training and standardisation of process happens in franchisees thus providing reliability in service level and product being made. This is again not possible for non-franchisees.