Franchise vs. Startup: Which Business Model is Right for You

Before you read this, you need to know that I’m a franchise guy. Heck, I’m The Franchise King®!

I’ve written two books on franchising. I work with aspiring franchise owners. Simply stated, I love the franchise business model-even if it isn’t perfect.

Now that you know where I’m coming from, here’s my take on “starting” a startup business vs. starting a franchise business.

I hope my insights help you decide on which way to go…because both can be profitable.

On Business Ownership

Making the leap into business ownership is an exciting yet daunting decision.

Two popular paths emerge for aspiring entrepreneurs: launching an independent startup or starting a franchise business. Each model offers distinct advantages and challenges. Understanding these differences is crucial for making an informed decision that aligns with your goals, skills, wants and resources.

With that in mind, let’s begin with franchising.

The Franchise Model: Building on Proven Success

First off, what is a Franchise?

A franchise is essentially a license to use an established company’s business model, brand, and operational systems.

When you purchase a franchise, you’re buying the right to operate under a recognized brand name, along with access to proven systems, training, and ongoing support. Here’s a more detailed answer.

Key Advantages of Franchising

The most significant advantage of franchising is stepping into a system that’s already been tested and refined.

In a nutshell, you’re not starting from scratch — you’re replicating success. The franchisor has (hopefully) worked out the kinks in operations, technology, marketing, and customer service.

Of course, opening a franchise sometimes means instant brand recognition.

Instead of building awareness from zero, you benefit from existing customer trust and loyalty. This may translate into quicker revenue and profit generation compared to a startup business.

In addition, franchisors provide comprehensive training programs and ongoing support. You’ll learn everything from daily operations to management best practices, often with access to experienced mentors and a network of fellow franchisees.

Generally, franchises come with established supplier relationships and bulk purchasing power. This typically means better prices on inventory and equipment than independent businesses can negotiate. It’s bulk buying power at it’s best!

The Drawbacks of Franchising

Money-wise, franchise businesses often require significant upfront capital. Beyond the upfront franchise fee, you’ll need to meet specific requirements for location, equipment, fixtures and inventory.

Please know that franchisors maintain strict control over operations, marketing, and even store design. If you’re highly entrepreneurial and creative, this might feel restrictive.

Bluntly, if you typically “have your own ideas on how things should run,” a startup business is the way to go.

Franchisees pay ongoing fees. They need to pay monthly royalties and marketing fees, which can impact profitability.

Note: on average, today’s franchise royalties average around 5% of revenue. And monthly marketing fees average 1%–2% of revenue.

Final point: if you’re making a lot of money as a franchisee, the fees listed above should feel like they’re worth it.

The Startup Route: Charting Your Own Course

When I say “startup,” I’m talking about an independent business venture that you build from the ground up. In a nutshell, you’re creating everything from your brand identity to your operational systems, to your marketing initiatives and more.

Key Advantages of Startups

As a startup founder, you have total creative and operational control.

That means you can pivot quickly, experiment with different strategies, and shape the business according to your vision.

Profit-wise, without franchise fees and royalties, successful startups can potentially generate higher profits. Plus, you retain 100% of the equity, which could be valuable when and if you plan to sell the business.

Another advantage is the fact that you can can innovate freely, responding to market needs without corporate approval. This agility can be a significant competitive advantage. Talk about freedom!

Investment-wise, many startups these days can begin with minimal capital, especially in service-based industries or online businesses. You can scale gradually as revenue grows.

Some Challenges of Startups

Without a proven business model, startups face a high (ish) failure rate. Remember, you’re testing everything from market fit to operational systems to which technology to use.

Something else that’s important for you to know is that building brand awareness and customer trust takes time. Especially in the super-skeptical world we live in.

While franchises have built-in support from franchise headquarters, you’re largely on your own when it comes to problem-solving and decision-making.

And while you can hire consultants or join entrepreneurial networks, there’s no built-in support system. You’re it!

On Making Your Business Ownership Decision

Here are some personal factors to consider.
Your risk-level: Are you comfortable with high risk for potentially higher rewards (startup), or do you prefer a more predictable path (franchise)?
Your Experience Level: If you’re a first-time business owner, you may benefit from the structured support of franchising. If you’ve already owned a business, have been in middle management or higher and have a startup mentality, you may prefer the freedom a startup can give you.
Your Money Situation: Be realistic about your financial resources. Consider both initial investment and operating capital needs for at least the first year.
Personal Goals: What’s your long-term vision? Are you building to sell, creating a family business, or seeking passive income? Or something else? Define it.

Making Your Final Decision

The choice between a franchise and startup isn’t just about business models — it’s about aligning with your personal goals, skills, and resources.

The Bottom Line?
Both franchising and startups offer viable paths to business ownership. Success in either model depends more on finances, execution, energy level and whether or not you want to be a rule-follower of a rule-maker. The key is honest self-assessment and thorough research before making your decision.

Remember: The best business model is the one that aligns with your strengths, resources, and long-term vision for success.

Take time to evaluate both options thoroughly, speak with owners in both models, and consider consulting with business advisors (ahem) before making your final decision.

Note: There’s something called the hybrid approach.
Some entrepreneurs choose a hybrid strategy — starting with a franchise to learn business fundamentals, then launching an independent venture later. Others might start independently but eventually convert their successful business into a franchise system. It can be done.

Are you getting my free VIP Franchise Newsletter?