Franchising and entrepreneurship are two paths that aspiring business owners can take. We look into the similarities and differences, and which one works best for you.

In a survey conducted by Go Negosyo, four out of five Filipinos aspire to become entrepreneurs, given that many seek alternatives to traditional employment. What’s more, statistics show that around 6.2% of the adult population in the country are established business owners, while around 18.4% are engaged in early-stage entrepreneurship.

What’s important to note as well is that the franchise industry is thriving in the country, as it ranks 7th in the world. It also happens to be an impressive contributor to the country’s Gross Domestic Product (GDP). 

While franchising and entrepreneurship both share the common goal of business ownership, these two differ greatly in several aspects. This article will dive deeper into what makes each of them special so that you, as a business owner, can decide which of the two is a better path toward a successful enterprise.

What is Franchising?

The International Franchise Association (IFA) defines franchising as the method of distributing products or services with the involvement of a franchisor and a franchisee. The franchisor is the one who has established the brand trademark and the system that comes with it. Meanwhile, the franchisee needs to pay a certain fee to obtain the right to operate a business under the franchisor’s established brand name. 

The franchise industry in the Philippines spans many different industries, although the food industry—specifically food carts and kiosks, restaurants, and beverages—takes a big slice of the pie. Other thriving industries for franchising include convenience stores, retail stores, refilling stations, beauty and wellness businesses, and the like. 

What is Entrepreneurship? 

Investopedia defines entrepreneurship as the process of setting up a business wherein the entrepreneur bears the risks and enjoys the rewards. This high-risk, high-reward business approach involves starting a new business venture, which will generate economic wealth, growth, and innovation when successful.

“An entrepreneur creates a firm to realize their idea, known as entrepreneurship, which aggregates capital and labor in order to produce goods or services for profit,” Investopedia explains.

Simply put, entrepreneurship means developing and organizing a new concept and likewise bearing uncertainties and possible risks until profit is earned. It entails a long process of considering the different aspects of the business to make it work. 

Franchising and Entrepreneurship: The Differences 

While franchising and entrepreneurship are options that you can consider if you want to own and run a business, the two vary in several ways. This is why in order to determine which one fits your business style, it’s important to be aware of what both entail.

With that, here are some of the most notable differences to take note of:

The Risk of Failure

Problems are inevitable when it comes to businesses. However, the degree of failure may vary depending on what type of business you own. Specifically, franchisees are more likely to succeed than entrepreneurs because you’ll be provided with an existing brand that has been tried and tested. What’s more, you’ll be equipped with the much-needed know-how, like guidelines, models, and specific business systems that you can easily follow to operate your franchise.

On the other hand, being an entrepreneur poses a higher chance of risk and even failure, since becoming one means that you’ll be pioneering a new idea or business model—which at times may not have even been tested. What’s more, you’ll be starting off from scratch, which means that you’ll be very much involved in setting up your own business.

And yes, this includes developing an entire system that you think will best work for your brand. But should you, the entrepreneur, succeed, the rewards are much bigger and the profits will all belong to you.

Brand Recognition

Brand recognition is also much easier if you decide to go for a franchise. Why? It’s because having a franchise means that your business is founded on a well-known or popular brand. Thus, your brand recall is much stronger and you will already have an existing market, given that the brand is already recognized by people.

When it comes to franchising, the franchisor has already built a name for itself and has already laid out the groundwork for the franchisee. Therefore, all you need for your franchise is to live up to the brand’s reputation and provide your customers with excellent service. 

Meanwhile, brand recognition is a big challenge if you decided to be an entrepreneur since you’ll be starting a brand-new concept that is yet to be familiar with your target market. This entails a lot of hard work for both traditional and digital marketing—which are just some advertising methods that help get the word out.

This makes it more challenging since becoming one means that you’ll really have to start from scratch.

Knowledge Requirement 

One great thing about becoming a franchisee is that it doesn’t require much knowledge about business operations. After all, in terms of knowledge of the business and its operations, franchisors will give you adequate training so that you can operate similarly and consistently with other branches. 

To start one, all you would need to have is enough budget that meets the minimum deal that the franchisor requires—including the franchising fee and of course, budget for the location, operating expenses, and the salary of your staff, among others. The amount for all this will vary, depending on what brand you would like to franchise and the scale of the business itself.

Becoming an entrepreneur, on the other hand, requires immense knowledge to make a business successful. Although it doesn’t necessarily imply that you have to graduate from a business course (even though that might be advantageous), being an entrepreneur means that you need to have a great understanding of what business you are trying to establish—right down to the operations and basic know-how.

More so, entrepreneurship also entails that you are prepared to face problems along the way and that you are able to resolve them to the best of your abilities. After all, in terms of accountability, especially for big decisions, you have no one else to turn to but yourself. Learning from these failures and challenges, however, will help improve operations, as you’ll be able to adapt to the challenges that being a business owner comes with.

Innovation

Innovation is quite impossible as a franchisee since all major decisions have to be approved by the franchisor. This poses a challenge for franchise owners who want to take a step forward since being one means that you need to be aligned with the franchise’s blueprint. 

Meanwhile, being a business owner gives you the freedom to innovate as much as you want. This means that you can change your logo, interior design, packaging, products or services, and operating systems as much as you like. You can do so until you find one that perfectly works for you. Being one also gives you the creative freedom to decide how you want to market your brand—including the right to decide whom you want to tap as your brand endorser, as well as other major decisions.

Budget 

Budget is important for both business models but it’s easier to manage for franchises since there are fixed costs. This applies to the acquisition of the brand name and the supplies that are needed to operate. Additional costs may only apply to the location rental, staff salary, as well as your electric and water bill charges. 

On the contrary, there are no clear requirements when it comes to the budget required for being an entrepreneur. Since this means starting the business from scratch, you should have enough budget to sustain your operations. While it is possible to get funding from different avenues, this only works if the investors see promise in your business.

Overall, not having a benchmark for your budget entails a lot of risks since there are a lot of aspects you may have to spend on before you attain the success you need. Still, you also have the freedom to allocate your funds as you wish—unlike franchisees, who need to get approval for everything from the franchisor.

Knowing the Right Fit

Both business models are impressive and ideal, but it’s up to you to decide which one will work better for your preferences and goals. Here are some key points you may want to keep in mind before deciding which one to go for: 

Going for a franchise is best if:

• You have enough budget to work with a franchisor since some packages can be worth millions, especially for the bigger brands. 
• You want to have a faster Return on Investment (ROI). ROI pertains to the financial metric used to evaluate the profitability and gains of your business. This, of course, is subjective, as not all franchises do well.
• You’d like to be spared from the hassle of finding suppliers since having a franchise already entails having fixed suppliers across all branches.
• You’re good at following instructions since you’ll mostly have to go with the flow of your franchisor. 
• You’re fine with being managed because though being a franchisee means that you are your own boss, you’ll still have to adhere to the standards and directives of the franchisors. 

Meanwhile, being an entrepreneur is great if: 

• You are a risk taker. You’ll need to be ready to face all the ups and downs that come with operating your own business. 
• You have enough budget to sustain operations because, unlike franchises, where there’s a mother company that may send in some assistance, you’ll have to work it out on your own. 
• You want to materialize your concepts into an actual brand, which you can do (and earn from!) through your business.
• You aim to popularize your own products or services since having them recognized by your target audience will prove their effectiveness and appeal. 
• You want freedom in terms of business operations since you get to control every aspect of the business and be able to run it the way you want. 

The Bottomline

Different aspiring business people have different views on what they want to achieve in life and becoming a franchisee and entrepreneur both make it possible for you to be your own boss and be a business owner.

Although each career path gives you a great chance to earn income, each of them is dimmed with its own set of circumstances, risks, and challenges you need to bear. With that, it’s highly important that you learn how to determine what you want to achieve, especially since both come with pros and cons of their own.