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What is the difference between a franchise and a startup?

On Behalf of | Feb 28, 2024 | Business Formation & Planning

If you are planning to own a business in New York, two of the most popular options are starting up a new business or purchasing a franchise. Understanding the practical differences between these choices is essential for making an informed decision tailored to your goals.

Starting your own business means autonomy

Embarking on an independent business journey grants you unparalleled autonomy. As the sole decision-maker, you are responsible for the entirety of your venture, from financial aspects to marketing strategies. However, the absence of ready-made support or training means you are charting your course without external guidance. Developing business culture, systems and processes falls solely on your shoulders.

Starting your own business means crafting your own business model

Crafting a comprehensive business plan is imperative when starting from scratch. This plan should encompass crucial elements like an executive summary, company description and market analysis. Standing out in a competitive landscape demands continuous adaptation to market shifts. In contrast to franchising, where an established brand offers a proven business model, the inception of an independent business requires more extensive development efforts.

Giving up some autonomy, but having some support

Opting for a franchise can afford autonomy in operations while enjoying the backing of a dedicated partner, the franchisor. The level of autonomy you receive varies based on the franchisor. However, franchises provide structured training, established systems and ongoing support, ensuring you are not navigating the business terrain in isolation.

Buying a franchise means buying into a proven business model

Franchises offer tried-and-tested business models that have demonstrated success. While these models may undergo evolution, they spare entrepreneurs the extensive developmental efforts required when starting from scratch.

Buying a franchise has cost considerations

The upfront costs of buying a franchise can be higher with start-up expenses (franchise fees, etc.), rent, utilities, employee wages, and taxes. A non-refundable franchise fee is part of the initial costs, contributing to the comparatively higher upfront investment. You must pay a percentage of your sales back to the franchisor, and depending on your business, you may also be limited to sourcing your product from them as well, which means you are beholden to their costs.

Forging an independent business path offers autonomy, but it demands substantial effort in system and process development. On the flip side, embracing a franchise model provides a proven business framework with ongoing support, albeit with a higher initial financial commitment and ongoing backend costs. Carefully assess your goals, risk tolerance and available resources to make a decision aligned with your entrepreneurial aspirations.