NEW YORK (
MainStreet) -- If you have a brilliant idea, lots of knowledge and great business sense, by all means go ahead and run that operation independently. For others who haven't created a unique product or service but know they want to be their own boss, a structured organization is likely to be better.
There are options for everyone, including those who consider themselves further to the independent side of the scale.
Understanding the difference between co-operatives, franchising and licensing can help an owner decide which avenue would be the best business for them.
|The roughly 4,600 True Value hardware stores operate under a co-operative structure.
Examples: McDonald's, Great Clips, Maid Brigade,
Five Guys, Subway
Pros: Essentially a business-in-a-box, already set up with proven systems and operations that are supposed to ensure success. Lots of support from the franchisor.
Cons: Franchisee has little control over the business other than day-to-day management. Buy-ins, especially for more popular names, are expensive. Franchisees must contribute to marketing funds and pay a percentage of royalties to their franchisor.
Level of independence: Low
In its most basic sense, a franchised business is an agreement for the right to sell specific services and products and market under a parent company's brand, typically within a territory. With that comes very specific business operations and systems from where to buy ingredients (for food franchises) to how the lettering in signs should look to which computer systems are to be used. The requirements come in a comprehensive
franchise disclosure document
Look around a town, city or suburb and it's likely a franchised business is there. The biggest difference between co-ops and franchises is the level of independence and flexibility -- business owners that require more structure and guidance may want to choose a franchise.
"My guess would be the folks at
(MCD - Get Report)
probably don't want you tinkering with the recipe of a hamburger," says Mark Flowers, vice president of retail growth at the co-operative True Value hardware chain.
Franchises are "best for people that are very comfortable with following rules," says Joel Libava, a franchise-acquisition consultant and author of
Become a Franchise Owner!
Experts typically point to military veterans as ideal candidates to own franchises because they're used to regiments and rule following. Military or not, franchisees "have to really want be willing to commit to the hours needed and the financial risk associated," Libava says.
But for entrepreneurs good at coming up with ideas and who like to make their own rules or look for ways to improve things, franchising is not ideal.