What is a Franchise or Startup?
Updated: May 24, 2020
A franchise is a proven business-in-a box system of which the creator sells the rights to use the business model, for a product or service. A potential business owner signs an agreement and pays the franchise fee. This gives the new business owner access to the franchisor training, assistance and business model as described in the franchise contract.
The new franchise owner must pay royalty fees to the franchisor and is obligated to follow the business plan exactly as it is described in the contract. All changes must first be approved by the head office. It is in the best interest of most franchisors to do everything possible to help the new BO, as this supports their own brand name. The new BO pays an annual fee for the franchisor to do all the marketing and advertising, so the can stay focused on running their new business.
A startup is a seed company still in the infant stage formed to develop a unique product or service; or a new twist on an old product or service. Their objective is to test an unproven business model and scale it to critical mass in an enormous market—as fast as possible with the goal of achieving sustainable profits and expotential growth. Unlike a franchise, there is no manual or rules to follow, as a startup is still just an idea or a theory of yet a raw business model.
Funding is initially provided by the individual or handful of founders in all manner of loans, gifts and donations in spurts. However, an experienced startup team that can clearly present their vision to profitability has a greater potential to attract thousands of dollars in funding from individual angel investors in the early stages of developement in exchange for 20-25% return on their investment.
Venture capitalist firms, on the other hand, usually consist of 3 to 5 year short- term investors looking to invest upwards of $1M. Generally, they look for startups in the latter stages of the project, when it's time to secure a commercial building and/or property in exchange for some level of control in the business and a percentage of company ownership.
See our other blog posts for a list of franchises and startups to consider.