Four Reasons Why Startups Are Riskier Than Franchises

A hand pulling out a piece of a wooden puzzle game that has "Startups" written on it, risking the tower to fall over.

Entrepreneurs are a different breed but they don’t all come with the same personalities. Some are obsessed with doing it all, from coming up with the concept all the way to overseeing marketing, financing, bookkeeping and procurement, not to mention selling whatever service or gizmo they want to market.

Still others are looking at whatever business they want to get into as a job as well as a calling. They want to get into business for themselves, sure, but they also want to make sure they’re not broke and regretful about entrepreneurship in the end. Remember, about 20 percent of small businesses fail in their first year alone, and half have failed by their fifth year, according to data from the Small Business Association. That’s a lot of risk.

Let’s take a look at some reasons why startups are riskier than franchises, and why franchises might appeal more to you.

An icon of a pencil and a ruler creating an x-shaped cross, representing design.1. Building a brand identity from scratch is both challenging and time-consuming.

This isn’t to say that you might not have a great idea — we work with entrepreneurs all the time, from barbershops to boutiques whose company identity, purpose and business model are ripe for franchising. But starting from scratch can take literal years to establish a brand, let alone a base of consumers and a thriving business. Established franchise businesses come with a fully-formed identity that includes logos, slogans, signage, marketing plans, and more. That’s a big step you can skip in establishing yourself as an entrepreneur.

Icon of a navigational compass.

2. Business mistakes are painful, but franchise businesses have already been there and done that.

Most entrepreneurs are characteristically tenacious but that doesn’t mean mistakes aren’t still costly and embarrassing. The difference between a startup and a franchise is that you’re doing everything the first time, so you don’t know which decisions are right and wrong organically.

“Just because it’s a franchise doesn’t mean you aren’t starting a new business,” says Jason Santee, a member of the Operations Team here at Rhino 7. “You just choose a franchise because a lot of things are done for you in terms of creating systems. Those systems have already been run over a lot of the potholes and made the mistakes you need to make in order to learn. The idea is that as a franchise, you cut off the curve to get to the point of success faster than if you did it on your own.”

Icon of a magnifying glass withe a dollar sign in the middle.3. Finding financing is really hard.

If you follow the news out of Silicon Valley, you might think this country is overflowing with venture capital money, angel investors, and other pie-in-the-sky ideas to find financing for a small business. After all, this is a country that was built on individualism, hard work, and invention. The truth is that the modern financing business is tough. Most people have to write their own business plans (without naturally knowing how to create one) and then sell their idea to their network, be it families, friends, local banks or credit unions. Franchise businesses can help franchisees with that process, including references, connections to preferred lenders, and a process for knowing how much money they need to raise in order to become franchise owners.

Icon of four figures above a large hand that is offering support and safety to them.4. Startups have no safety net.

Rhino 7 President and co-founder John Cohen describes franchising as “The business of teaching people how to successfully execute someone else’s vision.” Franchise businesses pride themselves in providing rock-solid support for their franchisees including around-the-clock interventions from everyone from technical support to legal to peer guidance. That’s a safety net that startups just don’t have, and it makes a big difference.

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