In many ways, franchise businesses are the ultimate symbol of a well-functioning capitalist system. At its root, a capitalistic system is based on the principle that the most desirable products will be consumed naturally by a free-thinking public, and that the corporate creators of these most desirable products will be rewarded. The franchise business model is an outgrowth of this principle, because franchisees choose to buy established companies which have clearly demonstrated that they can be successful in the marketplace. In other words, franchisees aren’t necessarily gambling when they buy a business, they are expanding the success of an established business.
Steady Returns from a Proven Concept
If you spend a bit of time in the business world, you will likely hear the phrase “proof of concept.” Essentially this phrase refers to an idea which has achieved a measure of success after being put into practice in the market. This measure of success is taken to be a track record of sorts for the overall viability of the business idea. This track record is basically interchangeable with “proof of concept.”
When a person becomes a franchisee, that person is buying into an idea which has proof of concept – this is one of its primary sources of appeal. Franchisees can look forward to steady, predictable returns from this type of investment. In the world of business, very few things can offer predictable returns; in fact, “predictable” is often a word which is utterly out of place in the commercial world. The Franchise model comes the closest to offering predictable returns after a very short period of time. Franchisees won’t have to wait long before they begin seeing a steady return on their investment.
Low Risk / Low Hurdle to Entry
This brings us to the next thing that franchises have to offer to franchisees: relatively low risk, and a relatively low hurdle to entry into the market. Because a franchise business is already a proven concept, there is a smaller chance that the franchise business will fail to turn a profit. This means that the investment made by the franchisee has a very good chance of paying off over the long-term. From a business perspective, this is a very attractive situation. Very often, entrepreneurs invest a huge amount of time and money and then ultimately wind up breaking even or losing money in the end; with a franchise business, this type of risk is minimized.
Furthermore, the hurdle to entry in a market is also relatively low, particularly compared with the hurdles associated with starting a new business from scratch. Of course, with a franchise business, the franchisee will need to make a sizable initial investment, but they have the advantage of being able to plug into the franchise business model using its software, process and procedures and/or vendor so they can concentrate on growing the business.