I was thinking about franchising versus independent businesses this week and decided to write about it and look into the latest franchising success research. My franchising career began as a licensee of Gold’s Gym in 1990, where I eventually owned three locations as a multi-unit operator. Eventually, in that same decade, I would become a franchisor. I certainly came to understand the power of a brand back in the prime years of Gold’s Gym.
In the dynamic landscape of entrepreneurship, aspiring business owners often face that pivotal decision of whether to start an independent venture or opt for the tried-and-tested route of opening a franchise. Both avenues have their merits, but with this blog post, I’d like to delve into the realm of franchises to explore the distinct advantages they offer over independent businesses.
I have been a franchise CEO since 1996 when we launched our original brand, Planet Beach, in the spring of that year with one location. We grew the organization and learned many beneficial lessons in franchising along the way. It was through that experience that we paved the way to the launch of the HOTWORX franchise in 2017. Since the opening of that first ever 24 hour infrared fitness studio in Oxford, MS, we have grown the brand to over 630 locations with an eye toward crossing the 700 mark this year. There are numerous reasons as to why opening a proven franchise versus an independent business makes sense for your bottom line. Here are a few of them:
Established Brand Recognition: One of the most significant advantages of opening a franchise is leveraging the established brand recognition of the parent company. While independent businesses often struggle to build brand awareness from scratch, franchises enter the market with the backing of a well-known and trusted brand. This recognition can significantly reduce the time and resources required to attract customers, giving franchise owners a head start in the competitive business landscape.
Proven Business Model: Strong franchises come with a proven business model, and a “playbook” that has already been tested and refined by the franchisor. This eliminates much of the guesswork and uncertainty associated with starting a new business. Franchise owners receive comprehensive training and ongoing support from the franchisor, providing them with the tools and knowledge needed to run a successful operation. From marketing strategies to operational processes, franchisees benefit from the expertise of a company that has already navigated the challenges of entrepreneurship. The distinct advantage that comes from aligning with a seasoned franchisor is the systems that have been developed during the critical site selection and construction phase. HOTWORX created a comprehensive digital checklist to guide franchisees through each of the steps and details to get a franchise location through a successful opening.
Access to Resources and Support: Unlike independent business owners who must handle every aspect of their operation on their own, franchisees have access to a wealth of resources and support from the franchisor. This should include assistance with site selection, lease negotiations, and construction as stated above, but also ongoing marketing campaigns, and support collateral for employee training. By tapping into these resources, franchise owners can focus their time and energy on growing their business rather than getting bogged down by having to create operational processes.
Reduced Risk: Starting any business involves a certain level of risk, but franchises offer a degree of built-in security that independent businesses often lack. With a proven track record of success and ongoing support from the franchisor, franchisees are better positioned to navigate economic downturns and industry fluctuations. Additionally, the established brand recognition of a franchise can attract customers more reliably than an independent brand, reducing the risk of failure in the crucial early stages of business ownership.
Easier Financing: Securing financing can be a major hurdle for aspiring entrepreneurs, but franchises often have an advantage in this area. Banks and lending institutions are typically more willing to finance franchise ventures due to their lower failure rates and proven business models. HOTWORX maintains numerous relationships with various types of lenders from banks to leasing companies, and others.
Business Coaching: HOTWORX believes in the importance of assigning a designated business coach to each and every franchise location. Nothing is more important to the profitability of a franchise location than a reliable weekly business coaching process. The franchisor, in fact, should be viewed as the “coaching staff” for the franchisees who should be viewed as the “players”. The coaches train and motivate the players to execute the playbook at the highest possible level on the field of business operations.
What about the chances of success? What is the small business success rate as a whole including franchises and independents? As reported by the SBA, from 1994-2018, an average of 67.6% of new employer establishments survived at least two years. During the same period, the five-year survival rate was 48.8%, the ten-year survival rate was 33.6%, and the fifteen-year survival rate was 25.7%.
How have franchise brands who are well matched to the right franchisees fared in the marketplace?
FranNet, a franchise consultant network, tracked 1,500 individuals it had helped get into franchised businesses between 2006 and 2010. The network’s internal research concluded that 91.2 percent of the businesses were still open after two years, and 85 percent were operating after five years. The CEO of FranNet, Jania Bailey, notes that those stats don't extend to franchising in general. She points to the fact that the high success rate to the FranNet system is due to the matching of people to the right franchise brand for them. She also highlights this by saying "the time period we studied had the worst economic conditions since the Great Depression.” She further states that the success rate of FranNet “speaks volumes about our ability to match a person and their skill set to the right franchise concept.” Without a doubt, it is super important that individuals align themselves with the right franchise concept to match their preferences and capabilities. (1) I would add that people really need to love the brand that they choose to franchise with!
I have observed over the years that organic growth versus advertising driven growth in franchising is a huge indicator of future success. The vast majority of HOTWORX franchisees were either referred into the system by a friend who is a member of a studio or by an existing franchisee, or they simply became obsessed with the infrared workouts themselves and then decided to pursue the opportunity to become a franchisee. There is no question that a passion for the business is a must for long term franchise ownership success! According to Nancy Price, HOTWORX Senior VP of Franchise Recruitment, "When you're growing a brand organically, you know you have something special!"
Customer Base: One of the challenges independent business owners face is building a loyal customer base from the ground up. Franchisees, however, benefit from a built-in customer base that is already familiar with the brand and its offerings. Whether it's a popular fast-food chain or a well-known fitness franchise like HOTWORX, customers often seek out familiar brands they know and trust. This can give franchise owners a competitive edge in attracting and retaining customers, particularly in saturated markets where brand loyalty plays a significant role in consumer behavior.
HOTWORX has the advantage of an extremely differentiated franchise concept within the fitness industry. This uniqueness has served the franchise well from a branding standpoint. In my best selling book, HOT EXERCISE, with the sub-title HOTWORX and the Bold New Infrared Fitness Frontier, there is a wealth of information to explain the innovative market positioning of the franchise. I invite you to grab a copy on Amazon or at your local HOTWORX studio.
What about the rate of success? I am happy to report that the HOTWORX success rate is solid compared to other franchises, and much greater than that of the small business averages stated above. The brand has only had one closure out of over 630 locations at the date of this article, and this closure was due to a landlord issue that involved flooding in the space. A large part of why this is so low is the commitment of the company to the profitability of the franchisees. I always speak to our company about the importance of an absolute focus on profitability through customer experience bliss. Profits through fitness results and customer service is the key!
In conclusion, while both independent businesses and franchises offer opportunities for entrepreneurship, the advantages of opening a franchise are clear. From established brand recognition to proven business models and access to resources, franchising provides aspiring entrepreneurs with a pathway to success that is both efficient and lower risk. Whether you're a seasoned business owner or a first-time entrepreneur, exploring the world of franchises could be a ticket to achieving your entrepreneurial dreams.
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