Franchising vs. Startups: Which Builds Your Income Faster?

If you’re an entrepreneur looking to build a large income, you have two main options:

a) Starting your own business

b) Buying a franchise

Today, we’ll compare these two options from a cash-flow perspective. We’ll dive into the pros and cons of both – so that you understand which option is better for your unique situation.

First, I’d like to acknowledge some benefits of startups:

• You can get started with $0
• You have maximal creative freedom
• You don’t have to pay royalties to a franchisor

Also, starting your own business is higher status than starting a franchise. It’s sexier. People will pad you on the back for being courageous. But while startups tend to get more attention, franchising can be the faster path to profit.

Let’s compare them head-to-head in 5 key areas:

1. Speed to Profit

Startup:

• You build everything from scratch
• Ideation & validation is the bottleneck
• Have to develop product, marketing, and operations from scratch

Startups can be profitable from day 0, whereas franchises often take months to break even. It might take you months to build a valuable offer. Finding and validating your startup idea can take time.

Franchise:

• High upfront cost
• Execution is the bottleneck
• You implement a turnkey system

Franchises use a proven system with existing demand. You don’t have to validate the offer – you know it works. You can direct your efforts to implementation without the distractions of strategic planning.

Verdict:

Starting your own business might be the better option if you have $0 capital. But if your primary goal is to build meaningful cash flow fast, franchising may be the faster path to profit. I count this as a tie.

2. Ease of Scaling

Startup:

• What gets you from A -> B won’t get you from B -> C
• You need to scale in new ways
• There are 1000s of ways to scale

All companies scale differently, I can’t apply a one-size-fits-all approach to this. Some digital products scale fast and with low cost of replication. But regardless of the model, it’s up to you to figure out how to scale.

Franchise:

• What gets you from A -> B gets you from B -> C
• Replicate existing model in new locations
• There is 1 simple way to scale

Scaling a franchise is like hitting copy-paste. You apply the same framework over and over again. Open a location, get customers, hire a team, and so on.

Verdict:

Scaling a franchise is straightforward – open a new outlet and duplicate what’s working. With a startup, each stage of expansion requires reinventing the wheel. From a cash flow perspective, franchising wins this one.

3. Marketing

Startup:

• You’re responsible for your own marketing
• You need to find product-market fit
• Depends on your marketing skills

As a startup, you market yourself. That’s a double-edged sword – if you know what you’re doing, you can achieve great ROI. If not, you’re wasting money.

Franchise:

• Your franchisor does marketing for you
• You don’t need to worry about it
• Proven product-market fit

Every franchise is different in how they charge & manage marketing. In my case, 50% of the royalties we pay ($1.5M/yr) go towards a marketing fund. The franchisor has a marketing department that handles branding, website, marketing, and more. I don’t control my marketing spend, but I have more buying power through the franchisor.

Verdict:

Both franchises and startups need to spend roughly the same amount (5% of sales) on marketing. With a startup, you have higher control of outcomes, positive and negative. With a franchise, you often get decent marketing without having to worry about it.

Lack of customers is the top reason startups fail. Franchising removes this risk by providing a product people want and the marketing to sell it. You can focus on driving local customers.

4. Funding Access

Startup:

• You might not need funding
• Capital access relies on your network
• You might have to give up equity to VCs

Securing financing is one of the biggest challenges for startups. You can bootstrap, but that generally makes it harder to scale fast.

Franchise:

• You can access owner financing once you’ve built a reputation
• Franchisors can often help you get bank or SBA loans
• You own your own company

Accessing capital as a franchisee is relatively simple ONCE you’ve proven yourself. Through owner financing, your franchisor can fund your acquisitions. It’s a win-win-win:

The seller gets monthly cash flow, interest, and gets quick deal

The buyer pays a 1.5% to 6% interest rate, gets affordable monthly payments, and a quick deal.

The franchisor gets continued royalty payments and ensures the franchise remains operational.

It’s powerful. We acquired the majority of our 30 locations using owner financing.

Verdict:

With startups, accessing capital is up to your network and ability to sell. As a franchisee, you may get access to loans you otherwise couldn’t get because of the established trust. Franchising might be the easier option unless you’re exceptionally well-connected.

5. Creativity

Startup:

• Complete creative control over the product/service
• Ability to pivot and adapt based on market needs
• Opportunity to innovate and disrupt industries

With a startup, you have the freedom to build something entirely new and unique. You can let your creativity run wild in developing your offering. If you see an opportunity to improve or change direction, you have the flexibility to do so.

Franchise:

• Must adhere to established brand guidelines and processes
• Franchisor dictates product/service offering
• Little room for innovation

As a franchisee, you have to color within the lines drawn by the franchisor. There are strict rules around the products you sell, how you market them, store design, etc. You sacrifice creative expression for a proven system. Innovation has to come from the top down.

Verdict:

If you’re a highly creative person who thrives on building something novel, a startup is the clear winner. You’ll likely feel stifled by the rigidity of the franchise model. Startups provide an outlet for your innovative ideas.

Overall comparison

Operating any business takes hard work and smart execution. For those dead-set on bringing a unique new idea to life, a startup may be the only path.

But if your primary goal is to build an income, franchising offers some advantages over startups:

• Faster to generating substantial revenue
• Plug-and-play scaling
• Marketing playbook included
• Leverage built-in brand equity
• Better funding accessibility

In short, franchising lets you focus on execution, not guesswork. You can build income quicker by implementing a proven model.

Starting your own business can be a good option for you if:

• You have a powerful network and access to money
• You don’t have any capital and want a side hustle
• You want to build something unique

At the end of the day – it depends on your situation. I’ll never tell you that starting a franchise is the best option for everyone in all situations. Just as buying real estate or starting a company also never is.

There is no “perfect” business. I’m writing this to help you understand the trade-offs so that you can find your own way.

If you want to explore if franchising could be your fastest route to income, book a free consultation with us here. This is a 100% free service with no if:s or when:s attached. We’ll discuss your goals and see if a franchise makes sense for you.

Cheers!

Brian Beers