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Low-Investment Franchise vs. High-Investment Franchise

Franchise opportunities

Franchise opportunities

If you are interested in franchise opportunities, here is a question for you to ponder: “Regardless of how much money you have to invest in franchise unit(s), which franchise type you choose: Low-investment or high-investment one?”

To dig deeper into that question, please consider the following scenario:

Suppose you have $100,000 to invest in franchises. Will you invest in 10 franchise units at $10,000 each or 1 franchise unit at $100,000?

I have actually asked this about two years ago on Yahoo! Answers with no interesting answer – Unfortunately, I can not find the link to my question to share you. One thing for sure, almost all left ambiguous answers that raised even more questions; something like, “That depends on your vision about your entrepreneurial career” – The answer is less than adequate to satisfy my curiosity.

My answer was…

The question is really a thought-provoking one for me. I always thought that spreading the risk to 10 franchise units is a more ideal solution, compared to having all of your eggs in one basket.

Moreover, I learned through my relatively short experience in franchising, that low-investment franchises are usually having shorter (much shorter) Return-on-Investment (ROI) period (which, in general, could return your investment within one year, compared to 2-3 year typical ROI projection of higher investment franchises.)

I realised that I was wrong, at least in my logic of franchising and what I thought of franchising.

My answer today is…

After I gained more experience in franchising, I learn that managing multiple franchise units are stressful, in an exponential way. In numerical description, the problem complexity of having two, instead of one franchise unit is not 1 + 1 = 2, but 1 + 1 = 3.

You need to manage both franchise units equally well (in equal ways). Amazingly, employees seem to have a knack to network with fellow employees, especially those that work in businesses that are managed under the same ownership. You need to stick to your employment manual closely to avoid discrepancy.

Those being said, managing 20 employees on one franchise units are proved to be easier than managing 20 employees on 10 franchise units (2 employees each.)

All in all, I am inclined to believe that high-investment franchises are better, as they can offer you more bargaining power and better level of prestige compared to the smaller counterparts.

Why bargaining power and prestige are important? Bargaining power is related to the franchise’s size and prestige. Better bargaining power and prestige level help your franchisor and franchise unit to secure better deal for the benefit of the whole franchise organisation.

What is your answer?

If I asked you the question, what would you answer?

Ivan Widjaya
On buying a franchise

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