The course its about the Entrepreneurship and Small Businesses Management. Can s
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Question
The course its about the Entrepreneurship and Small Businesses Management.
Can someone help me with this question?
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Explanation / Answer
Think of large business entities such as Mc Donald’s, Domino’s pizza, KFC, Burger King and Subway. The common element between all these big, successful and globally known brands is the fact that all of them work on Franchising Business Model. New business owners and entrepreneurs wanting to start a business of their own can approach any of the brand of their choice that operates on franchising model. The risk associated with franchise arrangement is much lower and as mentioned in the case, each member of the franchise gets benefitted from the accumulated business experience of all the members of the franchise system. On the other hand, family business is another type of business entity. The upper hand that family businesses have over franchise business is that the members of the family business have complete independence in decision making concerning business and can set up rules and policies of their own.
For someone who wants to start a restaurant in health foods segment can either take the route of franchising labels or approach their family members who may have an interest in such a venture. The advantages and disadvantages of both the business models are presented below.
Advantages of Franchise Business Model:
- The biggest advantage of the franchise agreement is that it offers the independence of small business ownership with an access to the benefits of large and established business network.
- The business model, product or service are already tried and tested and new business owners get instant brand recognition and a readymade customer base.
- Business owner do not have to worry about establishing a profitable supply chain, choosing brand elements, deciding on store interiors, etc. All of these business aspects are taken care by the management of the brand.
Disadvantages of Franchise Business Model:
- Franchise models invites upfront high investment from the business owners. In addition to the one time franchisee cost, the franchisee owners also have to pay monthly, semi-annual or annual royalty to the brand’s organisation as per their mutual agreement. The franchise owners also have to pay marketing and other miscellaneous costs from time to time that affects their bottomline.
- The business owners have to strictly abide by the policies and code of conduct of the franchise company. Franchise representatives conducts regular audits in their stores to ensure that the offered product and service quality is consistent across their stores.
- In addition to heavy initial and ongoing investment, many organisations also demand the availability of owned real estate in costly geographical locations that is visible and can be easily located by the general public.
Advantages of Family Business Model:
- All the members involved in the family business enjoy high degree of independence and flexibility. The members can jointly decide their leader, their roles and also decisions concerning business such as what product to produce, which segment to target, where should the business be conducted, can be jointly taken.
- Since the need of the whole family is at stake, there is a greater sense of commitment and accountability in the family business. With higher commitment and accountability, business is benefitted in the form of better customer relationship, sales and marketing.
- The greatest benefit of family business is the reduced costs and certainty in the availability of manpower. The members involved in the business can function in multiple positions thereby, reducing the need of additional employees.
Disadvantages of Family Business Model:
- In family business, the business or company needs to be started from the scratch. Planning, organising, implementation and other business activity has to be done by the family members themselves.
- In the absence of a professional alliance, when the business does not function as per the planned procedure or if the results (profits) are not upto the desired level, it may result into a fallout among the members of the family leading to family conflict.
- The members involved in the business may not have sufficient business acumen or domain knowledge that is needed to run a business successfully as compared to a franchise label company.
Final Decision: Taking into consideration the advantages and disadvantages of both the franchise label and family business, I would have opted for franchise business model for starting health foods restaurant. There are many established and upcoming Domestic and International food chains that promotes healthy foods and healthy eating. Some of these healthy food chains include LYFE Kitchen, Salad and go, Eatsa - an automated vegetarian chain, Dig Inn, Freshii, etc. just to name a few. All these chains are well recognised and have an established supply chain management. The products of these brands are market tested and owing any of their franchisee will provide me instant brand recognition and a readily available customer base. Although the initial investments would be high, but associated business risks will be much lower or negligible. Hence, I would choose franchise route over family business route.
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