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Entrepreneurial opportunities and franchise opportunities differ from one another mainly by the different risks that affect both in many different ways. It is in an entrepreneurs' nature to take risks and approach every possible opportunity to become successful. They risk starting up a business, knowing that they will not be getting any support or help from external influences, whereas franchisees are people who want to be 'their own boss' too however are not prepared to start up a business from scratch. Therefore franchisees choose to buy into a franchise, where he or she will be getting the support of the franchisor. This shows that franchisees need and want a safety net and extra security from someone else. However there are downturns such as percentage payment to the franchisor and restrictions which do not allow the franchisee to make certain changes which he or she would like to make to the business as well as many others. Same applies to entrepreneurs, where risks such as mistaking a bad and not well thought through opportunity from 'a good business idea' can easily be made as well as many others.
Entrepreneurial opportunities by entrepreneurs are the potential ways of creating new business streams for a new venture or within an already established organisation. An entrepreneurial opportunity is 'a situation in which a person can create a new means-ends framework for recombining resources that the entrepreneur believes will yield a profit' (Stokes, 2006, p.210). To successfully identify an opportunity an entrepreneur has to understand the market very well, as well as customers' always changing needs. However as the new technology changed the way businesses work, it is very important for an entrepreneur to have a wider view of the potential industry transformations. To start a successful business and continue to develop it, an entrepreneur has to keep in mind the external environment too, as well as the internal. This then helps him or her to discover and make the most of new opportunities and maintain flexibility due to the changing market. Moreover, an entrepreneur has to have many skills which are crucial to be successful. Such skills would include opportunity identification, which is the first and a must have skill needed for success. Resource leveraging is needed too because it is the way an entrepreneur deals with the occurrence of any problems or issues regarding the few resources available at the start up of a business. Networking is crucial for success, for both franchisees and entrepreneurs, because it gets the person and the business known and recognised which helps in the long run, for any sponsorship, support or assistance from other influences. Decision-making has to be quick and trustworthy for an entrepreneur because when an opportunity arises, he or she has to decide fast whether the opportunity is actually a good business idea, before it is too late and somebody else invests in it. Product/service knowledge as well as market/industry understanding are also very important in both cases, the entrepreneurs and the franchisees, because if both are acknowledged well there is a much greater chance of success which results in less risk being taking than when starting up a business without fully understanding the industry and the products, and the demand for it. Further more, being innovative and being determined are the key skills of an entrepreneur. Innovation is essential because it is the ability to invent and/or introduce something new. Being determined also plays a strong part in an entrepreneur's career, where he or she has the desire for independence and control over his destiny. This 'freedom' brings many ups and downs, therefore 'such resolve and commitment give the necessary motivation and self-belief to cope with the inevitable risks, hard work and failures that follow' (Stokes, 2006, p.50). It is usually shown through a determination to organise the resources necessary for success and overall an enthusiasm to make the enterprise succeed.
An entrepreneur's driving force is the need for achievement, which is the desire to achieve a goal from a potential opportunity. Therefore an entrepreneur's need for achievement follows by risk-taking, confidence in success, desire for independence, and energy in pursuing goals. Overall 'entrepreneurs have been shown to possess higher achievement motivation than other businessmen' (Stokes, 2006, p.44). Entrepreneurs more than anyone else have to have strong self-belief in order to identify a good business opportunity, especially an opportunity that no one else has already spotted. Even if there aren't enough resources for the opportunity, an entrepreneur would still go for the idea, which shows even greater self-belief. On the other hand, if a franchisee sees a business opportunity, he or she can then conduct detailed research as well as get professional advice about the business before actually starting it up, where as, an entrepreneur has to just trust his self-belief of success, to start up a business from scratch without any other already available resources. This is the main reason why franchising is less risky than enterprise, even though the self-belief and the drive for success can be inherited by both entrepreneurs and franchisees, because both want to achieve set goals and be successful at it. An advantage to entrepreneurs is the fact that franchisees have to pay a yearly percentage of their profits to franchisors where as entrepreneurs do not have to pay such percentages.
Entrepreneurs are actually categorised as risk-takers and therefore know that there will not be a safety net provided for them when they start up a business from scratch. Some entrepreneurs are as extreme as pursuing every possible opportunity with little resources available at the time. These are called the opportunist entrepreneurs. They usually have a compulsive competitive personality which makes them want to prove themselves time and time again by taking risks, or they just have the self-confidence to take on any possible challenge that is 'thrown at them'. Some argue that there is even a link between risk taking and testosterone levels which usually (especially young) entrepreneurs possess high levels of; therefore they are more adapted to taking risks. Also entrepreneurs who take high-risks have the decision making orientation which makes them accept and be aware of loss. However in exchange they keep in mind the fact that if they succeed they get a greater potential reward. Therefore there is a balance between risk and reward, and sometimes what appears as a risk to some is an opportunity for others. So to take upon a high risk, an entrepreneur has to have strong self belief, as well as great motivation and passion for the opportunity they are undertaking.
Opportunities tend to stay uncertain until after they become realised which is the difficulty for the entrepreneurs. Almost always at the start of setting up a new business, an entrepreneur never knows whether the business opportunity will actually become successful, which shows the high risk that has to be taken by entrepreneurs. Therefore not all new venture ideas represent a new business opportunity. For the entrepreneur, to establish if a 'good business idea' is a possible opportunity, could take months or even years to research upon.
By looking at the franchise opportunities by franchisees, it is clear that taking up a franchise offering gets the franchisee into the start of his or hers own business quite easily; however it can still be a highly risky choice to take upon. When thinking of franchising, franchisees can conduct research on the wanted business and find out its profits, brand image, success and etc before they decide whether they definitely want to franchise that particular business. The business concept will be already proven by the British Franchise Association, which means that the business is legal and, already up and running. This means that the business model is already written for franchisees which then becomes easier for them to start up a business, however entrepreneurs have to do it themselves which takes more time, hard work, stress and risk. Also when a franchisee decides to take an opportunity, the way to work and operate the chosen business would already be worked out and tested. Moreover, things like training and support will be provided, which include choice of suppliers, site selection and technical training as well as many others. 'Statistically, fewer franchises fail than other business start-ups' (Stokes, 2006, p.250) which means that starting up a franchise is less risky than setting up your own business from scratch. This is also because the business a franchisee will be taking upon will have national branding established already, will have solid trading name and if it is a large business it will already have national or even international advertising campaigns. Further more the franchisee will not have to worry about the environmental changes themselves, because the franchisor would have also undertaken research and development, and competitive analysis. Therefore this shows that the franchisee wants a safety net from the franchisor, for extra security and less risk. Also franchisees benefit from huge economies of scale, for example well known companies such as McDonalds buy huge amounts of their stock (ingredients, packaging and etc) in bulk, therefore the costs are usually significantly lower compared to entrepreneurial businesses, which cannot afford to purchase stock and any other goods in vast quantities, so they have to pay higher prices.
However on the downturn, a franchise is someone else's business idea, the 'franchisee is only implementing, not creating' (Stokes, 2006, p.250). Therefore a franchisee would have restricted opportunities for pursuing entrepreneurial ideas. This also means that the franchisee will lack independence because the franchisor will make the rules, which will have to be followed. As a result, some franchisees cannot have enough control of their business because the agreements become restrictive. Also sometimes 'a franchisee's territory can be altered by the franchisor, which in some cases affects the profitability of the franchise' (KeyNote, 2010) which is again a risk that a franchisee should consider. Another risk that is possible for the franchisee is the fact that he or she is dependent on the stability of the franchisor, for example 'a national problem with the franchise can dramatically affect the franchisee who has no control over events' (Stokes, 2006, p.250). The strength and reputation of the brand are important because the franchisee's success will depend on it, therefore the franchisee will be affected if the reputation is damaged.
Looking at the recent recession, statistically franchises performed better than enterprises, according to the KeyNote franchising market report for 2010. Even though franchises did quite well during this hard period of time, some still experienced some difficulties like trading conditions. Customers wanted lower prices where as suppliers were trying to negotiate better terms, therefore a reduction in the franchisees' profitability was the downturn. According to the British Franchise Association (BFA), in 2009 the number of franchisee applicants was exceptionally high, because a lot of redundant businessmen decided to become franchise owners instead of being unemployed or working for someone else. Also even though the recession hit 'there have been a surprising number of new entrants into the franchising market' (KeyNote, 2010). This again proves the point that new franchises carry fewer risks than new enterprises because in hard times such as recession it is much more difficult for an entrepreneur to find cheap and good deal making suppliers and etc, where as for the franchisee this is already sorted by the franchisor.
Before starting up a business a franchisee can conduct research on everything about the wanted business. This is crucial because the franchisee will have to bring in their own finance and money to the business which could be their life savings and/or a mortgage on their home or etc. The franchisee also has to understand that he or she will be dependent on franchisor, their concept and system, 'for the welfare of themselves and their families' (Mendelsohn, 2005, p.59). Usually it is best to get professional specialist advice, to hire a franchise lawyer to provide the franchisee with advice of the validity and the viability of the business. Before signing the contract the franchisee needs to make sure that the business is stable, has established goodwill, reputation and has an identity of the brand. Also even though the chance of failure is less when franchising, it can still happen. The risks that a franchisee could face would be such as before agreeing to franchise, the franchisor might have not properly tested the concept before franchising it, or he or she was under-capitalised, took bad decisions or was simply dishonest. The franchisee also needs to acknowledge if the franchisor will provide continuing services properly or even at all. However no franchisee should make himself believe that the franchisor guarantees his success or that he will definitely underwrite the franchisee's failure. Therefore 'the business risk the franchisee runs is his' (Mendelsohn, 2005, p.117). However in some cases, franchisors do offer franchisees buy-out agreements. For example if a franchisee fails in the third year of his ten year franchise agreement, the franchisor could offer him a deal, which would make him go away 'quietly' without suing the company but having to pay a certain amount of money. However these deals are not used by many good franchisors and if offered, should be considered very well by franchisees because it could mean that the franchisor is not very reliable.
Moreover, compared to starting from scratch as an entrepreneur, there are actually fewer risks for the franchisee starting up a franchise. This is mainly because the franchisor is offering the experience of running your own business, with already detected and solved problems which usually a new business has to face. The franchisor would also have had carried out the development cost which often an individual could not afford to risk. Therefore it is 'a business which has a proven record of success upon which a franchisee can build' (Mendelsohn, 2005, p.113). Another advantage for potentially less risk when franchising for the franchisee is the recognition of banks make lending sources and terms available, more attractive than those offered to non-franchised new businesses. Also as mentioned earlier, it is less risky because the franchisee will have access to all the trademarks, trade names, trade secrets, service marks, copyright material and know-how as well as any other secret processes or formulae. However the only downfall of these benefits is the fact that the franchisee will have to pay the franchisor for these services provided through continuing franchisee fees.
It is arguable that franchisees potentially have fewer risks when starting up their own business compared to entrepreneurs. This is because franchisees get the help and support when starting up, from the franchisor for whom they have to pay a percentage of their profit to. However there is still a chance of failure of the business, even if it is not the franchisees fault. If a franchisor starts up a business which he decides to franchise, and does not properly acknowledge all the possible problems and issues that could occur, and then a franchisee decides to take upon such opportunity, the franchisor will be responsible for the failure. This means that the franchisee would risk and basically waste his own time and his own money (e.g. all the family savings) on such opportunity which then, can simply fail without it even being the franchisees fault. Moreover, the main risks that are taken for an entrepreneur are when they choose to take upon an opportunity which they do not necessarily know if it is going to be successful or not. An entrepreneur can invest a lot of time, money and hard work into setting up a business from scratch which in the long run may simply not succeed and fail. Another major difference and risk taken by an entrepreneur is the fact that they are on their own and do not receive any support from external influences which makes it tough, because the competition may be too big and powerful, which could conclude in failure of the business.