You were actually in one of four different types of businesses based on their model.
As a consumer, you probably weren’t that concerned with the difference. Entrepreneurs, however, know (or need to know) the difference in the various business models.
The four basic types of business models are:
- Privately-owned, mom-and-pop concepts.
These are typically owned by individuals, partners or small groups.
They choose their name and brand, and typically have complete control of their operations, branding and marketing. These operations are largely locally-owned, although local can take the form of a single city, or a few regional locations.
- A business opportunity.
This lies somewhere between a mom- and-pop, and a franchise. An entrepreneur may contract for the opportunity to use a company’s name, its suggested operations procedures and may purchase certain types of equipment.
For instance, a gelato business opportunity may offer to sell an entrepreneur a certain recipe mix and freezing equipment, and offer advice on operations, menus, etc. But the local owner, typically called a licensee, is under no obligation to follow the operations guidelines. Usually, no fees or royalties are involved in this business model.
- Franchisees.
These are entrepreneurs who pay a franchisee fee to a franchisor to use the company’s brand names and operations guide.
In fact, not only does the franchisee pay for the operations guide, he is contractually obligated to run their location according the company’s mandates. A typical operations manual guides the franchisee on how to operate all facets of the business, and what marketing materials to use. Franchise agreements, known as Franchise Disclosure Documents, are government regulated in many states. It is common for franchisees to pay an up-front franchise fee for either a single location or a territory, plus renewal fees after a specified period. It’s also common for franchisees to pay royalties and ad fund fees, both based on percentages of sales. Franchises often attract entrepreneurs who just want to own and run their business under prescribed guidelines.
- Corporate stores.
This type most often gets the non-local rap. While it’s true that profits go to the corporate owners, local jobs are created and taxes paid. Often, local managers become active members of the local business and civic community.
So, the first three businesses types are the choices for entrepreneurs wanting to start their own business. While franchising is often considered non-entrepreneurial, I contend that when it comes to assuming the risk of a business venture, a franchisee is indeed an entrepreneur. This is often assumed to be the case when someone opens only one or two locations, but there are many franchisees who’ve started their own companies operating multiple stores.
Plenty of resources exist to help you decide what’s best for you. Print and online publications that details on both franchises and business opportunities. The International Franchise Association also offers information for potential franchisees.
If you have an original idea for a product or service, preparing a business plan is an absolute must to fully flesh out the idea and see if it’s commercially viable.
Also, we’ve scheduled the weekend of Jan. 28 and 29 for the first-ever EntrePaducah Franchise Fair at the Paducah Convention and Expo Center. We’re advertising and inviting franchise concepts from all over the country to attend. The event is a trade show atmosphere for entrepreneurs to browse the different concepts and see which one fits. Watch our website (entrepaducah.com) for additional information.
Who knows? Your new title(s) could be Entrepreneur or Franchisee.
Terry Reeves is the concierge for EntrePaducah, a joint effort by Paducah and McCracken County governments, the Paducah Area Chamber of Commerce and Greater Paducah Economic Development Council to foster small-business growth. Contact him at 270-443-1746 or treeves@entrepaducah.com.
