Starting a Business in Africa: Franchise vs Small Business

By Emmanuel Allottey

Entrepreneurship and Businesses are the driving engine behind economic activity in Africa. Small and Medium sized enterprises (SMEs) account for about half of global gross domestic product (GDP) and employs over 40% of the workforce in a nation. Increasingly more and more individuals are opting to start a business, launch new ideas, products or services. However, the challenge they face is choosing which type of business to start a Franchise or a Small business.

Choosing between starting a business or buying a franchise has differing risks and rewards.

Higher Success Rate: A franchise is a proven system. All franchisees operate under a common system and get trained about the product line, marketing. Running a small business involves overcoming a lot of hurdles to stabilise the operating rhythm of the business.

Brand Recognition: Franchises bring brand awareness with their names from day one. Therefore, customers will know about your products which will increase your sales. Starting a business requires investment in Marketing and branch awareness to increase the visibility of the business which may delay the immediate profitability of the business.

Operational Costs: All starting businesses require capital, however there is a fee for buying the franchise and ongoing fees that you need to pay to a franchiser for using the brand name.

Decision Making: with Franchises individuals do not have the freedom to change anything in a franchise system. With small business the owner is in control and can take decisive actions to adapt to the changing operating environment.

Innovation and Creativity: starting a business encourages innovation and creativity. If you are a highly creative person full of different ideas and you want to make these ideas a reality through a business. Franchises are standardised ideas that are being reproduced.

Business Growth: franchise businesses can grow only up to a certain point but there is no limit to the growth of a small business.

Higher Failure Rate: small businesses have a higher failure rate compared to franchise businesses. Statistics show that 25 percent of start-up businesses fail within their first year, 50 percent of the remaining fail within five years and approximately 30 percent of the remaining last ten years. Franchises can also fail, however they receive support from the franchise to prevent immediate collapse.

There are rewards and risks when venturing into businesses it is important to undergo comprehensive research of the marketplace before deciding which business to start.

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