Analysis of Franchising vs Startups: Your Next Big Business Idea 

The total valuation of the Indian franchise industry is more than $800 billion, and according to reports by the Economic Times, it is expected to grow at a rate of 30-35 percent in the coming years. India is also the second-largest franchise market in the world. As per another report by Invest India, India has more than 1,12,718 startups spanning over 763 districts. With 111 unicorns, the total valuation of the startup ecosystem is $349.67 billion. India also has the third largest startup ecosystem in the world. 

Franchising and starting a business are two distinct ways to start a business. Franchising is characterised by a business model in which a franchisee buys an established business under licencing agreements. According to reports by Franchise New Zealand, the franchise business witnessed 2.2 percent growth in 2023, which is expected to grow by an additional 1.9 percent in 2024. The overall number of franchise establishments will also increase by more than 15,000 units, indicating a substantial increase in franchise businesses in the coming two to three years. 

On the other hand, a startup business is often characterised by a small team of founders with innovative ideas and fresh business approaches they are trying to bring into the market. According to reports by Forbes, approximately 90 percent of startups fail within their first year, highlighting the challenges faced by business owners in launching a new venture. 

Two Aspects of Businesses in the Long Run 

When it comes to investment requirements, franchising often demands a significant initial investment, ranging from $50,000 to over $1 million, covering franchise fees, royalties, and operational costs. This investment grants franchisees access to established brand recognition, operational procedures, and ongoing support from the franchisor. According to reports by The Economic Times, India has more than 4600 active franchise establishments across various sectors. It is expected to reach $140-150 billion in five to six years. 

In contrast, startups typically begin with limited capital, mostly personal savings, loans, or venture capital funding. According to reports by LiveMint, India currently has more than 50,000 recognised startups spread over 623 districts nationwide. However, the success rate for startups is relatively low, with approximately 20 percent failing within the first year and around 60 percent failing by their fifth year of operation. However, startups offer entrepreneurs the potential for innovation, rapid growth, and substantial returns on investment.

According to a report by Franchise Business Intelligence, in 2023, franchising faced several economic challenges, including inflation, labour shortages, and a rise in interest rates, forcing people to adapt to this period of uncertainty. Overcoming these challenges, franchising exceeded FRANdata’s projections for 2023, with a growth of 2.2 percent compared to the 1.9 percent previously forecasted (2022). On a global scale, franchising presents opportunities for expansion, with global franchising revenue surpassing $860.1 billion by the end of 2023. Emerging markets offer several opportunities for growth, making franchising an attractive option for businesses seeking international expansion.

Startups, too, have the potential for global impact with advancements in defence technology, AI, fintech, biotech, sustainable solutions and much more. According to reports by CrunchBase News, the global investment startup market reached $285 billion in 2023, with over 800 unicorn startups valued at a combined $2.6 trillion. The COVID-19 pandemic played a huge role in reshaping the startup culture, accelerating digital adoption and highlighting both challenges and opportunities for entrepreneurs and investors. 

Innovation and flexibility are the basis of any startup, enabling it to disrupt industries and drive technological advancements. While franchising offers stability and proven business models, startups focus on creativity and adaptability, revolutionising the entrepreneurial landscape with new ideas and innovative solutions. 

Bring it All Together

Franchising and startups represent two distinct pathways to entrepreneurial success. While franchising offers stability, brand recognition, and proven success rates, startups bring innovation, agility, and the potential to change the fortunes of industries. However, numerous obstacles require attention and resolution. One of the biggest challenges startups face is the lack of resources, especially when business owners try to fit their products into the market. With budget constraints and a lack of flexibility, it becomes difficult for businesses to adapt to various market changes, with a risk of getting eliminated. According to a report by Forbes, 8 out of 10 small businesses have no employees, while only 16 percent of startups have one to 19 employees. Most startups fail in the first five years mainly because of (i) lack of business capital and (ii) lack of market for their products and services.
The biggest challenge for franchises is the lack of flexibility. Due to the obligations laid by the franchisor’s established procedures and model, franchisees may struggle to adjust to changing market dynamics or target the business model to their local market. Another challenge is that you do not have complete control over the business. According to a report by the Economic Times, one of the biggest challenges in the franchise industry is finding an ideal franchise partner who shares the same passion and values to drive success for the parent company. All franchisors must follow the requirements under the Franchise Disclosure Document to protect against legal disputes and penalties.

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