Star Builder

Background

In many ways an MLM is much like a franchise, but there are also some marked distinctions between the two. Both of these have a business model which one follows, in both you have to comply with rules in order to uphold the brand integrity, and in both you should receive training and support. So when faced with the choice, which should you choose? Two of the members of Star Builder were franchisees for a couple of years and lost a stack of money, this article is based on their experience and impartial view of the franchising industry.

Franchises

There are a number of very successful franchises out there, indeed many of the businesses we know and frequent are franchises. Examples include the likes of McDonalds and Subway, but there are those that one may not expect to be franchises such as Kall-Kwik and Cartridge World who specialise in ink and laser cartridges for printers.

The reason why one buys a franchise is in effect that you are buying near enough a turnkey operation, by following the business model and with the goodwill factor and the marketing investment of the overall organisation - you should be purchasing a licence to print money.

So lets look at the Pros, please note these are generalisations:

• Exclusive territory (note that some define this in tenuous terms such as demographics)
• Brand value
• Pooled marketing
• Business model and template
• Training

Sounds great, but what's the draw backs:

• Relatively high investment levels, especially if you want to earn serious money and consider buying into a 'Management Franchise'
• Require significant amounts of effort and cannot be run alongside another job or business
• Limited lifespan of franchise deed - many expire after just 5 years after which time the franchisor can choose whether to renew or not
• Significant power vested in the national master - and they can terminate your agreement should they wish to
• Limit in scalability, especially the likes of the man-and-a-van operations. At these levels you are in effect buying yourself a job in which you have an earning ceiling but no floor
• You have to pay a franchise levy or royalty to the franchisor irrespective if you are making profit
• You generally have to buy their products and services
• You are likely contributing to the marketing budget too
• The key here is that not all franchises are created equally, and accreditations cannot be relied upon for same investment, a sceptic would say that they only exist to make money for themselves

You may do well buying a franchise, but if you ask some questions about attrition and income disclosure franchisors generally will be less than forthcoming. At the lower investment levels it is often an opportunity to buy oneself a job, and at the upper levels of investment you are committing serious levels of resources to make that return.

MLMs

Like franchises they certainly are not all created equally, so you do need to select them carefully. Most MLMs offer training and a business model, just as you would expect in a trustworthy franchise, recognising that their success is in part tied up with yours. However there are a number of general differences about joining an MLM that we should highlight:

• Investment level in the hundreds of pounds in contrast to the average man-and-a-van franchise which including fees and vehicle typically range from £15k to £27k
• Training is generally free, and where charged for below cost price - contrast this to one van based franchise that will charge you a £2k consultancy fee for help with marketing
• In an MLM it is possible to go in-active with out lengthy notice periods - whereas many franchise deeds will hold you to a notice period
• Through the concept of duplication your income levels are not subject to the same ceilings as in as a franchise
• Consider a grass and lawnmower franchise - for a start the UK is wet, but how much can one truly earn with this - and how does one grow beyond the amount of time you can personally put in?
• Your agreement is for life, and some are giftable in a will
• However you do not have rights to an exclusive territory - so you need to get working it smarter before others do

So when making the choice between an MLM and a franchise, make sure you are prepared to give up your day job while you are building a business and invest all the money you have worked so hard to scrape together over the proceeding years to sink into it.

Before you say the bank will lend it to me, yes there are schemes, but anyone who has run an SME will know how hard it is to gain funding and how much harder it is to keep the bank onside during the growth of your business. In an MLM these issues simply do not arise, if you are struggling with the initial investment to start out in an MLM then we would suggest to take a look at it again when you can afford it, as such pressures will invariably colour your whole mindset.