So, you’ve thought about starting a business, but aren’t sure what kind of business to start.

Welcome to step 1 of entrepreneurship!

I remember finding myself in the same place. And so today, I’m going to break down three of the primary types of businesses that you might be considering, including franchises, traditional business models, and virtual models. Hopefully, after evaluating the pros and cons of each one, you’ll feel more confident in what kind of business you want to start!

First, let’s talk about franchises.

A franchise is a business model where you as the franchisee get to operate a business under an established name, in exchange for royalties and/or an initial fee paid to the franchisor, or the owner of the established business name. A few examples of franchise opportunities include McDonald’s, Burger King, Pure Barre, 7-Eleven . . . there are tons of them! 

You don’t have to develop products, sales systems, logistics networks, training programs, etc. – a lot of the initial business-development has already been done for you! You don’t even have to have substantial business experience because the franchisor typically will provide you with training. 

When it comes to finances, there certainly are many pros and cons to consider, especially the annual income, and length of time to generate a positive return on your investment (ROI).

Of course, start-up costs vary greatly depending on the type of business you want to start, and even within one industry depending on the brand you choose. Let’s take one of the most well-known options for example: McDonalds. McDonald’s franchisees have one of the highest average incomes at about $150,000/year. However, they also require a hefty investment to get started: $1.3-$2.3 million on average, PLUS rent, employee wages, food costs, technology upgrades, and marketing fees, PLUS a 4% royalty on all gross sales. So, in the best-case scenario using average income, you’re looking at almost 9 years to just recoup your initial investment of $1.3M, not even counting all your other expenses. An additional road block for many would-be franchisees is that many franchisors require a minimum net worth to be considered. Wendy’s for example, requires franchisees to have a net worth of $5 million to even be eligible for consideration.

Now, if you’re looking at this as a very long-term investment and are more interested in a good return over time, you do have great profit potential once your initial investment is covered, or you even could reap substantial profits if or when you sell the business.  

Overall, franchises can be a simple way to start a business with an established brand name with systems in place, and phenomenal long-term earnings potential. But on the other hand, they can require a substantial initial investment and lengthy amount to time to reap your ROI. 

Probably the number one upside of starting your brick-and-mortar business is that you finally get to do whatever it is that you love! Maybe you are passionate about providing the best Italian food to your community – now you can do it with your restaurant. Maybe you’re passionate about creating a sales space for gifts and goods produced by local artists – now you can do that with your boutique shop!  

Another pro? You get to be in charge of everything! You don’t have a boss to report to, and every decision is yours to make! Now while this can be exciting and empowering, it can also be overwhelming. As the traditional business owner, unless you hire these jobs out, you are in charge of everything from finding the location, sourcing product to sell, arranging all the logistics of getting the products to your location, contracting with vendors, managing cost controls, pricing, and profitability, hiring and managing employees, human resources, legal requirements, compliance with all laws, advertising . . . I mean, oh my gosh, you get to be in charge of it all! Which is great . . . if you’re comfortable and prepared to wear all those hats until you hire people to manage them for you.  

You’re also probably starting your own business because you have a desire to be more in control of your time and schedule, right? That desire for flexibility is a huge motivator for many entrepreneurs! With a traditional business, you will have the flexibility to determine when your business is open and how much time you put into running it. However, at the end of the day, you have to be open when your customers/clients want access to your products/services if you’re going to succeed.  This probably means weekdays, nights, and weekends for both our restaurant and retail boutique examples. Over time you absolutely can have more flexibility, if you hire people to manage the day-to-day operations. With the right people in place, you should be able to step back some and trust it will continue running successfully when you’re out of the office. However up front, you’re going to have to be married to that business for a substantial period of time to get it to be a profitable machine before you can start outsourcing. 

Another benefit of the traditional business the initial start-up fees can be lower than franchise fees.  You don’t have to be a multi-millionaire or have hundreds of thousands to start some traditional businesses. However, keep in mind most businesses take 18-24 months before they’re in the ‘green,’ or turning a profit. So, you’ll need to make sure you have the funds set aside to continue investing in your business for potentially 2 years before you start to see a ROI. 

Overall, starting a traditional business can be very fulfilling because you get to focus on what you love, and you get to be in control a hundred percent. However, that responsibility can be overwhelming, and you’re going to have to invest a substantial amount of time (and probably money) before you’re able to see a ROI and the time flexibility you crave.  

The third type of business I’ll cover is a virtual business. This is a business you can run online, from anywhere with an Internet connection, without a physical location. 

Much like a franchise, you still have the ability to partner with a well-known name brand, that has the proper systems and support in place. And, as with the traditional business, you can focus on things you enjoy and have control of your day-to-day business decisions, while having the hefty business decisions handled for you (like product, pricing, shipping, logistics, legal, etc).

Now, just like with a traditional business, you’re the boss – so you don’t HAVE a boss! Yay! However, if you’re not self-motivated this can actually be detrimental. You don’t have someone looking over your shoulder checking to make sure that your work is done. You are the only one who’s going to hold yourself accountable to do the work, in the timeframe it needs to be done. So, as we are all different and wonderful in our own ways, self-motivation can be a real pro or con in this case. 

In addition, you can have true flexibility with your schedule because you don’t have to be physically present to keep your ‘doors open.’ 

Another upside of running a virtual business is that the investment to get started usually is substantially less than with a franchise or a traditional business. You don’t have to secure a location so you have no real estate, utilities, or overhead to pay for. If you’re running a virtual partnership, you also don’t have to develop products, source and store inventory, or handle the logistics of getting products to your customers.  In addition, your profit potential can be self-determined both in the short-term, and lover the long term. You could even choose to sell your partnership in the future! This means you can get started with your business for substantially less upfront, which then also means your return on investment and profitability can greater, and come much, much quicker!

A potential struggle some virtual partnership or online business owners can face is mindset. Selling online or on social media is not what we were taught to do in school or in college. It’s not what we saw our parents doing as we grew up. It’s a whole new realm of business opportunity. And so to be successful in this arena, you have to have the right mindset – one of growth, resilience, and belief. Now, most of us need to develop the mindset that will lead to success, which happens through personal development, training, coaching, and mentorship. Doing something out of the ordinary can really pay off, but it will likely take an open mind, some personal development, and growth.

So to recap virtual businesses, you generally have the lowest startup costs and quickest return on investment. And, if you choose the virtual partnership route, you also have the benefits of an established brand, product line, and systems and support to run your business. However, the success of your business will depend on you managing your mindset and ‘showing up’ every day. 

As you can see, all three types of business can have great profit potential and both short and long term upsides for you! 

What type of business you start will probably be based upon:

• What level of initial investment you’re comfortable with, 
• What length of time you’re comfortable with regarding your ROI,
• What level of income you desire in both the short and long term,
• What level of responsibility and decision making you’re interested in and,
• What kind of flexibility you’re looking for not only over time, but immediately.