Chapter 1

The Problem and its Background

Introduction

It’s great to have a business. It’s challenging to be in entrepreneurship. In our

country, we need more business people and entrepreneurs to provide more jobs, generate

more output, and grow our economy. However, entering into business and

entrepreneurship is not an easy task but rather it’s a tough job. In the Philippines,

businesses, especially micro, small and medium enterprises, don’t have a long life

expectancy. Most of them would fail in less than 5 years for several reasons. Franchising

and start – up business are ways to start your own business.

Franchising is a business relationship in which the franchisor assigns independent

owners the right to market and distribute the franchisor's goods or service and to use the

business name for a fixed period of time. The International Franchise Association defines

franchising as a continuing relationship in which the franchisor provides a licensed

privilege to do business, plus assistance in organizing training, merchandising and

management in return for a consideration from the franchise.

A franchise is a proven system. All franchisees operate under a common system

and they are only responsible from their day to day operations. Also, they get trained

about the product line, marketing, how to deal with staff and other aspects of their daily

activities. Basically, they get an ongoing support for their businesses which brings them

success. Franchises bring brand awareness with their names from day one. Therefore,
customers will know about your products which will increase your sales. By buying a

franchise, you are actually buying a turnkey business that is ready and waiting for you to

start.

There is a fee for buying the franchise and ongoing fees that you need to pay to a

franchiser. The franchising fees are usually very high and there are fixed costs every

month/year for using the brand name. You don’t have the freedom to change the product

line, the decoration of the store or anything else in a franchise system. It is very

restrictive and you need to follow certain rules in order to protect your franchise license.

At its best, franchising provides an opportunity to buy into an existing, successful

business model that comes with a proven track record, a successful training program, a

solid supply chain and expert technical support. Some of the best-known franchises have

impressive success rates, with the chances of failure hovering in the low single digits. By

purchasing a franchise, you get a turnkey business that is ready and waiting for you to

take the reins. If you are detail-oriented, good at following direction and comfortable

with established systems, franchising provides a quick and easy way to become a

business owner.

Depending on the franchise you select, you may have the choice of either

purchasing a fully operational location or starting from the ground up at a new location.

The former option enables you to step right in and take over a business that has an

existing customer base, documented cash flows and a workforce already in place.

Franchising also provides a clear exit plan. When you are ready to retire, you can sell an

existing, well-known business to another would-be franchise owner.

 Franchising also poses challenges. Purchasing a franchise can be an expensive

proposition. Franchises also come with ongoing expenses that reduce your take-home

pay. There are fees that must be paid to the home office on an ongoing basis, mandates

such as remodeling at a hotel or price reductions for a promotion at a restaurant that eat

into profits, and supplies that often must be purchased at inflated prices. 

While general statistics often cite a franchise failure rate in the 15% to 20% range,

that statistic can be a bit misleading. Some franchises fail at a rate of just 1% arguably

giving you a 99% chance of success, while others crash and burn at a rate of more

than 40%. Clearly, not all franchises are created equal, so you need to look carefully

before you take the leap. It’s also important to keep in mind that purchasing a franchise is

like buying a blueprint for success; like all blueprints, it only works if you follow it.

(Cubuknu, 2006)

A startup is a young company founded by one or more entrepreneurs in order to

develop a unique product or service and bring it to market. By its nature, the typical

startup tends to be a shoestring operation, with initial funding from the founders or their

families.

One of the startup's first tasks is raising a substantial amount of money to further develop

the product. In order to do that, they have to make a strong argument, if not a prototype,

that supports their claim that their idea is truly new or better than anything else on the

market.

In the early stages, startup companies have little or no revenue coming in. They

have an idea, and they have to develop it, test it, and market it. That takes considerable
money, and startup owners have several potential sources to tap example of this is

Traditional funding sources include small business loans from banks or credit unions,

government-sponsored loans from local banks, and grants made by nonprofit

organizations and state governments. Startups have no history and less profit to show.

That makes investing in them risky. If an idea seems to have merit, potential investors

may use any of several approaches to estimate how much money it could take to get it off

the ground.

 Founding a startup needs innovation and creativity. If you are a highly creative

person full of different ideas and you want to make these ideas a reality, then, you should

definitely start it up. When you have your own business, you can work anytime you want.

Also, depending on your business, you can work anywhere you want. You don’t need to

report to other people. This means you have your own professional freedom. Moreover,

franchise businesses can grow only up to a certain point but there is no limit to the

growth of a startup business.

If you have got an idea, you may be able to turn it into business. Sam Walton did

it with WalMart; Bill Gates did it with Microsoft; John Schnatter did it with Papa John's.

And countless other entrepreneurs have done the same. With startup costs averaging only

around $10,000, having your own business, whether full-time or part-time, in your

basement, your garage or even out of the trunk of your car – is significantly less

expensive than the costs associated with many franchises. And if all goes well, your

unique idea may become a franchise one day, if you dream big and want a shot at the big

time more than you want a steady paycheck, launching your own business may be the

right move for your personality.

 Most important for many budding entrepreneurs, building your own business

makes you the boss in every way possible. That is the beauty of being self-employed:

You make every decision. You set your schedule. You run the show exactly the way you

want to run it. Nobody can tell you what to do because you own the business. If you

know how to build a better mousetrap or run a better business, this is your chance to

prove it to yourself and to the world.

Franchising is literally buying the name, logo and product of a large successful

business or company, it is somewhat similar to resellers but their difference is in

franchising you have your own stall. On the other hand in start-up business one has to

create his own product, name and logo. In other terms, in start-up business the

businessman creates the identity of his own business. This study aims to show the

efficiency of franchising and start-up business in terms of their possibilities of being

successful by looking at their strategies in running their business overtime. The

researchers conducted this study for the students specifically for business management

students; they can use the results of this study to gain more knowledge about which type

of business is more efficient.

Statement of the Problem

This study is focused on the efficiency of franchising and start-up business in

terms of their possibilities of being successful.

Specifically, it aims to answer the following question/s:

 1. How are franchising and start-up business being ran by the participants?

2. How do participants view franchising and start-up business?

3. How is the efficiency of franchising and start-up businesses characterize?

4. What theory can be formulated about franchising and start-up business?

Significance of the study

This study aims to show the efficiency of franchising and start-up business in

terms of their possibilities of being successful.

The results of the study will be great benefit to the following:

Aspiring Business Owners. The results of this study will enlighten aspiring

business owners about the type of business that is right for them if it is franchising or

start-up. Results would also be their guide in running the kind of business that they have

chosen.

Business Partners. This study will improve their knowledge on which type of

business they will invest their cash if it is franchising or start-up. Some business has

issues of bankruptcy because they did not reach their target market that is why they

should pick the right business that the customers will surely love.

ABM Students. Data presented will give them information of what are the

differences in running these different kinds of businesses. They can use the results to gain

more knowledge for their dream business in the future.

 Future researchers. The results of this study can serve as a basis or guide for

further study about the strategies in running different kinds of businesses, and also this

study can be part of their future research that is related to the present study.

Scope and Delimitation

This study was conducted to determine the efficiency of franchising and

start-up business in terms of their possibilities of being successful. This study will

focused on business owners in Tarlac City. The research sample is composed of twenty

business owners and the researcher will categorize them into to three groups; seven

franchising and also seven start-up business owners, their business should be operating

for less than six months, The remaining six is successful business owners and whose

business is operating for at least one year.

Definition of Terms

Efficiency

- Capable of producing desired results without wasting materials, time, or

energy". (Merriam Webster)

- Efficiency signifies a level of performance that describes using the least amount

of input to achieve the highest amount of output. Efficiency requires reducing the number

of unnecessary resources used to produce a given output including personal time and

energy. It is a measurable concept that can be determined using the ratio of useful output
to total input. It minimizes the waste of resources such as physical materials, energy, and

time while accomplishing the desired output.

In this research, the efficiency of franchising and start-up is determined when the

business already achieved its goals using as little material, time, effort, or energy as

possible.

One of the most important aspects of business success is earning a profit. Before a

franchising business will have a profit the owner should already retrieved his/her

franchising fee, Just the same in start-up business before the owner will have a profit

he/she should already got his/her investments back.

Franchising business

- The right or license granted to an individual or group to market a company's

goods or services in a particular territory. (Merriam Webster)

- Business in which the owners sell the rights of their business products, logo and

name to a third party retail outlets or second party operators.

Participants

- A person who takes part in or becomes involved in a particular activity.

(Cambridge)

-the franchise owners and those who started their business by themendues or

“start-up.”
 - Also called a human subject or an experiment, trial, or study participant or

subject, is a person who participates in human subject research by being the target of

observation by researchers.

Ran

- To operate, to direct, to oversee or to manage a business or to exercise

executive, administrative, and supervisory direction of a business

Start-up business

- A startup is a human institution designed to create a new product or service

under conditions of extreme uncertainty. (Investopedia)

- Refers to the new businesses that intend to grow large beyond the solo founder.

By its nature, the typical startup tends to be a shoestring operation, with initial funding

from the founders.

Theory

- A theory is a set of organized principles that explain and guide analysis

(Vocabulary)

- A supposition or a system of ideas intended to explain something, especially one

based on general principles independent of the thing to be explained.

View

- A way of looking at something;

-in this research it means the perspective of the participants about