Should you Consider Opening an Indoor Playground Franchise?
If you dream of going into business for yourself but you’d rather not build your business from scratch, franchising might be the right choice for you! However, it can also have a variety of drawbacks.
Franchising (and all the legal jargon that goes with it) can be confusing for first time business-owners, so today I’m going to break down the advantages and disadvantages and how franchising differs from licensing.
What is a Franchise?
A franchise is an extension of an already existing brand or business that wants to expand. It is an asset of your brand governed by federal securities law.
This means having the right to use the franchisor’s established name and branding, as well as their already-tested business model or having the right to resell a franchisor’s product. One of the most famous examples of a successful franchise business is McDonald’s. They now have more than 36,000 restaurants in over 100 countries.
How Does Purchasing a Franchise Work?
As a franchisee, you purchase the right to use someone else’s business system by paying an initial fee. You must operate your business in accordance with a contract, or franchise agreement, and maintain the brand’s integrity. The franchisor will provide all relevant materials and training necessary to participate in the standard operating system and all proprietary information.
What are the Advantages of Buying an Indoor Playground Franchise?
If you buy a franchise, you get all the advantages of remaining self-employed, but you lessen the risks by joining a proven business that may already have a customer base ready and waiting. You know what the business will look like when its successful and you can often take advantage of economies of scale in your relationships with vendors and suppliers.
Licensing and franchising share similar advantages. Licensees also enjoy lowered risk because they're usually entering the marketplace with a known quantity and a built-in customer base. But, they enjoy a lot more freedom than franchisees.
What are the Disadvantages of Franchising an Indoor Playground Business?
The downside of franchising lies mainly in the loss of control you have as a business owner since the franchisor makes many of the decisions for you. (But for some business owners, this narrowing of control can be a relief and therefore an advantage!) Additionally, the profits tend to be slightly lower than if you had your own business, because as a franchisee, you typically have to pay franchise fees to the franchisor.
In the indoor playground business specifically, this lower profit as a result of these fees can be especially difficult especially if the focus of the indoor playground (which is controlled by the franchisor) is a mismatch with the geographic or competitive landscape that the franchisee chose.
These mismatches can result in very low profit margins which are hard to increase if the franchisee has little control over business choices or offerings.
Also, many times indoor playground owners can feel stifled by the restrictions placed by the franchisor, depending on the agreement. For example, if a franchisee has a fun sale or promotion or event they want to do, there are likely channels they need to take or approvals they need to get before proceeding.
If you own and manage your own independent location, you have complete autonomy and can make these decisions quickly as you go.
How Does Franchising Differ from Licensing?
The fundamental difference between franchising and licensing is the amount of control a franchisor holds over the franchisee. When you franchise your brand or business, the franchisor retains an enormous amount of power. They supply the business model and can define the territory in which any given franchisee can operate.
However, when you license a business, the licensor sell the rights to use the company's products and trademarks in exchange for some version of royalties, which are usually an agreed-on percentage of the licensee's sales. The licensor retains ownership of the goods or intellectual property involved.
One of the most reputable businesses in the licensing world is Disney. The Disney Consumer Products Branch has licensed movie images and characters, including the famous Disney Princesses, to companies selling everything from home goods to personal care products, from T-shirts to wedding dresses, and beyond!
Should You Franchise or License an Indoor Playground Business?
Simply put, opening a franchise or licensed location is great if you want to minimize risk and enhance your chances of success. A franchise actually has a chance of success FOUR times greater than an individual going into business for themselves. With a franchise or licensed location, you know what you're getting in to. With another business you may not. It's simply a question of the "known" versus the "unknown."
It is also typically easier to sell a franchised or licensed business (if you choose to do so) because their systems are well documented and transferable and come with additional support. Plus, brand and name-recognition can be more powerful in franchised or licensed indoor playground businesses.
However, ALL options should be considered closely. Recently, many franchised indoor playgrounds have gone up for sale which should give prospective franchisees pause. It is critically important to analyze both the imposed fee structure AND the success/ turnover rate of current locations.
I would also personally visit at least one or two current franchised locations to see how they operate, and if possible, chat with the owners of the location. You can generally get a great idea of how the franchisee/ franchisor relationship is holding up based on a brief conversation with management.
No matter how you slice it, opening your own business requires major amounts of time and money. Both franchise and license agreements require significant legal consideration, so it is recommended that you seek the services of a lawyer before making any decisions.
Without the support of a franchisor or licensor, someone looking to open a business on their own may end up spending more time and money making their dream a reality. However, it can definitely still be done! Hiring a business coach or a mentor is another great option to fast-track your path to success.
If you are considering opening an indoor playground business, Play Cafe Academy can give you the confidence you need to open a profitable indoor playground business without needed to go down the franchising or licensing route.
If you’re not sure owning an indoor playground is right for you, download my FREE 44+ page eBook all about opening a profitable indoor playground!