Franchise vs. Startup: The Ultimate Entrepreneurial Dilemma

According to Fast Company, 16 Executive Board members recently weighed in on whether entrepreneurs should pursue franchises or startups in volatile markets, with leaders from Summit Financial and GitLab among those sharing their perspectives. The debate centers on franchises offering established brand recognition, tested systems, and predictable returns versus startups providing agility, innovation, and exponential growth potential. Stan Gregor of Summit Financial advocated for startups due to their “passion, determination, and grit,” describing his own company as operating like a “40-year-old startup.” Meanwhile, Sabrina Farmer of GitLab revealed a hybrid approach, investing short-term in innovative startups while maintaining longer-term commitments to established solutions. This expert consensus provides valuable guidance for entrepreneurs navigating today’s uncertain business landscape.

The Volatility Factor Changes Everything
The Overlooked Dangers of Franchise Models
Why Startups Outperform in Uncertainty
The Emerging Third Way: Strategic Portfolio Thinking
Where the Market is Heading Next
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The Volatility Factor Changes Everything

What makes this franchise versus startup debate particularly relevant today is the unprecedented market volatility we’re experiencing across multiple sectors. Market volatility has reached levels not seen since the 2008 financial crisis, creating an environment where traditional business assumptions no longer hold. In stable markets, franchises typically offer safer bets with their proven systems and immediate brand recognition. However, in highly volatile conditions, the very predictability that makes franchises attractive can become a liability. Established systems struggle to adapt when consumer behaviors shift rapidly, supply chains break down, or economic conditions change overnight. This creates a fascinating paradox where what appears safer might actually carry hidden risks.

The Overlooked Dangers of Franchise Models

While franchises offer apparent security through established brand awareness and operational systems, they come with significant hidden costs that many entrepreneurs underestimate. The initial franchise fees and ongoing royalty payments can consume 10-15% of revenue before the business even turns a profit. More importantly, franchise agreements typically include strict operational requirements that limit flexibility when market conditions change. During the pandemic, we saw numerous franchise owners trapped in long-term lease agreements for locations that suddenly became unprofitable, while simultaneously being required to maintain specific staffing levels and inventory that no longer matched demand. The franchising model also creates dependency on corporate decisions that may not align with local market realities.

Why Startups Outperform in Uncertainty

The agility that startup companies possess becomes their greatest asset during market turbulence. Unlike franchises bound by corporate mandates, startups can pivot their business models, adjust pricing strategies, and reconfigure operations within days rather than months. This adaptability proved crucial during recent economic shocks, where businesses that could quickly shift to digital platforms, modify their service offerings, or target new customer segments survived and often thrived. The passion-driven culture that Stan Gregor mentions isn’t just motivational rhetoric—it translates directly into higher resilience when facing challenges. Teams that believe deeply in their mission will work longer hours, accept temporary pay reductions, and innovate solutions that corporate employees might never attempt.

The Emerging Third Way: Strategic Portfolio Thinking

Sabrina Farmer’s approach at GitLab represents what I see as the most sophisticated strategy emerging among experienced investors and entrepreneurs. Rather than choosing exclusively between franchises or startups, successful leaders are building portfolios that balance both approaches. This might mean maintaining core revenue through established business operations while allocating 10-20% of resources to experimental startup investments. The key insight is recognizing that different business models serve different purposes within an overall entrepreneurship strategy. Established models provide stability and cash flow, while startups offer growth potential and innovation exposure. This balanced approach mitigates the weaknesses of either model while capturing benefits from both.

Where the Market is Heading Next

Looking forward, I predict we’ll see continued blurring between franchise and startup models as both adapt to market pressures. Franchise corporations are already experimenting with more flexible agreements and localized decision-making to compete with agile startups. Meanwhile, successful startups are developing franchise-like systems to scale their proven concepts more efficiently. The most successful entrepreneurs will be those who can extract the best elements from both models—building the operational discipline of franchises while maintaining the innovative spirit of startups. As market volatility becomes the new normal rather than an exception, this hybrid approach may become the standard for sustainable business growth.