The Complexity of Choices Facing Independent Business Owners Today
Our in-depth industry expertise and extensive experience working with independent business owners has provided some critical insight. Owners who want to maintain independence and achieve meaningful growth are faced with two primary issues: (1) acquiring the capital necessary to support the desired growth, and (2) ensuring their management team is capable of sustaining the required high level of operational execution. Financing growth either through existing cash flow, by borrowing against your assets or taking on investors all carry inherent risks to your personal net worth. Additionally, meaningful growth requires increased levels of operational process, controls and managerial talent. Such talent can be difficult to both recruit and retain.
Owners who are limited by their lack of capital or other growth resources or who simply want to realize some liquidity from their business often face a single, unpalatable option – sell a portion or all of their business. From our industry experience, that decision tends to lead to a whole new set of potential problems. Audigy Group International (AGI) has been specifically designed to address these issues with a unique business structure. We encourage you to explore all these issues as you study our business model. To begin, let's briefly review the three business structures independent business owners are currently limited to.
Buying Groups and Network Affiliations
In a buying group or network affiliation, independent business owners maintain 100% autonomy and are free from outside influence in their business decisions. These affiliations can drive increased profitability through greater purchasing power and often provide some entry-level training that will assist new entrepreneurs in business management. However, without access to higher-level strategic support and proven systems that ensure efficiency, many entrepreneurs experience little top-line growth or improvements in their business' ability to scale. These groups are founded with the basic strategy of providing the minimum amount of support and services required to induce the independent owner to purchase through the group. Thus, after the minimum services and support have been delivered, profits are generally pocketed by those who own the group or affiliation, rather than reinvested into additional services for the members. In some cases, these profits are utilized to directly compete in the business owner’s local market.
The main benefit of franchising for the local entrepreneur is the provision by the franchisor of a brand and a proven business system. That system should mitigate the risk of failure and provide ongoing support as the business grows. Having a shared brand that can be leveraged across markets also gives the local business owner some brand credibility at day one. However, that mitigation of risk and ongoing support come with significant costs, regulations and, ultimately, a lack of total control.
To receive these benefits, entrepreneurs are expected to pay initiation fees and ongoing royalties to the franchisor and can only use the brand if stringent rules and regulations have been followed. The franchise fees are utilized by the franchisor to cover the cost of maintaining the brand, developing new business systems and corporate support. However, franchise fees often far exceed the actual costs incurred by the franchisor and the franchisees never own the brand or system. They only rent it.
Corporate consolidators quite simply believe that volume purchasing, brand credibility, expansion capital, employee benefits, economies of scale and corporate infrastructure can outweigh the benefit of local ownership. The end result for the entrepreneur is loss of control, ownership and ultimately the deterioration of the vision that founded their company.