Entrepreneurship and Franchising Differ as Business Models in Several Important Aspects

Reading Passage Question

Entrepreneurship and franchising differ as business models in several important aspects, one of which is the concept of ownership as it relates to control. Businesspeople who dream of being their own boss may consider franchise opportunities without understanding the nature of this business model. A franchise owner is not an independent businessperson in the same sense as an entrepreneur. Rather, a franchise owner has purchased assets of an existing company under certain conditions. The owner undergoes extensive training to learn the company's product line, style of service, and procedures so the company's carefully crafted identity is maintained. The rules are stringent, and the relationship between company and franchise owner is strictly governed by contracts. The franchise owner is, in a real sense, not the boss.

But franchising affords significant advantages to the businessperson, who, at great expense, buys a tested business model with immediate name recognition and established, successful procedures. Franchise owners often receive long-term mentoring and other support services from the franchisor, whose interest in assuring success for the new location is strong. Franchise owners have pre arranged access to supplies and to the discounts available in economies of scale. The reduction of the risk of failure, perilously high for start-ups, is slashed in the franchise model when the company is well known regionally or better yet nationally. A businessperson deciding whether to franchise or to start up a business must weigh these advantages against the attraction of being one's own boss.

“Entrepreneurship and franchising differ as business models in several important aspects”- is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 3 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Solution and Explanation

1. It can be inferred from the passage that the author

1. deems franchise purchase a sounder investment than funding a start-up.
2. thinks that being one's own boss would disappoint most businesspeople.
3. believes that businesspeople must understand a business model before using it.
4. plans to purchase a franchise in the near future.
5. distrusts the tight control companies have over franchise owners.

2. The author states each of the following as an advantage of franchising EXCEPT

1. less risk of failure than with a start-up.
2. procedures that have already been confirmed as successful.
3. the protection offered by a clear contract with the franchisor.
4. the economy of scale.
5. strong support is in the interests of the franchisor.

3. Which statement, if true, most seriously weakens the idea that the franchise business model does not afford franchise owners the opportunity to be their own boss?

1. Companies have the right to rescind a franchise contract if the owner fails to follow the company's procedures and service style as required.
2. After a franchise is successfully started, the company requires less hands-on control over daily operations.
3. Entrepreneurs running start-ups are often restricted by market conditions and local regulations and must abide by operating procedures mandated by their insurers and financiers.
4. Franchise owners sometimes have opportunities to move into the company's management structure and advance to high positions.
5. Successful franchise owners may eventually run several franchise locations.

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