The Truth Behind Franchise Success Rates

You’ve probably heard the statistics a few times already. Friends, magazines, franchisors, consultants and even banks quote that 80% of small businesses will fail in just one year, while 90% of franchises are still going at five years.

It’s really common to hear these two statistics quoted together and they make it sound like franchises are a far safer bet than starting your business on your own.

But What If The Statistics Aren’t Real?

How would that alter your perception of the safety of buying a franchise? Would you consider investing in your own idea if you thought it had just as much chance of success? It’s time to blow away the myths about franchise success rates and understand the real story behind the facts.

First of all, there is no credible source data for the 90% success rates. In fact, franchise associations have even told their members, the franchisors, not to quote these kinds of figures because they have no basis in fact.

What Franchise Research Really Shows

In truth, the only studies that have examined franchise versus non-franchise businesses with comparable sizes have shown that they have similar success rates. Yes, you read that correctly – the chances of you succeeding in business are roughly the same whether you decide to do it with or without a franchise supporting you.

Of course, the franchisors don’t really want you to know this. So they do some clever tricks to make their statistics look a lot better than they really are. First of all, they formed Franchise Associations many years ago to self-regulate themselves.

This was because franchising got a reputation for a lot of scams and rip-offs during the 1950s and 1960s. But because they self-regulate, they aren’t on your side. They just do the minimum to stay on the right side of the law.

How Franchisors Hide True Failure Rates

There is a very clever trick that franchisors can play to make their survival statistics look great. They sell franchise licenses, and if a franchisee’s business fails, they take the licence back and sell it again to somebody else.

Their statistics will show this as the same franchise surviving for 5 years. In truth it’s a failed franchise that’s very cleverly hidden by their system. See how this could catch you out when you’re talking turkey to a franchisor?

Follow The Facts

In the absence of honest statistics that you can rely upon, the simplest way to evaluate a franchise is to follow the facts. The successful franchises stand out very clearly – existing franchisees are all earning a good income and there is a strong public perception of the brand.

In the food franchise world, you can quickly see the kinds of name that are worth having – Subway, McDonalds, Domino’s Pizza have all filtered into popular culture. That makes them good contenders for being around for years to come.

Caveat Emptor, As The Romans Would Say…

So when you’re considering franchising, remember to be cautious around new franchise brands and names without the track record. Of course you could make a killing, but a new franchise is far more likely to fail than a well established name.

Ultimately the best advice if you’re considering franchising is “Caveat Emptor”, a latin phrase enshrined in law – it means “let the buyer beware” and is a phrase worth heeding.

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