Conflicting Information in the Franchise Industry – What is the Truth?
Franchise Industry Statistics
A not so recent study (which many franchise industry “experts” still quote as gospel today) Indicated that 92% of all franchise owners were happy with their decision.
That is quite Bullish news for franchising indeed. But like any worthy internet meme these statistics have permeated the industry with overzealous Franchisors and brokers alike tweaking the numbers any which way they choose. A common variant is the ever popular “Franchising has a 95% success rate”
The SBA did provide statistics way back in the early 90’s indicating that 80% of franchisees succeeded whereas small businesses had a much higher failure rate. Some folks still quote that study today, but as anyone not living under a rock is likely aware our economy is slightly different today than 20+ years ago.
At the other end of the spectrum we have the franchise bashers. They will state franchising is evil, franchising will suck you dry with unjustified fees and ongoing royalties, and anyone who buys a franchise is doomed to an agonizing life of servitude.
The reality of course lies somewhere in the middle. Yes, there are thousands of happy franchise owners all around the world. But yes, there are also those who were devastated both mentally and financial following the decision to buy a franchise.
And surprisingly you will occasionally encounter both of those extreme experiences within the same franchise organization!
What is it that makes one person fail and another succeed given the exact same concept and tools? The finger pointing is of course always directed away from oneself but often both the franchisor and franchisee will have played a part.
A Franchise, as such, is inherently neither bad nor good. It is a vehicle that can offer an element of safety, security and guidance and a quick way for someone to enter into an established business ownership model.
Unfortunately many people take these industry touted franchise benefits as justification to avoid performing due diligence. Enter our “unhappy franchisee” of the future.
At the time of this writing there are over 3000 franchises in virtually every sector. Some have great reputations and histories, some not so good. But how do you define “good”?
Historically “good” franchises will always have very low or nonexistent failure rates. They have exceptional support and established processes, a well known brand, competent management and will vet their prospective franchisees quite diligently.
Conversely a “not good” franchise will have multiple franchisee failures. While this does not always mean the franchise is bad, it is an indicator that there is weakness in the system. Poorly run franchises will often have ineffective processes, or minimal support available to the franchisee. They also may have weakly established brands or marketing plans in place which place larger demands on the new franchisee. Often times these poorly performing Franchisors will not have a handle on the psychological profile or background of an ideal franchisee (or not care) which subsequently will result in a larger number of failures.
Franchising has become an essential component of our modern infrastructure. You can’t walk down a city block without seeing several. But as with anything there is good and bad and due diligence is your best friend when looking into buying a franchise.