Franchise failure rate
Do you have any recent information on the failure rate of franchises? Some people say that 90% of franchise owners are still in business 5 years after starting their franchise which is much higher than independent startups but some do not believe that. What are your thoughts?
As a certified franchise executive through the IFA, I can share first hand why I believe franchisees have a better chance of survival than a start up. They have support. They have systems, they get pre-built software and people who can lead them on the way in terms of other successful franchisees. Most offer business coaching to help the franchisee grow their business. They’re less likely to make huge mistakes in business development or staffing. And they pay a franchisee fee for that (which comes right off the top of their P&L). However, they have to pick the right system, the right territory and have the proper funding to get off the ground successfully.
I’ve also seen my share of franchisees fail, and those are people who either don’t follow the franchisors system, don’t have business acumen, don’t do the required advertising, or in some cases are sold a territory that’s not really large enough or doesn’t have the right client base to grow from.
I only found one article discrediting the data that franchisees are more successful, but interestingly it was all based on one study, from way back in 1995. Here’s that article. http://www.moyak.com/papers/franchising-failures.html
I believe, like any business start-up, that the smart, adaptable, well-funded business owners will thrive. That’s true in franchising as well. And keep in mind, all franchise systems are not the same. Some charge more franchise fees than others. Someone who doesn’t want to re-create the wheel, might consider a franchise. Someone who wants to do it their way, or has a new, fresh business model, might consider a startup. In both cases, they have to do their homework and pick the right business.
In any case, I believe there aren’t enough variables being looked at to make a fair comparison either way. For my money, I’d buy into a franchise. I do believe the AVERAGE person has a better chance to be successful by going that route.