In this post, I’m going to reveal the real franchise failure rates. You ready?
With very little effort on my part, I’ve been able to uncover several shocking facts concerning some amazing franchise success rates. And I’m going to reveal them right here.
And, I do mean amazing.
What I Found
1. From PaloAltoOnline
“Success rates appear to back them up: “The No. 1 reason businesses fail is lack of cash for working capital. After 10 years, only 16 percent of existing start-ups are still in business. With franchises, it’s 90 percent,” said Katie Fagan, franchise consultant for FranNet, a franchise consulting group in San Jose.”
2. From a Tweet
“A franchise is one of the less risky types of business available. More than 80% of franchisees are successful.”
3. From a business brokerage website
“Franchises have the highest success rates and the lowest failure rates of any business in North America today! Over 95% of all franchises are still in business after five years because they all come with built-in proven success formulas used by franchisees across the country.”
This is great news!
Except that none of those franchise success/failure statistics are true.
So do your research.
About Franchise Failure And Success Rates
A few years ago there were so many franchisors telling people verbally, (and in their marketing brochures-and on their websites) that there was a, “95% success rate in franchise businesses,” the International Franchise Association had to jump in and draft a formal letter to it’s entire membership. Read what the IFA letter said.
Wait. I made an error in the paragraph above. I wrote that, “a few years ago…” The examples I shared with you were found in the last few days. That’s a problem. And, it’s an industry-wide one.
A simple scan of some of the cheaper-looking websites that some of the franchise brokerage outfits include as part of their, “Start-Up Packages,” are very telling. Newer franchise brokers and, “Consultants,” regularly copy and paste paragraphs of gunk that cite franchise success statistics from 20-30 years ago. (That have since been disproven.)
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I showed you #3 examples, but #2 was the one that got me started. As I was scanning Twitter for franchise business-related discussions last week, I ran across that Tweet about franchise success rates and I kind of went off. Actually, I went off a little more gently than my normal rant-first-re-group-later-style. I calmly Tweeted back this;
“Please, if you’re going to spit out 80% franchise success rates, let us know where you got that info. #geez”
The Tweeter Said…
The franchise broker who Tweeted out the falsehood then wrote that “the 80% success rate came from the SBA website.” Fair enough. But, it came from 1991. This is 2017. The letter from the IFA telling it’s franchisor members not to use these statistics anymore was written and sent to the membership in 2005. (The broker who Tweeted that out has since Tweeted me back saying, “You are right.“)
Hello. Hello!!!
This Is A Big Deal
If you’re one of the thousands of people that are thinking about buying a franchise someday, and you read about the 80% and 90% success rates in franchising somewhere, do you think that you may be a little more inclined to pick up the pace on your search for a franchise?
I’ve written the following before (in many different articles on franchising over the years) , and it bears repeating;
Investing in a franchise is risky. Investing in any type of business is risky. That’s why more people don’t do it!
What have you heard about franchise failure rates? Have you visited franchise websites where stats like these are still being used? Name them!
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Great article, this is important information for anyone looking at franchises to understand.
One question for you, I read all the points debunking the 80-90% success rate myth, but do you have any info on what the actual success rate is? Or resources to find that?
I have just started researching the topic and so far the only stat I have found was referenced in a Business Week article that said the 3 year success rate for a franchise is 43%. But that was only referring to restaurant franchises and did not indicate how “success” was defined. If that only means not out of business or closed, I would hardly define that as “success”.
Any information you have would be appreciated.
Thank you.
PS: Here is a link to the article I referenced.
http://www.businessweek.com/stories/2007-04-16/the-restaurant-failure-mythbusinessweek-business-news-stock-market-and-financial-advice
Thanks for popping by, Tony.
Great question. You may not like my answer.
Statistics, while fin to look into and debate won’t do much for you if you’re failing in your franchise business.
Here’s my take: A great choice in a franchise, combined with powerful research, will improve your own success rate.
But, stuff can happen that you don’t have control over.
It’s risky to start any business venture.
Knowing that going in will help a lot.
The Franchise King®
Joel is correct. Industry-wide statistics are outdated and incorrect. Instead, prospective franchisees should evaluate the “micro” economic and business factors related to the individual franchise.
Also these industry-wide statistics define “success” by whether or not your franchised business remains “open” for 2 years. It’s important to remember that a business may remain open and not be profitable. Success must be examined based on many factors that go far beyond the fact that the business remains “open”.
Great points, Charles!
Especially the one about “possibly” not being profitable during those important start-up years.
JL
if so, why?
Would you recommend “investment in yourself”, ie, doing what you do well, being who you are over a franchise investment? for example: real estate broker or franchise?
Answer to your question: It depends.
How much freedom and control do you want?
JL
What do you have to say about MAACO?
Great article. I recently began to check out a huge food truck franchise called GourmetStreets that helps franchise buyers such as myself to get in on the growing success of gourmet food trucks. I’ll keep you posted but they seem to be an incredible franchise and I love great franchise opportunities! Thanks again for the read…
Thanks for popping by. I hope that you have a rocking summer!
JL
Daenjoli,
My hardcover book is an A-Z for franchise ownership.
JL
In 2002 I purchased a franchise. I believe their marketing statistics regarding the success of franchise. I thought I did my due diligence with other franchise owners and I felt I had a fair and reasonable picture of the risks and rewards. Bottom line, I was wrong. By 2005, I was out of business and I had lost a lot of money.
I have a long list of lessons learned in that process. Buying a franchise does work for some BUT does NOT work my many. The reality is far worse than they tell you.
Jeff,
Sorry to hear about your negative experience.
I’m curious: Did you contact franchisees in the franchise you purchased before you wrote the check?
JL
Thank you. I’ve felt the same as a business counselor, but couldn’t prove it. I’ve found several really misleading start up quotes. However, because most franchises require a substantial equity position vs other start ups, I would think they would be more successful.
Great discussion. Thank.s
Thanks for popping in.
Franchises CAN be more successful than pure start-ups. It just depends on many, many different things.
JL
Joel,
Thanks for addressing this issue. There is no excuse for this information to be shared as fact by anyone who is working in the franchise industry. It is not an acceptable “rookie mistake” and all “broker” companies should make sure there is clarity of the “facts” in their training.
Thanks for your comment.
And, thanks for your support on this issue.
Ridic.
JL
Hi Joel,
This is my first time getting into franchise business. Can you kindly advise if Goin’ Postal would be a good franchise business to start with? Anything in particular that I should be aware of before we move forward to sign an agreement?
Regards,
Harry
Harry,
Thanks for popping by.
Answer_ I’m not sure. I would need to know a lot more about you, and some other particulars.
I offer one-on-one franchise ownership advisory services. We could talk first before you sign-up.
Email me Joel at thefranchiseking dot com