“I abhor averages. I like the individual case. A man may have six meals one day and none the next, making an average of three meals per day, but that is not a good way to live.”?~Louis D. Brandeis
Was Louis Brandeis saying that statistics are just a waste of time? I think not. But his quote may cause some to question the validity of doing hours upon hours of statistical research in whatever subject they are trying to gather more information about, which in this case is franchise ownership.
Published franchise success rates run start at a low of 55% for retail franchises, up to a high of 95% industry wide. But just where did those statistics come from? Look at the various sources to see how widely the numbers vary.
If you are looking to get into a business of your own, wouldn’t it behoove you to take a look at a business model that has a 95% success rate? The answer is no! That is because there was never any such statistic like that published by a reputable source.
?Sean Kelley, a franchise industry veteran says that, “In franchise promotional copy there is a commonplace, but patently false, survival statistic that has been cited with for the past two decades with the assuredness and zeal of an urban legend. In fact, it is quoted so often that many of those who use it probably believe it’s authentic.”
Sean’s reference to an urban legend reminds me of a game you might have played as a kid called “telephone.” In the game, a group of kids would sit in a circle, with one kid whispering a secret into another’s ear, which was then passed around until it got to the last kid who would have to repeat the secret, which was never even remotely close to the original one that started the game. Is this similar to what happened with franchise statistics?
The Internet has made almost every business more transparent, and as more and more information becomes part of the public domain, more myth debunking will continue, and the public will keep demanding that truthful information be made available.
The International Franchise Association (IFA) was even forced into the franchise success rate fray, as seen below;
In a letter to the International Franchise Association membership, Matthew Shay, its President writes:
It has come to our attention that some IFA-member companies may be providing information about franchising that is long out of date and no longer presents an accurate picture of the sector.
Of particular concern is information claiming that the success rate of franchised establishments is much greater than that of independent small businesses.
Many years ago, the U.S. Department of Commerce conducted studies about franchising which presented such statistics. That information is no longer valid. The agency stopped conducting such studies in 1987.
When I do seminars on franchise ownership, I always tell my audience that the only meaningful statistic on franchise success is their own experience with franchise ownership. Unfortunately, statistics like that requires one to take some risk, and actually invest and open up a franchise.
I do believe that investing in one’s own franchise is a lower risk proposition than investing in a pure start-up. The trick is to choose one that closely matches the skills, personality traits, budget constraints and risk tolerance of the potential franchise buyer. Just buying the current “hot” franchise is not the way to become a positive franchise success statistic, nor is skipping the most important part of the franchise purchase process … the research.
Even with the inconsistency of published statistical franchise success rates, the business model of franchising is a wonderful one that can offer a path to the American Dream.