One of the most dangerous and pervasive myths in the franchising industry is the idea that more than 90% of all franchises are successful. I can’t tell you how many times I’ve seen this statistic pop up or how many franchisees I’ve known who have bet their life savings on a franchise believing the 90% success rate myth.
Recently, the Small Business Administration declared again that franchises and independent businesses have a similar failure rate. This story was chronicled on Bluemaumau.org, the preeminent social journalism blog for the franchising community. I was pleased to be interviewed for the article.
Not surprisingly, the International Franchise Association, a franchisor trade group was not too happy with the SBA’s announcement and sought to discredit the SBA’s findings. In fact, the IFA’s CEO used the 90% franchise success rate statistic in a Wall Street Journal article in February.
This is just another case of the IFA misrepresenting the fact that investing in a franchise means improved odds of success. The AAFD’s research matches the SBA’s assessment. We’ve seen that franchise closure rates are similar or higher than independent businesses.
It’s really unfortunate how many individuals believe the 90% success myth. They think that franchising is a no-fail solution to financial success, and that just isn’t anywhere close to the truth. The key to success in franchising is to identify a franchise system and brand that has a track record of success AND offers a franchise opportunity that respects the legitimate interests of franchisees.
The most successful franchise owners do their homework before choosing a franchise, bring on a team of professionals (like a franchise attorney and franchise accountant), ask important questions, adopt and internalize the AAFD’s Fair Franchising Standards , and sign their franchise agreement with their eyes wide open.
Educating the public on the rewards and the risks related to franchising is the surest path to driving better franchise practices. Franchising is not a magical solution, and those who believe the hype may be placing themselves in jeopardy and significant financial risk.