New data proves assumption that franchise businesses are more likely to succeed
Franchise veterans have known for decades that small business owners are more likely to succeed within a franchise system, and for the first time in recent times, we have the numbers to prove it.
FranNet, an international group of franchise consultants who match entrepreneurs and franchise systems, recently surveyed 1,260 franchises it helped open from 2006 to 2010 to see how many were still in business.
Franchise Businesses Succeed Despite Economy
Despite facing the worst economy in 80 years, 91 percent of the franchises were still in business after two years. By contrast, when the U.S. Small Business Administration and Census Bureau studied small businesses a decade ago, during much better economic times, they found that just 64 percent of small businesses survived the two-year mark.
After four years, only half of small businesses survived, according to the Census Bureau data, which tracked the year-by-year survival rates of businesses founded in 1992. FranNet, by comparison, found that 85 percent of the franchise businesses it helped start in 2006 were still operating five years later. That’s a huge difference. Franchises succeeded at a 42 percent higher rate than typical small businesses.
Reasons Franchise Businesses Outperform Most Small Businesses
Why are franchise businesses so much more successful? I can cite a number of reasons based on my career in franchising:
• Franchisees utilize a systemized way of doing business. Their business model has been tested by a company with a track record, established operations and a recognizable brand.
• Franchise systems often have brands that inspire trust. Customers seek out trusted brands,, which means franchisees generally have an easier time acquiring new customers.
• Franchise systems rely on quality, uniformity and consistency. Otherwise, they fail. Customers like dependable brands that deliver predictable products and services, every time out.
• Franchisees don’t have to go it alone. The franchisor provides training and support, and other franchisees are willing to offer advice and help, since they know what the new franchise owner is going through. Any experienced franchise owner will tell you that support from fellow franchisees can make the difference between success and failure.
• Franchise systems can save on marketing costs by duplicating materials and dividing the expense among many franchise owners. Depending on the franchisor’s size and target market, it can direct its marketing to a local, regional or national audience, ensuring maximum impact and efficient use of marketing dollars — a key for any business.
Any one of these advantages is reason enough for entrepreneurs to purchase franchises instead of starting business on their own. Taken together, they make a great case for the benefits of franchising — and thousands have already ruled in franchising’s favor.
I’m glad FranNet had the skill and initiative to compile this incredibly revealing and valuable information. It shows with great precision why so many people are choosing franchise ownership, and why franchising is growing more and more prominent in the American economy.
Tasti D-Lite chairman and CEO Jim Amos has more than 30 years of experience guiding successful franchise companies such as Mail Boxes Etc. He was inducted into the International Franchise Association’s Hall of Fame in February.