Entrepreneurs should always seek out ways to reduce their potential failure and error rates. If you want to succeed in the world of business, reducing failure rates should be a primary concern. A good way to reduce the risk of failure is to choose the franchising option over starting your own independent business. This is because there are built-in safety nets to help catch you when you fall. Franchises tend to have a higher success rate than normal start ups. Conventionally, the general statistic is that there is a 5% failure rate for franchises, versus the 50% failure rate for independent small businesses and start ups.
There are many reasons why franchises tend to be more successful. The franchiser has a vested interest in the franchisee, and the start up process has been completed by different franchises over and over, and this process has been studied and picked apart by the franchiser to find potential sources of error. Let’s examine some of the safety nets that franchisers tend to have in place to assure success.
The truth is that franchisers have a vested interest in seeing the franchisee succeed, and to that end they have developed formulas for starting new businesses that are studied, tried, and tested as much as possible before being sent out to the end user franchisee. The franchiser with a long history of success should be able to provide you with failure rates and potential reasons. This will give you a clearer idea of your chances for success. You have to understand that, on some level, the franchisee’s failure is also the franchiser’s failure.
The franchiser wants to see as much success as possible and they have contingency plans in place to assure success. This is why the franchisee tends to have stringent guidelines that they must follow once the purchase process has begun. The guidelines are designed to reduce potential errors that could cause roadblocks in the start up process for the franchise. These guidelines can cover many of the details of starting a business, from site selection, to marketing and advertising, to training employees, etc.
The franchiser will also provide you with a list of requirements for equipment and fixtures for your new business. This guideline is designed to keep you from spending too much money on new equipment that may be unnecessary, at least during the start up process. The franchiser will usually provide specific and exact requirements for all your equipment needs.
However, on the negative side, you should be aware that there are studies out there that question the 5% failure rate. A study conducted at Wayne State University in Detroit by Dr. Timothy Bates found that franchises make lower profits than independent entrepreneurs, and also found that their failure rate actually approached 30%. The study also found that franchises require much larger capital investments than independent start ups, sometimes up to five times the capital investment requirements of independent small businesses. Franchised operations are more expensive than other types of start ups. Also, if you are required to purchase supplies through the franchiser, this may cost you more money than if you were able to seek out and get bids from your own suppliers. But in some sense, you should realize as a franchisee that you are paying for the safety net provided by the franchiser.
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