February 28, 2005Franchise FailureDane over at Business Opportunities Weblog quotes Steve Strauss on franchise survival rates: The good news is that the likelihood of you failing as a franchisee is fairly remote According to the Small Business Administration (SBA), roughly 30% of all non-franchise businesses fail within the first year, but that number falls to 5% when discussing franchises. Strauss then goes on to discuss reasons franchises fail. It's a good piece, with two quibbles. According to a 1998 study for Sloan Management Review, about 15% of franchises fail in their first year, and by the third year, they match that 30% failure rate. It may be that franchises have refined their systems since then, but 95% sounds pretty good, 85% less so, and a longer-term view is much less rosy then either. Secondly, Strauss fails to warn potential franchisees that franchisors will sometimes buy back successful operations an have the company run them directly. This not only breaks faith with the franchisee, who's buying a revenue stream as much as a process and name. It also suggests that the franchisor's attentions aren't where they need to be: in brand-building, marketing, and chain-growing. Posted by joshuasharf at February 28, 2005 11:35 AM | TrackBack |
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