The Truth About Franchise Success Rates!

Andy Cheetham, Lime’s Managing Director was recently asked why he thought that 90% of franchised businesses are successful. His answer was “that’s not true, franchising is more successful than going it alone but there’s no way that 90% of franchises are successful – no way!!” Here, Andy elaborates on this controversial point.

It’s about time that someone like me told the truth about the often publicised 90% success rate of franchised businesses. For many years now the franchise industry has been trumpeting the fact that figures show that the average franchisee’s business is successful 90% of the time. There’s lies, damn lies and statistics and this is misleading, and for several reasons.

Consider where the information comes from? Firstly, it’s a very small percentage of the market, and usually the statistics are made up of both franchisors and franchisees. With franchisors, there’s no way that they’ll all report genuine figures, because obviously, they don’t want anyone to know (even their own network) what the real picture is. I’ve been at the heart of the industry for 21 years and it’s a fact that Franchisors exaggerate the success of their network whilst trying to hide the failures. Come on, you know that already surely?

Amazingly Franchisees will often provide a positive endorsement of a franchise despite not doing well themselves! Don’t ask me to explain this but it’s true, maybe they are worried about their franchisor finding out, because they’ve worked out that many franchisors will mystery shop them? No matter, because again, the sample size is often a tiny percent of the industry which is way too small amongst the tens of thousands of franchisees. Lime Licensing Group owns a telemarketing firm (www.thecoldcallingclub.co.uk) and it isn’t hard to telephone several thousand businesses for an annual survey so why doesn’t anyone compile a survey that includes literally thousands of franchisees? That’s how you get accuracy.

Franchisors who go bust bring down the network and the franchisees disperse. Some trade on without the brand if they can, and under certain circumstances they can be better off for it. Some go under, or can’t trade following the franchisors demise. Those franchisors who exit the industry, stop franchising, or go bust have a 100% failure rate, and sometimes 100% of the network follows them.

Some franchisors convert their networks to managed outlets, they force through terminations, refuse renewals etc etc and inactive or abandoned units are not a success for the individual franchisee but the “franchise” itself goes on.

Perhaps one of the biggest issues of all is in the case of franchise resales. There is a huge difference between a Franchisee and a Franchise. A Franchise may be in it’s 3rd period of ownership having been resold, in many cases the resale has happened as a result of the business failing and when a new owner takes over, the franchise continues to be in existence. The outgoing franchisee however has been saved the experience of shutting up shop through the resale, but they would be classed as a failure by most right thinking business people. However the “franchise” hasn’t failed because it’s still trading. It might even be that a neighbouring franchisee has inherited the client base. A large percentage of Franchisors have franchises for sale that are basket cases and sometimes they end up being managed by the franchisor to keep the unit alive but do you really think they’ll tell you about that warts and all? Puleeeease!

It’s common sense, that since all franchisors have to keep on recruiting for resales and vacant areas that it’s not in their commercial interests to report that their own success rate is 75% when everyone else’s is apparently 90%. They can report whatever they like because only the senior franchisors staff really know the total network picture.

If you’re a franchisee reading this then take heart from the fact that all bonafide franchise brands have a model that you can replicate provided you work hard enough and have the right “non teachable skills” e.g determination, personality etc. If a few franchisees have failed don’t worry about that unduly, satisfy yourself about the business model and why it hasn’t worked out for them. Genuinely, I have never met a franchisee who failed who has had the courage to say, “truth is Andy, I just didn’t work hard enough, I’ve blamed something or someone else”. A high percentage of failed franchise units are down to the franchisee and their work rate rather than the business format and that’s the unpalatable truth. I’m not saying that’s always the case though because their are some questionable franchisors out there too and accreditations, franchise association memberships, exhibition profiles and awards are no guarantee of a good franchisor as has been demonstrated on numerous occasions!

If you’re a franchisor reading this then don’t worry about the inevitable failed units, it’s going to happen at some point. The best franchisors have unshakable belief about the model and can prove that it works in the hands of a franchisee who is totally committed to it. Expect that you may see 10% of your network change hands every year for various reasons and tell your prospective new franchisees to ring anyone they want – go on – give them the full list! I know some fantastic brands that have 20% of the network up for sale because some of the franchisees can’t keep up with the pace and pressure. If your network is struggling and you know why then crack on and solve it, pause your recruitment whilst you’re doing that and move your management time into the trading franchisees. Once your network is performing again you can start recruiting again and you wont have any concerns at all about the endorsement of the franchisees you’ve got.

Whether you are a franchisor a franchisee, a franchise is a business just like any other, it requires commitment, real effort and sometimes a bit of luck too. A franchisee is more likely to be successful than not but there’s no guarantees. If it doesn’t work out for the franchisor or the franchisee there’s no shame in that, there might not be any blame either so move on and you’ll probably be successful in your next business. If you’ve had a run of business failures the franchise industry cant make you an entrepreneur and it’s no place for a quick win – just like any other business!

But whatever you do don’t believe that you’ve got an automatic 90% chance of success …. where ever you end up in the industry!

Join the discussion 3 Comments

  • Really its great blog, thanks for sharing with us. To run the business via franchising is the perfect solution with profitable result. In this blog you people will easily came to know the success rate of franchise industry. You can search m,ore about franchise business in franchise India site.

    http://www.franchiseindia.com/articles/Franchisee/latest/

  • simon roberts says:

    i agree with certain points made but i think it’s a bit simplistic to say that some franchisees fail because they don’t put enough effort in. A lot of franchisors are unscrupulous to say the least and probably some of them border on being criminal although it is very easy to hide behind being a franchisor as they all employ costly lawyers to make sure that the only winners are either the franchisors or the lawyers. I have found hundreds of people who have lost their families, homes, money due to investing in a franchse. Their are probably a couple of good franchisors but the majority are big bullies. The basic rule of franchising is not to invest any money unless you can afford to lose it all. Many franchisors insert clauses such as personal guarantees and loss of management fees and it is very difficult to fight these clauses, if you had your own business and it failed would you have to carry on paying a supplier even though you were no longer buying anything from them?

    • “Their are probably a couple of good franchisors” …. I must mix with the good ones then! However your last point about continuing costs after failure is a very good one, this is often very harsh on the franchisee concerned where there are fixed fees or costs in the agreement but like all these things if the management team are compassionate and fair a solution is often negotiated for an orderly closure or termination and I’ve done that loads of times to find an amicable ending that suited all parties. It can be done!