Best Kept Secrets. Do franchises really out-succeed independents?

“There are three kinds of lies: lies, damned lies, and statistics.” -- Benjamin Disraeli

Establishing a peg on what the actual success rates are for a franchised business versus those who go solo is like spitting in a fierce wind. You’re never quite sure where the drops will go or what’s going to come back at you. There is a huge discrepancy of success rate results, depending on the study. Having said that, there is an article in Franchise Wikipedia, Blue MauMau’s open encyclopedia, where community members can add or edit any franchise related concept, that has collected data from various studies on business success rates / failure rates – for franchises, independents and small business as a whole.

So which business has a higher success rate -- franchises or independents?

It is difficult to find meaningful statistics on small business failure rates, let alone such statistics for franchises. And the answer on franchise success rates depend on who one asks. If you ask a certain franchise salesmen, like I did at several franchise shows, chances are you will be told that 95% of franchises are successfull within a five year period while only 5% of independents have their doors open within the same period. Those numbers are most likely incorrect, making false extrapolations from a faulty Department of Commerce study some many moons ago.

On the other side, there is Dr. Tim Bates’ study from Wayne State University, showing that individual franchise owners are more apt to leave their enterprise in a four-year period than independents. Those in his camp might argue that paying royalties lessens profitability. Ouch. Others argue that those numbers cannot be right because royalties buy a support system, lessening painful mistakes and business risk. They would argue that most studies show a trend in which starting a franchise has a higher success rate than an independent.

So who is right? Well, you decide.

What is safe to say is that an individual franchise network's success rate varies. Minimizing business risk compared to an independent really depends on the franchise system that you buy a franchise in. Some franchise networks succeed better than others while other franchise systems might be worse than independents in the same industry. The onus is on the prospective franchise owner to figure out if the support and economies of scale they receive is worth increasing business expenses via franchise royalties.