Abilene Sees Franchise Economic Power

One American community, Abilene, Texas, notices how strongly franchises have come to represent their community businesses.

New business construction totaled about $30 million in Abilene last year. Of that total, $8.1 million in new planned construction could be traced to franchise operations. Three hotels, three restaurants and a battery retail store made up the franchise total, based on the city’s valuation of construction work associated with “new construction” permits (with most of the millions related to the hotels). - AbileneBiz

Part of the reason for the growth is because "franchise corporations, known as franchisors, find ways to aggressively market their franchises to hopeful entrepreneurs," says Peter Birkeland.

“If you can franchise, you can rely on other people’s money. That makes it easier to expand rapidly,” said Peter Birkeland, a business consultant and author of “Franchising Dreams: The Lure of Entrepreneurship in America.”

Tom Dicke, a business historian and acting head of the history department at Missouri State University, makes this unsupported claim.

From the perspective of people looking to buy into a franchise, Dicke said franchises “don’t give you a guarantee of success, but give you a much higher probability.”

It's not just the logic mistake that skips over the point that there is a great diversity of franchise systems. Some franchisors provide franchisees a much higher probability of failure, not success. But there is also the jump in conclusion that franchise systems in the aggregate provide a higher probability of success than starting an independent small business. That's not so. Here's a well-known academic study that concludes elsewise.

Larry Sanders, marketing director for franchisee Exceptional Brands, which operates restaurant franchises in Abilene from three separate corporations, also adds this unfounded and unchallenged claim:

one advantage touted by Sanders is that a franchise name makes it easier for entrepreneurs to get financing from banks.

The Small Business Administration has issued many warnings to banks and lenders over the years warning them that in their experience loans to franchise owners are more likely to end in failure than those to independent small business owners.

Some franchise myths die hard.