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9 Riskiest Franchise Industries
Submitted by Don Sniegowski on Sat, 2007/09/01 - 00:15.
Low Cost to Entry Has Higher Risks Writer's note: Hard facts are better than old industry myths any day. But meaningful figures are not easy to find in the industry. So kudos to BusinessWeek's correspondent Douglas MacMillan and his use of FranData's collected figures to courageously publish what industries are the riskiest, or those that have the highest store cancellations.
BusinessWeek.com compiled a list of the franchise industries that experienced the highest percentage of canceled units in 2006, using data provided by Arlington (Va.) industry researcher FRANdata.
And here are the top 5 riskiest industries to start a franchise in:
- Publications, with 7% of agreements cancelled
- Education, with 6.3% of agreements cancelled
- Computer Products and Services, 5.8% agreements cancelled
- Frozen Desserts, 5.4% cancelled
- Personnel Services, 4.8% of unit agreements cancelled
Mai-ya-hee...
I am not sure of the merit of this article. Examine the following quote from the article:
-- begin quote
Statistically, there is a higher percentage of canceled units in lower-cost investments, which are often home-based businesses. “These businesses may only be $10,000 or $20,000 to get in, so it's easier to get out when someone decides that's not what they wanted to do,” says Darrell Johnson, president of FRANdata.
-- end quote
I have mentioned this several times but the "it's easier to get out" is awfully significant. Another way to write that might be:
The franchise industries NOT on this list may be even riskier because they may be very difficult to get out of and lock you into a life of debt and despair that you cannot readily extricate yourself from.
According to Schumpeter capitalism closely tied to "creative destruction", that implies a certain level of nimbleness on the entry and exit from the market place that franchising as a whole does not readily afford in its modern incantation.
In another forum I introduced an educational thread on analyzing a concept in business terms via the UFOC. The thing that quickly leapt out at me and others is that at a minimum 50% of their zees were operating at break-even or loss. And yet the exit numbers did not convey that. Cleary there was one or more inhibitors, real or psychological at work.
So the thing I find troublesome with such an article is the law of unintended consequences. I notice that QSRs did not make the cut. But are you ready to sign up for a Quiznos?
FuwaFuwaUsagi
Fuwa TRUTH
FuwaFuwaUsagi has pointed out many times that the risk versus the profits of most franchises make most franchises poor investment vehicles.
Thanks for pointing out that FranData may be in the busines of putting PR and statistics and statements out there that are very questionable.
I'm sure that FuwaFuwaUsagi understands the status quo and understands the difference between UFOC's that warn of the great risk and franchise agreements that warn of the great risk and the failure of the franchisors to disclose the actual KNOWN RISK, as demonstrated by the success or the failure of their first-generation franchisees.
How convenient that FranData doesn't have to know the failure rate of first-generation franchisees that is obscured in the transfer columns of the UFOC's. This must be why the SBA can guarantee loans on franchises that have very high failure rates of first-generation franchisees.
Would someone care to speak to this problem?
Mai-ya-hee ----Does this mean Don't Con Me?
Fuwa! What is the literal translation. I lived for a time in Japan and learned a little Japanese --mostly from our houseboy who spoke GI English, very colorful and profane, that he learned in the Mess Hall. When we had occasion to entertain or socialize with the Japanese nationals, the Japanese officials, of course, always spoke English and were always very polite and did not use GI slang and profanity as did Yoshio, who taught me the few words that I understand in Japanese. I was always fearful of using some of the words for fear that I would say something very offensive because Yoshio had a very well developed sense of humor and wit.
Being democratic and in an effort to learn more about Japanese culture, Yoshio and I would often breakfast together and I would read the Stars and Stripes or an old NY Times of Wall St. Journal to him and he would read the local Japanese paper to me, and we would discuss the customs and manners, etc.. of our two cultures. I tried to teach him proper English and to clean up his GI profanity and he tried to teach me Japanese words. I had to hide my lingerie carefully so he wouldn't pick it up and wash it on a washboard. I told him firmly, I would take care of washing my own lingerie. He procured a Japanese entrepreneur who was now doing heavy laundry, sheets and towels, etc.. for the Americans in our little cabin community. Yoshio was an entrepreneur as well and was doing shoe shine on boots throughout the community when not tending and cleaning the rudimentory and dangerous stoves that heated our little two-room domiciles that stood outside of the Camp in cold and snowy Hokkaido.
The Japanese Laundry Entrepreneur always seemed, as he departed, to have to urinate while standing on the stoop of our little cabin, and I suggested to Yoshio that he tell this Entrepreneur that this was very bad manners in America to do this, and it would be bad for his business, and would he refrain from doing this in the future. The next time he came for the laundry and when Yoshio accompanied him out the door, he must have given the man the message and they both had a very good hard and long laugh about it, but he no longer urinated off my stoop when he came to pick up the laundry. We had a pleasant business relationship for the balance of the relationship when he would bow and thank me for my business and I would bow and thank him for his good services.
Yoshio was both Catholic and Shinto and quite happy with this practice and his God who had two names and was a farm boy who was just having a fling with the Americans but was promised by his family in marriage to a women he hardly knew when he would return to his home town and the farm. When we moved to the main island, he loved to go to the Geisha Houses whenever he could afford to go and he complained that often he was called a country boy because of his dialect(?) from Hokkaido. We did the cooking together ---neither one of us was a very good cook and he liked to clean and was a very happy young man.
He loved to have company when we would not be in residence for the night and one of his favorite preparations was jello with pinneapple in it and he would remind me to bring jello and pinneapple and bananas from the Commissary and "not to forget the Gin for BOSS martinis," and maybe there would be a little left over for "his" friends, if we didn't mind? and we wouldn't mind, would we? "He would fix best drink for best friends and no friend would drunk be a damn fool --not to worry." He would often chastise me if I let the Gin get low because he would remind me "Boss be very damn mad me not have cold Martini for him when he come home." Yoshio only drank socially and not very much because he said that "little bit happy" be enough for him just some times because his family said "never-no drink and be damn fool!:
When I entertained for bridge, I told him to be very careful about his English but he would sometimes forget, like the time I had a jello-fruit-salad for dessert for my bridge club and he had fixed it. Obviously, he did something wrong and it didn't set and it upset him, and when I asked him to serve the dessert, he in loud a loud voice from the kitchen said "God Damn Jello didn't hard and big damn mess." The ladies raised their eyebrows and said "the Japanese girls don't talk like that" what is wrong with you? Japanese girls are so lovely and polite and nice to have around the house. Fire him and get a girl to help you."
Yoshio was then very upset because he heard these comments and I was very pregnant and he had already extracted a promise from me that he would continue to live with us when the new baby came to live with us, and he "would take best care of baby than any baby in g--dammed world." (and he did!) He assured me that he was much smarter than any Japanese girl. I asked him why he couldn't swear in Japanese because then I or nobody else would know what he was saying. He told me that there were no good "swear words" in Japanese. Is this true?
Yoshio, of course, thought he was superior to all women, even me, and when I told him that his culture seemed to think of women as inferior to men as demonstrated by most of their manners and customs, and that they Japanese women were NEVER "first" ---he laughingly corrected me and told me that I was definitely WRONG, Japanese women were ALWAYS FIRST --FIRST to get up in the morning!
When Yoshio first came into our lives, we were up on Hokkaido in a small cabin and Yoshio lived out in town. When I brought a newborn pup home one day who had been thrown out in a litter, he helped me to nurse this pup through puppyhood and never was a puppy so quickly trained to paper and then the outside. When I brought Rival Dog Food home, this was Yoshio's first experiene with commercial canned dog food. At that time dogs were still disappearing in some communities and were food for poor families ---poor Koreans where he lived had to eat dogs, said Yoshio. I caught him taking a taste of the dog food and I chastised him, saying that he should NOT eat that food, it wasn't fit for humans. He laughed and took another bite and said "God Dammed American Dogs eat better than Janpanese house boy." He had great wit and humor and I learned much from him.
We loved Yoshio and he loved us, I know. He came to the Port with us and we cried when we said Goodbye but we lost him. We tried to find him but his last name was like "Smith" or "Jones" in Japan and our inquiries were returned to us. His last address returned our mail to us.
When you, Fuwa, did not fault Bob Baber, our Quiznos victim, for his suicide, I knew, of course, that suicide is an honorable tradition in Japanese and Oriental cultures and those who spare their families shame and themselves further shame are not deserted by their Gods or their ancestors in the final judgement.
Maybe, as the world grows smaller, and we learn more about each other and the cultures of our countries, we will be able to live in peace and those that have and hold most of the world's wealth will be able to figure out how to share the wealth of the world fairly with the people of the world in free and democratic societies.
But, it is sure as hell not going to come about through the ugly practice of franchising that hides the risk of the investment and the risk of failure from the designated sacrificial lambs because it is good for business and good for
governments.
Nice to chat with you! I have always respected you because you tell the truth that I understand.
GET REAL
Fran Data is in the business of selling information that relates to the franchise industry. Franchisors represent the focus of their marketing plan - not FranWads. They market to their optimum potential - like you should be doing if you know what you're doing.
If you don't know how to use the information you get from FD, then you have to hire someone who does. If you do neither, it's you who is cheating you, not anyone else.
There are ample resources to keep from getting fleeced. If you choose not to avail yourselves of them, who bears the blame/risk of that?
Richard Solomon
www.FranchiseRemedies.com
Mai-ya-hoo...
Guest writes:
Thanks for pointing out that FranData may be in the busines of putting PR and statistics and statements out there that are very questionable.
My reply:
What you say about FranData may be true but their inherent bias should be obvious. However I think it is more appropriate to take BusinessWeek.com to task as they are the ones whom created the article.
I must confess I truly worry about what passes as research, journalism, and research these days.
I often refer to these publications as financial porn and I am ever so grateful that since these are "net" publications that some tree somewhere did not have to to pay the ultimate price for the publication of such "fonts of ignorance".
FuwaFuwaUsagi
"Never underestimate the power of stupid people in large numbers."
Mai-ya-hoh...
Fuwa! What is the literal translation.
My reply:
Given your reply, I hesitate to tell you this, and I can fully understand why you thought it might be Japanese given my name…but it is Romanian…from the song “Dragostea Din Tei” or “Ma Ya Hi” in English...I just happen to love the song…actually I like a You Tube Video that someone created featuring Puss in Boots(from Shrek) that is set to it…here is the link...
http://www.youtube.com/watch?v=eBg80qmqowo
you might note Puss In Boots is now my Avatar on Blue Mau Mau…
Sorry, really I was just being silly… my goal was to see if I could post the entire song, line by line by years end with each post...
Guest writes:
I was always fearful of using some of the words for fear that I would say something very offensive because Yoshio had a very well developed sense of humor and wit.
My reply:
20 some year ago I was awarded my 4th dan, at the time I was an insurance investigator. Anyway I use to work late and then head off to the dojo to teach and work out. Around 5 o’clock I would get my GI out of the duffle bag and hand it on a hanger to let the wrinkles out and air it out a bit, and normally I placed the folded obi on the edge of my desk. Anyways the Janitor was Japanese and he came by my desk to empty the waste basket and started to laugh, then walked off. A bit later he came back to vacuum and glanced at my desk again and started to laugh and then shuffle off, face red, trying hard to stifle his laughter. A while later he made a third pass when he came buy with a load of boxes to take to the crusher, glanced at my desk and started to chuckle. So naturally I had to get up and ask him what was so funny. “S-cuse, s-cuse” he said, but I persisted in asking what he found so funny. So he went over to my desk, bowed, grabbed my obi with both hands and said “kanji”…I said what is so funny about it, I looked at it and looked at him puzzled and he said it say “master of empty head” – you “no mind”, it say “you stupid” or “idiot”…LOL!!!! Yep, someone in a factory somewhere had a sense of humor and probably cracked up every time they thought of the stupid American proudly wearing their belt – LOL!!!
Guest writes:
The next time he came for the laundry and when Yoshio accompanied him out the door, he must have given the man the message and they both had a very good hard and long laugh about it, but he no longer urinated off my stoop when he came to pick up the laundry.
My reply:
Many years ago I was training with a Chinese gentleman, and he observed me blowing my nose. He asked me a simple question, why is it that Americans blew their nose in paper and then put it in their pocket, what did we do with it? – LOL!!!!
Guest writes:
Yoshio was both Catholic and Shinto
My reply:
Very common, especially in Okinawa. The Okies often were Catholic and Shinto did allow for the worship of other deities, so the intermix was common.
Guest writes:
Yoshio was then very upset because he heard these comments and I was very pregnant and he had already extracted a promise from me that he would continue to live with us when the new baby came to live with us, and he "would take best care of baby than any baby in g--dammed world." (and he did!) He assured me that he was much smarter than any Japanese girl. I asked him why he couldn't swear in Japanese because then I or nobody else would know what he was saying. He told me that there were no good "swear words" in Japanese. Is this true?
My reply:
Yep, that is why they often insult your ancestors, except in the wrong class that can lead to a lethal encounter of honor. However there is a subtle way to do it. In Japanese things are strong class typed. Which is to say for every item there are a minimum of three words to describe it. A word for someone at the same social level to you, a word for the item that is honorific or used to address a superior, and words used to communicate with a dog. So, if you want to have some fun watch the words used when the first George Bush was in Japan, they used honorific words, then watch with Clinton, they used the words one would use when addressing their dog, then look at how they addressed “w”, they were back to honorific, probably because he was the descendent of a man they thought had honor.
However it is worth noting my Japanese sucks…pure and simple. When I need to know something I go to Sensei or J. Keenan.
Guest writes:
Yoshio, of course, thought he was superior to all women, even me, and when I told him that his culture seemed to think of women as inferior to men as demonstrated by most of their manners and customs, and that they Japanese women were NEVER "first" ---he laughingly corrected me and told me that I was definitely WRONG, Japanese women were ALWAYS FIRST --FIRST to get up in the morning!
My reply:
Well I was not going to go there, but the words used for a dog are also used for a woman or a negro.
Guest writes:
When you, Fuwa, did not fault Bob Baber, our Quiznos victim, for his suicide, I knew, of course, that suicide is an honorable tradition in Japanese and Oriental cultures and those who spare their families shame and themselves further shame are not deserted by their Gods or their ancestors in the final judgement.
My reply:
It is not just Asiatic culture. Up until recently the United Stated had a very pronounced system. Alexander Hamilton was a bastard who was brought to this country an educated by benefactors because of his unusual intellectual prowess. Hamilton despised the system of dueling in vogue back then, yet he lost his life in a duel that he did not even intend to even attempt to win. One might wonder why, but you see it was a matter of honor. Hamilton’s own beliefs would not permit him to duel, but he also felt in necessary to uphold the honor of his benefactors who would expect him to do so, and to do otherwise would be to bring shame on them. So he forfeit his life. That same sense of honor is still alive in some military traditions (you might recall that one of the Generals took his own life under the Clinton administration because a few of his men were killed, it may have been the Cole incident, I do not recall, but I well remember the tone of his suicide note) and in southern culture. Zell Miller was not kidding with Chris Matthews about the dual last Presidential election. You might want to look that up on you tube. It is apparent someone pulled Matthews aside and let him know it had gotten serious. 50-70 years ago in this country honor was very important. My father stressed what it was to be a man to me, and honor, and the afore mentioned way of atonement was all part of it.
Guest writes:
Nice to chat with you! I have always respected you because you tell the truth that I understand.
My reply:
I would strongly encourage you to register, under a pseudonym, then at least we could communicate in private e-mails some and not bore everyone with our socializing and people would know which guest belongs to which posts. And I think if you register you could see my adorable avatar.
And of course, the southern boy in me, makes me respect you 'cause you are a lady.
I tip me' hat you madame...
FuwaFuwaUsagi
Asked, answered and concluded...
It is tiring to have you ask, answer and conclude in all of your posts what you believe to be evil about franchising especially since you've stated you have no direct experience in franchising or on other occasions you have led people to believe you failed at owning UPS Store. Which is it?
Your theories on franchisng are bankrupt and specious.
TIF
Richard! You know that I am REAL!
You know that I am REAL, Richard, but it is just hard for you attorneys to understand that REAL people who are not trained in the law do not understand that there are so many thieves in franchising ---and some who have famous names.
These REAL people do not approach franchising with the knowledge and distrust that comes with all of your years of experience.
If I accept the blame, I will not accept the fact that my government appears to be in bed with the franchisors and we failed franchisees are out in the cold -------d by the system! Fleeced, that is, by the system.
My Ah-hoh
Hmmm, for some of us English speakers, Puss 'N Boots or Romanian is not one of the things that first comes to mind when we read "My Ah-Hoh".