Canada's Misleading Franchise Success Rate Claims
Lorraine McLachlan, president and CEO of the Canadian Franchise Association, is claiming that franchise businesses are four times more likely to succeed.
McLachlan said that a recent study released by BMO indicated that nearly four times as many franchises succeed compared to independent small business.
"When you go into an established system, which is the hallmark of a franchise, the probability of success is obviously incrementally increased," McLachlan said. "The fact that there are more than a couple of locations currently operating using that brand, using that system, suggests that it's not a flash in the pan and that there is some history that it will succeed."
... "in economic times such as these, the fact that you are dealing with an established system that has predictable success means that the bank in all likelihood is going to look somewhat more favourably on your application," McLachlan said. "In many cases, the franchisor will help you work with the bank." - Sudbury Star
The sales presentation is filled with authority and subtle positioning to the Canadian franchise buyer. It is the CFA that holds Discovery Days. And only CFA members are allowed to exhibit. Since "all CFA members are screened", a buyer could easily confuse that these seven at the event are the best of the best. Connecting the dots further, if what Ms. Lachlan says is true, if a run-of-the-mill franchise system is four times more likely to succeed than an independent business, just think how much more successful the franchise buyer will be with a system that has been "screened" by "the Canadian voice of franchising" (note the Northern imitation of the IFA motto).
A sure thing if ever there was one!
CDN Success Claim: Final Report
Not really that much to add to this unusual Canadian occurrence.
Ms. McLachlin said she was referring to a BMO Bank of Montreal October 13, 2008 media advisoy [see under 3. Thinking of Starting a Business? Consider a Franchise.]
Mr. Iskierski of BMO verifies that but can't identify the specific source, other than it arose from within the bank. The Sudbury Star did not return two calls.
Les Stewart MBA
Understanding Franchising
BMO Study
Lionel,
Thanks for the catch.
I have taken the liberty of trying to secure a copy of this study for everyone's review from the Sudbury Star, the CFA and the Bank of Montreal (BMO).
Canada's banking structure is very concentrated and national in structure. Each bank has a very focused national franchise banking office (see Banks/Financial Services)
Last time I checked, over 80% of the guaranteed franchise lending (similar to SBA 7a Loans) were done by Schedule A (chartered) banks.
There are no franchisees within the Canadian Franchise Association, in contrast. That is true, notwithstanding the CFA saying that the franchisees are automatically represented via their franchisors.
Les Stewart MBA
Understanding Franchising
BMO Study Update
Mr. Steve Iskierski, Senior Manager, National Franchising Services, BMO Bank of Montreal called me quite quickly upon being emailed.
He said there was no specific BMO study comparing franchised with independent businesses but that he wishes there were. Iskierski stated he was caught quite unawares by Ms. Lachlan/Canadian Franchise Association's assertion that franchises are 4 times as successful as independent businesses.
He suggested that it might have been a journalistic error as he had talked to her (Janice Leuschen) about another matter.
In any case, no study as far as the Bank of Montreal is concerned.
Still waiting for the Canadian Franchise Association and Sudbury Star to respond.
Les Stewart MBA
Understanding Franchising
Merci beaucoup
Very informative, Les. I hope you might write a blog for us once you know where the mess up occurred, especially when there is no franchise success study at all to misquote.
There are now two errors:
Error #1: Franchises are four times more likely to succeed than non-franchised business units
Error #2: Although a BMO franchise study was given as a source, we now find out there is no study.
Northern Ontario
Don,
Yes I will try to bird dog this one down. I have a few lines in the water and I'll let everyone know if there any nibbles.
Northern Ontario is largely a rock resource-based economy with a heavy duty perception of always having to play second fiddle to southerners who call the military in for every snowfall over 10 cm.
They stick together and know how to handle carpetbaggers.
Les Stewart MBA
Understanding Franchising
Northern Ontario
Les, I suspect that the CFA is being lured by the money made in mining and oil - Sudbury and the Soo. With the recent downturn in commodity prices, there will be a lot of marks ready to be separated from their money.
Michael Webster, a franchisee attorney in Toronto, Ontario, who publishes a website on business opportunities and franchises, called "The BizOp News"
Commerce Dept whiz kids
Always thought the Commerce Dept student interns were sloppy. At least they didn't totally make up a study--just fudged the numbers.
But then again, the Canadians gave us those great Vancouver penny stock tall tales, so the CFA should be able to keep them whoppers coming.
Franchising defined
Using "the voice of franchising" is like saying "the voice of licensing."
Sometimes organizations apply "franchising" erroneously as a substitute for the franchise relationship, which depends on both franchisor and franchise owner. That is an incorrect and misleading use of the word.
From the American Heritage dictionary:
So franchising is to grant a franchise license. It is an act of licensing from someone who has the license rights. Since franchisees do not grant licenses, only franchisors, an association that uses the motto "voice of franchising" clearly states to franchise buyers that it is an advocate for those who grant franchise licenses, not franchise owners.
It is possible that the CFA made a mistake in its use of English. But buyers should be very clear about the word franchising. It associates with franchisors. This is important because franchisee investors want to be clear on who represents their interests as opposed to those who want to sell a franchise to them.
Unified Voice of Franchising
Sniegowski makes good point viz proper English, but Matt Shay of the IFA disagrees :
When industry lobbyists say they are the "voice" (let alone the unified voice) of franchising, they are simply telling Congress to ignore their franchisee constituents.
And Mr. Shay is correct. Many times the IFA has had a vigorous debate on franchise issues. Because the franchisee "members" are so numerically superior to the franchisor members, the result of this has been that the IFA has boldly taken controversial pro-franchisee positions on matters such as....
...Oh wait, it is December 1. This article will be continued on April 1.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
BMO franchise page doesn't mention own report
No such mention of the study at the Bank of Montreal's (BMO) franchise page.
One would think they would mention it there.