International Law

More Bad Advice- The Low Risk Franchise Fallacy

Jason Bear writes about franchising in his article Franchising - Making the choice

"Did you know that Franchise businesses are twice as likely to remain in business after five years of being in operation than non-franchised businesses?

* A 1999 study by the United States Chamber of Commerce found that 97% of franchises opened within the last five years were still open for business.

* A Small Business Administration study conducted from 1978-1998 found that 62% of non-franchised businesses closed within the first six years of their existence."

Well if you do know this, congratulations you have bought into an urban myth.

The two studies referred to do not exist.

Professor Scott Shane who has done a great deal of research about the relative failure rates between franchises and independent businesses- they are about the same- has a very interesting observation, over at Blue Mau Mau.

"A lot of ink has been spilled over the disadvantages of being a franchisee. But one thing that is rarely pointed out is that franchising, itself, may not be the culprit for poor performance of franchisees.

Instead, many franchisees perform poorly because franchising tends to take place in the least desirable industries for entrepreneurs.

How favorable industries are for start-ups accounts for a lot of the difference between entrepreneurs in their performance running new companies."

Interesting observation and worth thinking about when choosing a franchise system.

Full post as published by Misleading Advertising Law on February 13, 2008 (boomark / email).