There has long been a debate about failure rates for franchises. One outdated study claimed that only 5% failed and 95% succeeded, so some people will continually repeat this statistic. It is outdated at this point, but it’s a problem that permeates the industry.
If you’re debating if you should begin a franchise or open a start-up, however, you need to know what risks you’re taking on. Is it true that a franchise is less likely to fail?
It depends on the franchise you choose
Naturally, this depends on a lot of different factors, but the first one to look at is just which franchise you decide to start. It’s a much better idea to look at failure rates for individual franchises than for the idea of franchises on the whole. If you do this, you will find that there are some with failure rates as low as 10% or 20%. These could be quite stable, especially compared to a start-up.
Generally speaking, the larger franchises tend to have the name recognition to go with them, which means they won’t fail as quickly. So if you’re thinking about starting a burger restaurant or opening a franchise with a popular fast food brand, it may be a far more stable option to pick the fast food brand. But if you’re starting more of a niche business, then the same statistics may not apply.
However, franchises do have advantages with name recognition, supply chains, advertising and a customer base. All of this makes it harder for them to fail.
If you are interested in starting a franchise, it’s important to consider all of the legal steps that you need to take. The more work you put into getting it right at the beginning, the better the chances that your business will thrive.