Franchising Myth #3: Franchises Are Safer Than Your Own Startup Business

After extensive research, it's impossible to find any solid factual data to backup the claim that franchises do better than simply starting your own business. This is based on comparable business funding and similar sized businesses. The popular figure quoted is that 90% of franchises are still running after 5 years and that 80% of new businesses fail every year. But try and find the source information. I dare you. You won't be able to. We couldn't, and we tried hard. it simply does not exist.

It seems that it's been told so many times that it has entered popular folklore as being true. In the same way the Earth was believed to be flat in 1500 until astronomers managed to prove it was a globe. And notice what happened to the astronomer who told everybody -- Galileo was locked in prison for heresy for revealing the truth. A five year contract with a poor franchise would feel much like being in prison!

From the franchisees we've met and spoken to, there appears to be little difference between the success and failure of franchises versus independent business. Surprising but true, we know. This is because there are a lot of very poor franchises that trade under the smoke and mirrors of having a "great proven business model".

What's even more interesting is that we heard that one big franchise association wrote to their members and told them not to use this generalised success figure in their marketing, because there is no proof of it. In fact, to put a final nail in the coffin of this particularly insidious franchise myth, we've seen independent research papers that show that the average franchise is more or less equally likely to fail or succeed. And up to 70% of new franchise systems fail within 10 years, according to another research paper - so watch out if you're looking at a new franchise - statistically speaking, they're more risky by far.

One final thought for you - when you buy a franchise, you actually buy a license to run the franchise. To keep their statistics strong, franchisors re-sell licenses to the next buyer when a franchisee fails. Using this dirty trick, technically speaking the franchise has not failed. It's an underhand method to artificially inflate their success statistics.

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