Franchises Stand the Best
Chance for Business Success

by Rob Spiegel

If you’re considering starting a business, one of your safest bets is to invest in a franchise. Franchises are a popular way to launch a new company because they are highly likely to succeed. According to the U.S. Department of Commerce, 95 percent of franchises are still in business after five years. The likelihood of success with a self-launched business will still be operating after five years is 47 percent. Buying a franchise more than doubles your chance to survive as a business owner. And if you pick the right franchise, your chances can increase beyond 95 percent.

One of the reasons franchises are safe is that most people who buy into a franchise are in a stronger financial position. Since the lack of financial resources is the major reason most companies fail, franchise participants set themselves apart from the crowd by their access to sufficient capital, whether from personal savings, personal borrowing, or family loans.

Franchise companies have a selection process for franchisees, just as franchisees have a selection process for franchise companies. An agreement between franchisee and franchiser is a marriage where both partners are evaluating each other’s potential for success. By the time a franchisee signs up with a franchise company, the company has a pretty good idea of the franchisee’s likelihood for success. The bigger the franchise, the more scrutiny the franchisee receives.

You will receive a good deal of support from your franchise company in the process of getting your operation up and bringing it into profitability. The franchise company has a vested interest in your success, since the company needs your success in order to grow. It can’t survive too many failures along the way if it expects to make its franchise program successful.

Franchises are based on the belief that an already-successful business operation can be duplicated. The classic franchise pitch is: “We have a business system, concept and product line that is tried and tested. If you run the business according to our proven system, you will be successful.” The franchise delivers a product line (or line of services) that has already distinguished itself from its competition. The franchise has already determined the appropriate marketing and management structure to deliver the product into your community.

The franchiser has also determined the requirements for success and has ascertained that you can deliver the investment necessary for success. By the time your franchise opens, many of the uncertainties of business start-ups have been eliminated. You have enough capital. You have a successful business plan. Your product has demonstrated acceptance in the market and you have a proven marketing strategy. If you stumble along the way, you have management support to help you identify the problem and make appropriate corrections.

The final reason franchise start-ups are so overwhelmingly successful is that the franchise company helps the new business owner with business management tools and training. This support delivers exactly what’s needed for the individual business. Most new business owners, whether they start from scratch or buy an existing company, have to learn how to run a business on the job. No business school can prepare a new owner for the management demands of running a company. A franchise, though, will know what challenges the new owner will face and the company has devised solutions to those problems.

In many ways, a franchised unit in a franchise company stands better chance for survival than a company-owned unit. When a franchise company opens a branch, it is usually run by a manager. No manager, no matter how motivated, will have the same drive to succeed that a franchise owner has. The franchise owner is motivated by a desire for independence mixed with a desire to protect her invested interest. So if a company’s headquarters is 2000 miles away, the franchise owner may be the best potential manager for a branch. If a franchise branch falters, company management doesn’t have to ponder whether the manger is honest and motivated.

Rob Spiegel is the author of Net Strategy (Dearborn) and The Shoestring Entrepreneur's Guide to Internet Start-ups (St. Martin's Press). You can reach Rob at robspiegel@comcast.net