today's video we are going to look at franchise failure rates and some of the
fibbers in the industry now there's a lot of mistruths in franchising that
come from people who really should know a lot better and if you've been looking
around at franchises for any given period of time
you've likely come across this little gem "According to statistics from the US
Department of Commerce less than 5% of franchise outlets fail annually"
Wow so hold on if I buy a franchise I have more than a 95 percent chance of
success? is that true please take my money now!
That statistic is on hundreds of websites it's used by hundreds of
salespeople brokers consultants and even franchisors for no other reason let's
set things straight but to create a false sense of security
in the franchise buyer. Now I'll show you today why that statistic is completely
wrong I'll show you where it came from we'll do that a little later on the
video let's for now do a quick google for that actual statement and see who
comes up. Now I'm only going to click as we go through these on actual franchise
companies just to demonstrate how easily these inaccurate statistics make their
way into the general public and how unless you do your research you are
going to be mislead and susceptible to thinking franchising has this inflated
success rate. so here is our search the first company that comes up is Protein
House franchising right here using a completely inaccurate and misleading
next up in Google using our same search term is Crooked Pint Franchising same
incorrect statistic Solo's Pizza exactly the same incorrect statistic giving
people a false sense of security in regards to success rate of franchises
Chronic Tacos same statistic. Now look at the number of locations Chronic Tacos
has this isn't some small operation this is a major franchisor
with many units that should certainly know better. Now interestingly that was
just one wording variation of that statistic if you change the words around
slightly you get hundreds of other websites that are using that same
terrible incorrect statistic and using it often. Now the problem from a legal
perspective these franchises should be worried about if a franchisee that you
sell to or several become unhappy or disgruntled for whatever reason they
could potentially argue in court that the premise for them buying this
franchise was based solely on these false statistics that were provided by
the franchisor. Anyone who is using this statistic to
sell franchises is literally putting themselves in potential legal danger and
now we're not even bringing up the fact that they are literally lying to their
future prospective franchisees that's just not cool now if you use a statistic
as a validation tool to accept hundreds of thousands of dollars oftentimes from
your buyers from your franchisees you had best verify the statistic before you
use it. But where did this 95 percent success rate for franchises come from in
the first place well the funny thing is anyone who has been professionally
involved in franchising for even 10 minutes knows the statistic as we refer
to it is false in fact whenever any true franchise expert sees or hear it's
mentioned it's a huge I roll moment because we know this is a completely
fake statistic we know where it comes from and know you shouldn't be using it
so here's where it came from back in the 80s yes what it back in the 1980s the
United States Department of Commerce contacted about 2,000 franchisees many
didn't respond this was completely voluntary they could or they couldn't, and
it begged the question if your franchise was failing at that time would you take
the time to fill out this survey sent to you by the government likely not you've
got you're failing franchise to worry about so right off the bat this was
skewed so we don't have a tightly controlled study as alluded to begin
with we have a deeply flawed survey that was never intended to validate
franchising but only 5% of respondents to this to this survey claimed that they
failed okay irrelevant really but over time
salespeople and franchising and all these other people turned that around
they inverted it into a 95 percent success rate
okay that's absolutely not true it's completely inaccurate it wasn't the
study it was a survey and none of it none of it bore any relevance but sales
people being as creative as they are banged the heck out of of this statistic
for years and a lot of people got ripped off let's face it because of this five
percent failure rate 95 percent success rate
Wow that is huge and it's absolutely false. For two decades it became so
pervasive that the IFA the International franchising Association had to send out
a formal letter to people back in 2005 let's take a look at that letter here
what they said was of particular concern is information claiming that the success
rate of franchise establishments is much greater than that of independent small
businesses many years ago the US Department of Commerce conducted studies
about franchising which presented such statistics that information is no longer
valid and the agency stopped conducting such studies in 1987. So you know things
have gotten absolutely crazy when the industry's own group tells you to lay
off and stop using this statistic now that letter it went out in 2005 that was
12 years ago and yet today we still have franchise salespeople franchisors
brokers consultants using it with impunity. Next question of
course you're going to ask but Robert what are the actual franchise failure
rates well no one agrees no one actually really knows but there are some credible
studies none of which are in complete agreement but let me tell you why this
particular franchise statistic is completely irrelevant to you anyway
let's say we'll pull a number out of the air that franchising as an industry did
in fact have a 95 96 98 percent success rate but you invested in a franchise
that had a 75 percent failure rate isn't that the number that should concern you
the franchise you're investing in? An industry-wide number provides no
relevance it provides no data pay more attention to the specific franchise that
you're investing in and don't let them take your attention away looking at some
fake industry-wide statistic that bears no relevance. Don't forget to Like and
subscribe and if you need help searching and researching your franchises give us
a call our consultations are always free thanks for watching