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The Challenges New Franchisors Face

by Ed Teixeira

A recent study about start-up franchisors confirmed what I observed several years ago.

A few years ago I wrote an article entitled A Startling Franchise Industry Statistic. The content was based upon an analysis I did of franchise systems that had little or no growth over a considerable period of time. I had reviewed approximately 1,400 franchise listings in The Franchise Handbook and found that 1 in 6 of 256 listed franchises had 5 franchisees or less. The Franchise Handbook receives regular franchisor updates from their emails, advertising solicitations and their update listings twice a year. However, not everyone responds, so the number is a close approximation. Within this category of 256 franchises a number of franchisors started franchising over 10 years prior.

Now, a number of years later, an analysis of start-up franchisors by leading franchise industry market research firm, FranchiseGrade.com, in this newsletter, revealed some detailed statistics regarding new franchise system growth. Out of 405 franchise systems, which had zero franchise outlets in 2010 disclosed in their Item 20, 102 are no longer in our database and only 154 have opened 5 or more outlets within the 5 year period. Although, my article offered a number of factors that can contribute to the poor performance of some new franchise systems, the FranchiseGrade.com report provides statistics that offers new insight into the growth of new franchise systems.

Putting all of this together we can conclude that:

1. Start-up franchises should have ample capital in order to launch and develop a new franchise system. The amount of capital will depend upon the complexity of the franchise concept and should be a minimum of $100,000.

2. A network of operating corporate locations before the franchise launch will increase the probability for success

3. Realistic projections of new franchise growth in Item 20 reflects intelligent expectations for growth

4. The leader of the new franchise must have considerable business experience and skills.

When starting new franchise operation there is no guarantee of success, however, research into franchise start-ups indicates that the successful franchises share similar qualities.

2015 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow.com and Chief Operating Officer, FranchiseGrade.com. He is a former franchise executive and franchisee. He can be contacted at 631-246-5782 or at  franchiseknowhow@gmail.com



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