When Franchising a Business Apply These Statistics to the
When a company decides to franchise its
business, its important ownership understands the risks.
The franchise model continues to provide a formula for success. However,
just like other business ventures, franchising a business carries a certain
amount of risk. As someone who has advised franchise startups and consulted
startup franchisors that have encountered some unforeseen challenges I have
seen firsthand the obstacles the new franchisor may face.
In order to gain some perspective regarding this subject, it's important to know
the facts. Based upon an analysis of startup franchise systems, done by
franchisegrade.com, some key results have emerged.
Startup Franchise Performance:
From the franchisegrade.com database there were 405 franchise systems, which
had no franchise outlets disclosed in Item 20 of their initial 2010, FDD.
Of the franchise systems with no franchise outlets in 2010:
- 102 or 25% are no longer in the franchisegrade.com database,
which can lead one to conclude that those systems are no longer
- 154 or 38% of those franchise systems opened 5 or more
outlets within the 5 year period
- A total of 11,367 franchise outlets were opened by these
franchises from 2010 - 2015
- The net growth was 9,850 franchise outlets
- $5.67 billion was invested into the 405 franchise systems
- 14 systems projected openings of 100+ franchise outlets for
more than 2 years, but opened less than 10 within that same
- 21% of the emerging franchisors in the franchisegrade.com
database projected openings of more than twice their existing
locations at the end of the year. The reasons for the disclosed
projected amount are unknown. We can conclude the possibility of
a relationship between optimistic startup franchise system
growth for some franchisors and the lack of franchisor resources
and skills to achieve that growth.
Applying what we've learned:
Based upon the results of the franchise startup analysis there are some
lessons to be learned and ways to avoid falling short of expectations:
- Have ample investment capital necessary to build, staff, and
launch and develop the new franchise program.
- Be prepared to invest some capital for evaluating the
franchise opportunity, especially a feasibility study. The cost
should be from $5,000 to $7,500.
- Be sure to have a competitive analysis done in order to be
aware of the challenges you'll face.
- Use expert franchise consulting advice and do not rely on
one firm but rather seek the opinion of others especially a
qualified franchise attorney. Consider getting feedback from a
law firm that represents franchisees and franchisors.
- Be objective regarding the potential of franchising your
business. A common refrain from the leadership of new franchise
programs is: "This franchise is unique and there is nothing
- Expect a slow and deliberate launch at the beginning and
avoid overly optimistic projections of franchise growth in the
first two years. The franchise system graveyard if full of fast
growth franchise systems, that out grew their capabilities.
Companies that are considering franchising their business model need to know
the facts regarding the performance of startup franchise programs apply what
they have learned and be willing to invest some capital for evaluating their
proposed franchise program.
Ed Teixeira is Chief operating Officer of Franchisegrade.com.
© 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