U.S. Government Says 97% Of Franchises Succeed. True Or False?

During the recent International Franchise Expo in Washington, DC, one of my students asked me if it was true that the U.S. Department of Commerce determined that franchises succeed 97% of the time.

“Where’d you’d see that information?” I asked.

Don’t Believe Everything You Read Online

The student said, “I found it on the Internet.”

That’s what I figured she’d say because I’ve read it on the Internet, too. And before we go any further, let me tell you that it’s a lie.

And it wasn’t perpetrated by the U.S. Government.

So how did this story get started — because it’s in more than one place on the Internet, and more than the occasional franchise seminar leader uses it, too.

Here Are The Facts

The fact is the U.S. Government did conduct studies on the longevity of franchises in the 1970s and 1980s. A long, long time ago!

The fact is the government didn’t study the “success” rate of franchises. The government studied the “survival” rate of franchises. And year after year, the government’s leading franchise expert, the late Andrew Kostecka, reported that 97% of franchise licenses “survived” from year to year.

In other words, a franchise license that existed in 1980 still existed in 1981.

Longevity Doesn’t Necessarily Mean Success

Mr. Kostecka always pointed out, however, that “survival” did not necessarily equate to “success.” He and I discussed his studies on many occasions and it was always noted that a franchisee could be in bankruptcy, but the franchise license would still be intact and therefore part of the 97%.

Through the years, overly ambitious franchise sales people substituted the word “success” for the word “survive” in Mr. Kostecka’s findings, and voila!, they had quite an attractive testimonial for buying a franchise.

But don’t you believe it!

It may still be true today that 97% of franchise licenses survive from year to year, but . . . so what?

97% Success Still Isn’t Good Enough

It’s not important. Which may be the reason that no one has repeated that study since the late 1980s. That and the fact that the government hasn’t demonstrated all that much interest in studying any aspect of franchising. That’s not a jab or a complaint–it’s probably just as well that the government spends its money elsewhere.

In every seminar that I teach, the “survival vs. success” issue always comes up and I’ll tell you what I tell my students. Even if I could tell you that 97% of franchises succeed, it wouldn’t be good enough for the person who bought one of the franchises that fell into the 3%!

Don’t worry about generalized, across the board statistics in franchising. First, when it comes to success they don’t exist, and second, they would not be relevant.

Here’s what matters: What’s the rate of success for the franchise that you want to buy?

Now that’s worth knowing!

Continue watching this blog and I’ll tell you how you can get that information.

Image by Big Mike NYC

Categorised in: Buy a Franchise

This post was written by Dr. John Hayes