False Franchising Numbers
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Jim Coen, who writes a very nice franchising blog Let's Talk Franchising, had a good comment on my earlier article about Franchising being a Con.
I am going to reprint it all because Jim makes some excellent points about bogus numbers used by franchise brokers to sell dubious systems.
Jim writes:
" I don't agree with Les Stewart that the concept of franchising is a con or fraud.
But I do believe that many people in franchising are cons and frauds.
Some of the con and fraud in franchising is based on misrepresentations, that just because it is a franchise it is a safe investment. I believe these misrepresentations
contribute to Les's con/fraud theory.
These misrepresentations just bug the hell out of me. I first wrote about it back in 2006
Those bogus statistics seemed to go away after that article. Well they are back in full force all over broker websites:
I have never been able to substantiate any of the statistics below or find the study where they came from.
Here are the most Bogus of the claims:
A 1999 Study by the United States Chamber of Commerce found that 86% of franchises opened within the last 5 years were still under the same ownership and 97% of them were still open for business.A U.S. department of commerce study conducted from 1971 to 1997 showed that during that time less than 5% franchise businesses were closed each year. Compare that to a U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non-franchised businesses closed within the first 6 years of their existence due to failure, bankruptcy, etc.
In 2000, the median gross annual income, before taxes, of franchisees was in the $75,000 to $124,000 range, with over 30% of franchisees earning over $150,000 per year.US Department of Commerce/Industry and Trade Administration and Future Small Business in America Study says Franchises have a 90% success rate.
Compare that to a U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non franchised businesses closed within the first 6 years of their existence due to failure or bankruptcy!
Here are some of the sites that publish these bogus statistics:
What you can do is write these people off as knowing anything about franchising; they are stupid and know little about modern franchising realities.
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Comments
Joel, you should make an google alert for these phrases and keep a list of the websites making this misrepresentation.
Posted by: admin
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September 19, 2008 8:18 PM
Jim, the letter used to be quite prominent on the IFA site. But you can barely find it these days!
Posted by: admin
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September 19, 2008 8:17 PM
Michael & Joel,
The IFA debunked using these statistics years ago and Matt Shay sent a letter to members in 2004 that they stop using them.
The only one above that was really a study was the US Small Business study, the reason the IFA stopped quoting that study was that it was out of date (1998).
One of the reasons the IFA contracted Price Waterhouse to do a study (Franchising in the Economy) was to replace the statistics from the US Small Business study.
The US Census Bureau has now added questions in the US Census about business ownership and whether it is a franchise. This data will be used to track business and franchise ownership going forward.
Jim Coen
Posted by: Jim Coen | September 19, 2008 10:42 AM
Hi Jim and Michael,
Great post!
Interestingly enough, Sean Kelley and I just wrote about franchise statitsics, also.
Over at The Franchise Blog 4 Veterans, I just linked to both stories.
Thanx for actually NAMING the pond scum out there.
Joel Libava
Cleveland
Posted by: Joel Libava | September 19, 2008 8:32 AM