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Franchise owners weather turbulent economic times

Original post made on Dec 11, 2011

While other girls were playing with their Barbies, at 6, Lisa Anter was charging 10 cents a cup at her lemonade stand at a lake near her Montreal, Canada, home. It would be another 20 years or so before her entrepreneurial instincts kicked in and she left the corporate world to open her own business.

Read the full story here Web Link posted Sunday, December 11, 2011, 12:24 PM

Comments (11)

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Posted by Joel Libava
a resident of another community
on Dec 11, 2011 at 5:26 pm

Hello,

You did a great job with this very in-depth article. But there's a problem.

You quoted a franchise broker, who said the following;

Success rates appear to back them up: "The No. 1 reason businesses fail is lack of cash for working capital. After 10 years, only 16 percent of existing start-ups are still in business. With franchises, it's 90 percent," said Katie Fagan, franchise consultant for FranNet, a franchise consulting group in San Jose.

That 90% success rate is a very old, and very untrue statistic. I can't believe that franchise brokers and franchise consultants are still using this figure.

I wrote a post over at Open Forum by American Express that disproves the 90%, and I feel that it's worth a look-if not by you...by your readers. (The link to it is below.))

Franchising is a great business system' probably the best ever invented. But would-be franchise owners need to get the facts--not old industry hype.

heck, The International Franchise Association even had to draft a letter to it's 1,000 franchisor member group telling them not to use these statistics anymore.

The post I'm referring to links to the IFA letter.

The Franchise KingŪ, Joel Libava

Author, franchise advisor.

Web Link


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Posted by Member
a resident of Palo Alto Hills
on Dec 12, 2011 at 6:59 am

Great article, full of real life stories about people succeeding.

Despite what the previous commenter says, franchises are succeeding at record rates and it appears that they gap between mom and pop businesses succeeding and franchise owners is widening.

I believe the FranNet consultant mentioned in this article is referring to FranNet's stats which bear out her quote. FranNet is a very reputable firm, possibly the most reputable in the franchise industry.

To set the record straight, here's what the IFA said way back in 2005:
Many years ago, the U.S. Department of Commerce conducted studies about franchising which presented such statistics. That information is no longer valid. The agency stopped conducting such studies in 1987.

We strongly urge you to remove any information from your Web site and published materials that make such a claim. The use of such data, in the absence of current research, could mislead prospective franchisees who are attempting to conduct responsible investigations.

That was in 2005 and we operate in a much different world today. FranNet does not quote the IFA or the 1987 study when it makes claims; it refers to its 25 year track record helping over 500 new franchise owners a year open up businesses. FranNet has a very high success rate among its placements and is to be lauded for the job creation it accomplishes. The FranNet consultant is right to say what she did.

The IFA does not release stats on franchises VS mom and pop businesses but the Small Business Development Centers, an arm of the SBA, does keep track and SBDC officials often publicly say that a franchise is a less risky choice for many would be entrepreneurs.

I'd encourage Mr Libiva to use more current and accurate references when he posts self-serving remarks such as the one posted here; he makes a living consulting to people in the same way FranNet does but lacks the track record.

Thanks for posting!


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Posted by Fit Dude
a resident of Adobe-Meadows
on Dec 12, 2011 at 7:37 am

Its sounds like Lisa Anter has done everything possible to keep her club open in spite of the bad economy. However, the built in obsolescent of Curves' equipment and the policies of the corporate office has tied her hands. Thousands of Curves clubs have closed in the last few years; so many clubs have close in fact that the Wall Street Journal recently ran an article on the bad shape of the corporate office. Many former Curves owners who lost everything struggling to keep their clubs open blame the corporate office for over-saturation of territories, lack of support, high franchise fees, inferior equipment, etc. for this (see Web Link)


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Posted by Fit Dude
a resident of Adobe-Meadows
on Dec 12, 2011 at 9:32 am

Here is the link to the Wall Street Journal article on the bad shape of the Curves corporate office: Web Link. Because of their nonadjustable resistance, virtually 100% of Curves members will eventually hit a plateau- that is when they get bored, frustrated and drop out. The early Curves owners who got in and out of their franchises quickly made the most money- They opened clubs for $40-$50K and signed up 400-500 members in the first 6 months and then turned around and sold the clubs for $200- $300K+ after a year or so. Then, when those members who hit their plateaus did not sign back up, the bottom fell out of the membership base and left the new owners holding the bag.


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Posted by Also
a resident of Another Palo Alto neighborhood
on Dec 12, 2011 at 9:53 am

Curves founder is overtly funds pro life campaigns which might cause membership issues in a pro choice area.


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Posted by Joel Libava
a resident of another community
on Dec 12, 2011 at 9:54 am

I appreciate the feedback, but I deal in facts, not hearsay.

The person who posted the reply to my comment wrote that, "Franchises are succeeding at record rates and it appears that they gap between mom and pop businesses succeeding and franchise owners is widening."

Really? Why should I believe that...but more importantly, why should a prospective franchise buyer believe that?

Show us the stats.

Respectfully,

The Franchise KingŪ


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Posted by Michael Webster
a resident of another community
on Dec 13, 2011 at 5:47 pm

Joel is correct and resident of Palo Alto is not correct. There is no data supporting a general conjecture that franchises are less riskier than independents. FranNet has no valid information, either.

But, looking at the recent SBA loan data, we can see franchise systems which virtually imploded such as Blimpies and others.

Franchising, like any other small business operation, is risky. Some more riskier than others.


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Posted by James
a resident of Charleston Gardens
on Dec 13, 2011 at 10:48 pm

I have direct knowledge of FranNet and their operations and they helped me find a business that fit my needs. FranNet was professional, knowledgeable and worked with me to find a business for me and my lifestyle. With all of my research I found franchising to be a much better fit than any other options, and without them my search would have been a nightmare. Like the person in this article, I appreciate all that frannet did for me, their local connections and referrals, and would recommend their services to anyone considering small business ownership. Their local connections were so helpful and saved me a lot of time and energy.


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Posted by Joel Libava
a resident of another community
on Dec 14, 2011 at 12:06 pm

James,

I wasn't questioning your franchise broker's(Frannet)ability to assist you in finding a franchise business. I used to be with Frannet, so I know how things go there; they generally have good broker training.

I was questioning the supposed 90% success rate in franchise-type businesses that one of their consultants was quoted as stating in the article.

Quotes like that, without the data to support it, don't help the industry as a whole, but more importantly, can send the wrong message to a would-be franchisee.

The Franchise KingŪ


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Posted by member
a resident of Palo Alto Hills
on Dec 15, 2011 at 12:28 pm

Joel,

I'm sure FranNet will be happy to share their data with you. FranNet is preparing to release industry stats based on success and failure rates of its placements in the franchise industry and they do have the data to back up the claim.

I do not think small businesses fail at 80%. The SBA stat from the mid 90s is generally considered the most accurate since it was compiled by the Census. It says that only 64% of small businesses are still open after 2 years. When you read FranNet's report, which will become public in January, you'll see there is quite a spread between franchises and the small businesses in the federal census report.


 +   Like this comment
Posted by Joel Libava
a resident of another community
on Dec 15, 2011 at 12:33 pm

Fantastic!

I can't wait to dig into the data that they're (you're) going to provide.

I hope that franchises win out, and that it can be proven.

Go Franchising!

The Franchise KingŪ


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