Is a Home Based Franchise The Safest Option?

If you've been doing your research about franchises and small business startups for a while, you've undoubtedly come across some form of a statistic that says franchises have a 95% success rate compared to a less than 40% success rate of other small businesses.  It may surprise you to find out that the IFA (the International Franchise Association) has denied any truth to these figures and has written an open letter to franchisors asking them to stop using these bogus figures to sell their franchises.  So, what does this all mean? Are franchises really safe? Are they safer than other startups?  Here's a deeper look at some of the implications of these claims and what you can and can't believe when it comes to franchises.

Snakeoil
Whenever you see a company using statistics to get you to buy something, you need to take a good hard look at what's actually being said; especially considering that 86% of statistics are made up.  Statistics can be used to present facts in a way that "shapes" the truth into what the presenter wants to say, so even if these 95%/40% numbers were true, what are they being used to say? 

On the surface the numbers suggest that if 200 businesses started up (100 franchise and 100 non-franchise) that at the end of 5 years, 20 non-franchises would remain and over 95 franchises would remain.  Think about that logically.  I could believe that it would be slightly higher, but 5 to 1 is a ridiculous notion.  If these were true numbers, people would be so afraid of doing a startup due to the massive failure rate, that we simply wouldn't see new businesses start, or banks giving those startups loans.  A 20% chance leaves the realm of investment and crosses well into gambling territory.   

Furthermore, think about why a company would need to use bogus stats to sell their business.  Starbucks doesn't have to say "our coffee will grant you eternal youth" because people buy the coffee because they like it.  Using false or severely outdated information to sell your product is often to cover up for the fact that your product isn't selling, it isn't any good, or both.

The Baby And The Bath Water
The wrong reaction to the IFA's clarification of these bogus figures would be to write off franchises completely.  While there's nothing magical about a franchise that will protect you from mismanaging your business or failing from a myriad of other reasons, keep in mind that starting a business is hard work, and not everyone has what it takes to do it.  Writing off franchises would be a bad move because they represent a large portion of the small business startup market and have a lot of possible choices.  If you're a shrewd business man/woman, but not necessarily an idea man/woman, a franchise would be perfect, but keep in mind that you'll be facing the same risks and challenges that you would with any other type of startup.

So, is a franchise the safest option for a business startup: no.  Should you consider investing in a franchise?  That all depends of what suits your needs.  Keep in mind that any type of business startup is an investment and no investment is without risk.  Consider how risk proof retirement accounts seemed five years ago before the market's crash.  Most business startups will be much safer than playing the stock market, but before you run head first into your new startup, remember the risks, and make sure it's something you're comfortable with from the start.