Surprising little-known fact about franchising

By JAN NORMAN / Orange County Register

Here’s a statistic about franchising that most people wouldn’t guess: 1 in 6 franchisors have fewer than 6 franchisees.

Why do I think that’s surprising? Because it surprised the industry expert who came up with it.

Industry veteran Ed Teixeira owns FranchiseKnowHow LLC. He has been both an executive with a successful franchisor (Staff Builders Home Health Care) and a multi-million-dollar franchisee with six offices.

Franchising is a way of growing a company using the capital of others who fund and run new locations. The franchisor provides a proven system and brand name and ideally spends its time and resources helping its franchisees succeed. One of the advantages is that buying discounts that individuals couldn’t get. But if a franchise is small, has little negotiating power for such discounts.

“After reviewing approximately 1,400 franchise listings in The Franchise Handbook I found that 1 in 6 or 256 listed franchises had 5 franchisees or less,” Teixeira reported in a recent newsletter. “The Franchise Handbook receives regular franchisor updates from their emails, advertising solicitations and their update listings twice a year. However, not everyone responds so the number is a close approximation.”

There are franchisees in some systems that are much bigger. And not all these tiny franchisors are new to franchising, Teixeira says. Some started franchising more than a decade ago.

Teixeira gives some possible reason these franchisors have failed to thrive.

Flawed franchise and shouldn’t have launched a franchise program

Lack of working capital necessary to fund new franchise development

Lack of required business, franchise or leadership skills to launch and sustain a successful franchise program

Franchisor reined in their franchise program and focused on corporate locations

Personal reasons

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