Franchise Versus Conventional Small Business Failure Rates in the US and UK: More Similarities than Differences

Abstract

Price and Nicos Zafiris are all members of the International Franchise Research Centre at the University of Westminster, England. At its best, franchising is an avenue into self-employment offered by franchisors (owners of a 'tried and tested' business format) to franchisees (typically aspiring small business men and women), in exchange for payment of a once-off front-end fee followed by an on-going royalty. Based on the principle of 'cloning' success, a principal tenet of the franchise fraternity is that franchise failure rates are low. From the viewpoint of small business researchers, franchising has been argued to be of particular importance, since most franchisors still are, or recently have been, small businesses themselves and most of their royalty-paying franchisees are also small businesses. Thus, in principle, franchising offers a route to growth for the would-be franchisor and small businesses opportunities with limited risk for would-be franchisees. Debates on franchise failure rates, compared with conventional business failure rates, have historically been dogged by problems of definition and measurement. However, recent developments have improved the situation here and what emerges is a striking similarity of failure rates between the two forms of (usually) small business - franchised and non-franchised.