Is buying a franchise safer than starting your own business? I hear that question more than any other. My honest answer: it can be, but not automatically, and not for the reasons people usually repeat.
The Myth You’ve Probably Heard
You’ve probably heard that most startups fail and almost all franchises succeed. Be careful with that one. Back in 1995, economist Timothy Bates studied roughly 20,000 young small businesses using Census Bureau data. He found the franchise startups had higher discontinuance rates and lower average profits than comparable independent startups. He also noted that the rosy franchise survival figures of that era came from surveying franchisors, not the franchisees themselves.
That study is old, and the industry has changed. But it’s a good reminder. If someone sells you a franchise on the promise that it can’t fail, walk away.
What Small Business Survival Data Shows
The Bureau of Labor Statistics tracks new business establishments over time. Of private-sector establishments born in March 2013, about 80% were still open a year later, about half made it five years, and 34.7% were still operating in 2023. The biggest drop came in year one.
What BLS doesn’t do is separate franchises from independents. So be skeptical of anyone quoting a precise gap.
Where Buying a Franchise Can Be Safer
A Tested System
A good franchisor has already made the expensive mistakes on pricing, suppliers and site selection. You’re buying that learning. The word good matters. A brand with hundreds of healthy units is a different bet than one that started franchising last year.
Training and Support
For someone leaving a corporate career for a new industry, real training matters.
Disclosure You’d Never Get Otherwise
The FTC Franchise Rule requires an FDD with litigation history, fees, audited financials and contact info for current and former franchisees. Start your own business and nobody hands you that.
Where It Isn’t Safer
The FTC is blunt: buying a franchise is like any other investment, and there’s no guarantee of success. You sign the lease and often a personal guarantee. Royalties typically come off gross sales, even in months you lose money. You give up control over menus, suppliers and design. And if the franchisor is underfunded or growing too fast, your business is tied to theirs. (I break down those costs in How Much Does It Really Cost to Buy a Franchise?)
The Biggest Factor Is You
Over the years I’ve watched this play out again and again. Owners who follow the system, watch cash and hire well tend to do fine. Owners who are undercapitalized or expect the brand to do the work struggle, franchise or not.
How to Actually Lower Your Risk
- Read the FDD closely, especially Items 3, 5 to 7, 19, 20 and 21.
- Call current and former franchisees from Item 20.
- Hire a franchise attorney and an accountant.
- Fund yourself for a slower ramp than you hope for.
The International Franchise Association also has education for prospective buyers.
So, Is Buying a Franchise Safer?
It can lower some risks: you get a tested system, training and real disclosure. It’s no guarantee. A strong brand plus a prepared, well-funded owner is what lowers risk. One without the other isn’t enough.
Let’s Talk It Through
If you’re weighing a franchise against going it alone, I’m happy to talk about where you fit. No sales pitch, just an honest conversation. Call me, John Henning, at 267-417-4980.
Sources
- Bates, T. (1995). “Analysis of Survival Rates among Franchise and Independent Small Business Startups.” Journal of Small Business Management, 33(2), 26. ProQuest record: https://www.proquest.com/openview/4d3cb6b04c84eacfaf2d5b2e85ed8ec2/1?cbl=49244&pq-origsite=gscholar
- U.S. Bureau of Labor Statistics, The Economics Daily, “34.7 percent of business establishments born in 2013 were still operating in 2023” (Jan. 12, 2024): https://www.bls.gov/opub/ted/2024/34-7-percent-of-business-establishments-born-in-2013-were-still-operating-in-2023.htm
- FTC, A Consumer’s Guide to Buying a Franchise (Sept. 2020): https://www.ftc.gov/business-guidance/resources/consumers-guide-buying-franchise
- FTC Franchise Rule, 16 CFR Part 436 (eCFR): https://www.ecfr.gov/current/title-16/chapter-I/subchapter-D/part-436
- International Franchise Association: https://www.franchise.org/