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Most people who start independent business, i.e. not a franchise, eventually will say: “I made too many costly mistakes.” Those mistakes may or may not kill the business, but they will reduce the amount of money that an owner can pay to him or herself.
Do independent businesses survive?
There’s no clear answer to the survival rate of independent businesses in America, except that every report, regardless of who issues it, never favors the success of independent businesses. Failure rates are reportedly high. In America, for example, the rule of thumb is that half of all non-franchised business startups fail within 12 months; and 85% fail within five years. Who wants to risk their life savings with those odds?
Of course, many entrepreneurial-minded people will say, or convince themselves, that they can avoid the mistakes. “I’ll do my homework. I’ll take my time. I’ll avoid the mistakes.” And yet, it never works that way because most independent startups fail.
Why business mistakes occur
What’s to starting a business? Especially businesses that appear to be simple: cleaning, business services, retail shops at the mall, and food businesses, especially pizza and desserts. Many people believe – and perhaps correctly so – that they can improve the products or services provided by franchises.
And so they make their own pizza, or they develop a new maid service, or handyman service, or ice cream parlor, and they invest $150,000 to $500,000 to set up their own business. And what happens? They run out of money!
Why businesses fail
Here’s the curious thing. If their product or service was better – and let’s agree that it was – what happened? Why did they run out of money? The answer is easy: Too many costly mistakes.
Can you sell what you make?
There are countless mistakes to make, but one of the worst is assuming that you can market and sell what you make. Everyone tells you that you make a better pizza than the franchise chains. But what they don’t know, and you don’t know, is that you don’t know how to market and sell pizza . . . or handyman services, or maid services, etc. And even though you spent more money than you intended testing out marketing ideas, nothing produced a satisfactory return on your investment. Eventually, you ran out of money!
It’s easy to make mistakes, and most of the time you won’t know that you’re making them. It’s only when you realize there’s no more money that you look back and ask: “What happened?”
Should you buy a franchise?
What happened is that you didn’t buy a franchise. What happened is that in spite of making a better product, or delivering a better service, you didn’t understand human behavior. Franchisors understand why, when and how consumers buy products and services. And that information is more important than the product or service itself.
Don’t be fooled by people who tell you, “You can do it yourself. You don’t need a franchise.” You probably do. Of this you can be sure: If you buy a reputable franchise, the franchisor’s training will save you from making costly mistakes.
In addition, you’ve got one other advantage to protect your investment when you buy a franchise. Every U.S. franchisor must provide a disclosure document to prospective franchisees. You can use that document to help you determine the success rate of franchises in that specific franchise network. Need help doing that? We’ll tell you how in a future blog article.