The Federal Small Business (SBA) association recently calculated their 2012 list of the business franchises that most frequently failed to repay their SBA loans. Blue MauMau, a blog focusing on the business of franchises in the United States, recently published the list as the Worst 25 Franchises to Buy with the Highest Failure Rates 2012 and 4 of the worst 25 were ice cream franchises: Carvel Ice Cream (56.41%), Marble Slab Creamery (43.66%), Cold Stone Creamery (41.93%), and MaggieMoo’s (39.39%).
These percentages were calculated by the number of liquidations plus write offs and divided by the number of loans (liquidations + write offs / # total loans for that franchise) and any franchise that had less than 50 loans was eliminated to keep some of the smaller franchises from obscuring the results. These numbers are staggering if you think that the reason you are buying into a franchise is because you are buying into the expertise of the franchiser. Dairy Queen (a wholly owned subsidiary or Warren Buffett’s investment firm Berkshire Hathaway) by contrast had less than 10% of their franchises default on their SBA loans. It is important to note that these are only looking at loans that had the SBA backing. Most private banks will not share their statistics on business loan defaults so we are only looking at a subset of the total small business loan population.
Lesson: Some franchises carry a significantly higher risk of failure than others. If you are considering opening an ice cream shop franchise you may want to reexamine the accuracy of your financial models.
Being an entrepreneur (and to a lesser degree being an intrapreneur) is a risky business with an incredible amount of complexity that needs to be dealt with but the reality is that most new businesses will fail. The question is what do we do with that failure, how to we learn from our failure and those of others to give us some insight into our probability of future success? The goal of the Failure Forums is to help raise awareness that failure is a natural outcome from these risk taking endeavors (entrepreneurship and innovation) and to help organizations of all shapes and sizes (big companies, small companies, non-profits, and even governmental organizations) learn how to build the processes and support structures necessary sustain when failure does happen. What did we do? What did we learn? And, what would we do differently?
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