It's long been recognised that newer small businesses run as a sole proprietorship have higher failure rate than many long-established companies. Even larger businesses with long-standing track records for success are sliding into decline.
By comparison, the franchise business model offers multiple advantages over other types of business. Franchisees have higher success rate than business operated by sole proprietors. They have access to easily-followed business operational systems that reduce the likelihood of failure.
So is a franchise business model really the key to success for Australian businesses?
The successful US coffee giant, Starbucks, opened its first store in Australia in July 2000 and promptly began expanding. Yet, despite their popularity across North America, the franchise failed to capture the Australian market. The chain suffered financial losses that saw them close 60 stores across the country.
McDonald's is a prime example of successful franchising on a global scale. The big yellow arches are instantly recognisable around the world and the menu offers subtle changes in different countries to encourage local consumer engagement and to keep brand recognition strong.
Jim's Group is another example. The franchise began as a branded lawn mowing service that has expanded to include various other services, and has now become the largest franchise in Australia. The business model is kept simple, which allows franchisees to expand to suit their preferences.
Despite the rising failure rate of Australian businesses, the key to creating a successful business could lie in building a franchise model that keeps it simple.