Study Shows 91 Percent Of Successful Franchisees Have Defined Territory <b></b>
Linthicum, Maryland-According to the results of a studypublished in a journal of the Institute for Operations and ResearchManagement Sciences (INFORMS), if you're thinking of opening anew burger franchise and want it to be a success, you'd bettermake sure your contract gives franchisees an exclusiveterritory.
In a study sampling franchise systems, the authors found that 91percent of successful new franchises were granted exclusiveterritory in their contracts. For that same period, a revealing 31percent of failed franchises had no contractual exclusivity.
"There is a pre-conceived notion that a franchise is aguaranteed form of entrepreneurship," explains Scott Shane ofthe Smith School of Business at the University of Maryland, CollegePark. "In fact, lots of things contribute to the failure offranchises. One is territory. If you're thinking of opening afranchise outlet, be on guard for the danger of encroachment. Thosepurchasing a franchise outlet often stay away from franchisors whowon't protect their territory in writing."
New franchise chains that adopt exclusive territories are morelikely to survive over time than chains that do not, say theauthors, based on a statistical analysis of 170 new franchisecontracts and interviews with the founders of 16 new franchisesystems.
The study, "Entrepreneurs, Contracts and the Failure ofYoung Firms," is by Pierre Azoulay of the Sloan School ofManagement at MIT, and Scott Shane. It appears in the current issueof Management Science. -EurekAlert
