Franchising has become the dominant mode of retail entrepreneurship in the United States and increasing in Asia though it has a long history stretching back to ancient China (but we won't bore you with the details). It is growing at roughly 6 to 10 percent per year, as franchises replace independent businesses in industries as diverse as fast food, banking, and Internet services.

Franchising is a system for expanding a business and distributing goods and services - and a golden opportunity to operate a business under a recognized brand name. In each of the past several years, more than 200 new franchise systems have been born. While all investments have an element of risk, many people assume that franchisors are selling a formula for success. However, roughly three-quarters of all new franchise systems fail within twelve years3. Since the average initial franchise contract is for fourteen years, fewer than one in four new franchise systems survives until the end of the contract. Because an investment in a failed franchise system has little value for the investor, this failure rate means a high level of risk for the thousands of entrepreneurial Asians who buy franchises every year. Potential franchisees need a way to identify new franchisors (NewFran) who are likely to succeed.

We have developed a model for success in franchising where potential franchisees in Asia can find a franchise that is likely to survive and build valuable brand names. The interrelated three factors that determine a franchise system probability of survival and success are:

1. Rapid growth where the franchise reaches minimum efficient scale to promote the brand name competitively with established firms.

2. Allocation of local managerial activity to franchisees and minimized support services speeds the rate of growth.

3. Demonstration of trustworthiness, high quality of operating systems (training, certification and accreditation) and other intangible assets through credible commitments attracts potential franchisees despite minimum support.

Research has shown that the average new franchisor fails. In fact, during the twelve year period after beginning to franchise, typically three-quarters of the new franchisors have ceased to exist. The attrition rate is quite severe in the early years of franchising; one third of the new systems stop franchising in their first four years.

The survival patterns differ very little across industries. Although the small sample size necessitated categorizing the new franchisors into three broad groups - food, other retail, and services - similar survival patterns emerged across the three. New food franchisors have a slightly more severe failure rate in their early years than do retail or service franchisors, but the failure rate slows more quickly than for the other two groups. Service franchisors have nearly as slow failure rates in early years as food franchsiors but continue to fail at a faster rate than food franchisors after their seventh year. The death rate of new systems suggests that franchising is not an easy business in which to succeed and demonstrates the importance for us to create a business model to explain not just the survival but also the success of new franchise system.