While I’m an avid follower of lists of all kinds, I hardly ever take the time to read the methodology behind them as I tend to accept things at face value. But in my new role as a franchise blogger and as someone who has attempted to put together a list of my own, I’m curious how more established media organizations come up with their annual rankings of the year’s best.
AllBusiness.com, an online resource for small business and a wholly-owned subsidiary of Dun & Bradstreet (a company that provides information on businesses and corporations for use in credit decisions, B2B marketing and supply chain management), recently released their list of 100 AllBusiness AllStar Franchises for 2012. Their criteria for selecting the winners are: franchise unit growth rate, financial strength, system size, years in business and years franchising, and Web (brand) visibility.
- Growth rank received the highest weighting. AllBusiness looked at the change in the number of franchise units over three years, with U.S.-based growth more heavily weighted than international or conversion-unit growth, and the most recent year’s growth more heavily weighted than growth in earlier years.
- Financial strength rank is based on D&B’s predictive Commercial Credit and Financial Stress Scores (The latter score was given a higher weighting).
- System size rank measures the size of the franchise system. AllBusiness assigned points based on different weightings for the number of U.S.-based franchise units (heaviest weighting), company-owned units, and non-U.S.-based units (lightest weighting).
- Longevity rank compares how long a franchise company has been around. AllBusiness assigned points based on the number of years a franchise company has been in business and how many years it has been franchising (The latter number was given a higher weighting).
- Web visibility rank is based on a franchise website’s Google PageRank and Alexa Traffic Rank.
The focus of this AllBusiness ranking is the stability of the franchisor, without any consideration given to the health of its franchisees. Implicit in this methodology is the view that a franchisor can only succeed for a sustained period of time if its franchisees are also doing well. While there is good reason for this line of thinking, the list heavily favors franchise companies that are already big and established, while up-and-coming brands with excellent unit economics are shut out completely.
Moreover, a franchise that is growing rapidly may be great for the franchisor, but overexpansion can be devastating for the individual unit. Cold Stone Creamery and Quizno’s are two brands that have suffered in recent years because they grew too fast (in my opinion).
Should a prospective owner select a franchise opportunity based solely on the health of the franchisor? I don’t think so. While this is a critical factor, it certainly doesn’t paint the entire picture. (In fairness to AllBusiness, all lists have their inherent limitations, and this particular list is superior to most because it’s based on objective and clearly defined metrics.) Let’s treat this list as a small piece of a much larger puzzle, and use it accordingly.
Here are the Top 25 AllBusiness AllStar Franchises of 2012. To read the entire list, please click here.