Why Franchisors Fail

Most Franchise Failures Are Predictable & Avoidable

Franchisor failure haunts the franchise industry, and it should for many reasons. But let it be said upfront that the most haunting scene all is not the landscape of failed franchisor bleached bones, but those of unwitting franchisees drawn in along the way. All parties are ultimately hurt in the process of ‘bad franchise decision making’, but the most culpable will remain unwitting franchisees.

This message is as simple as it can be to all parties of past, present and future disasters of each group (franchisors, franchisees, consultants). Wake up to the reality that franchising is a blood sport wherein each player can lose everything. Be vigilant. And know that while it’s usually unwitting franchisees who are destroyed early in the process, all parties can eventually lose all things. One failed franchisor usually leads to multiple failed investors and that failure can ultimately destroy all player along the trail.

When Is Failure Predictable?

A truly experienced eye can spot the reasons for a franchise failure, and that doesn’t mean ‘after’ the failure. Problems are obvious at that point. It means predicting failure and fixing problems to avoid it. But how long before a failure comes along are potential problems evident, or should they be evident? The answer is simple: long before franchising ever happens.

So why then, do the failures occur if they’re potential is obvious? Again, fairly simple. Just because an experienced eye should catch flaws in a concept, what’s seen may not be revealed. Consulting fees in this business are quite lucrative. And of course, prospective franchisors generally can’t see the obvious, especially before the fact. How could they? They don’t have franchise experience.

From consultants who lack expertise and/or honesty, to business owners who are stubborn about facts or don’t see them even if pointed out, there’s lots of room for failure. A great deal of that failure however, is avoidable. But it requires less dreaming and more critical thinking.

The Franchise Industry Has All Kinds Of People

In some cases, all parties might understand the potential for failure and still proceed. The concept is known to have flaws that are detrimental to prospective franchisees. What? That can’t be true! Here are two examples.

One, the franchisor’s goal is primarily profiteering. A concept is known to be flawed, but is marketed anyway. That could be any number of things: supplier pricing/markups, preferred treatment of company owned units, unconscionable fees, and so on.

Two, the concept simply isn’t ready or right, so ‘we’ll fix it as we go.’ Yeah, right.

The bottom line is that many franchise failures are not a surprise to anyone but the franchisees who were sold on a bad idea.

There Is One Overarching Reason Why Franchisors Fail: The Alpha, The Omega, The Mortal Sin. The Brand Should NOT Have Been Franchised.

This is not a stupid, ‘dah’ or obvious statement. The decision to franchise could have been made by good people who were misguided for any number of reasons. Or, the decision could have been made with dishonest intentions as described above. That’s the bottom line, simple truth as to why most franchisors fail.

The reasons for not franchising could be many: ownership, the concept itself, timing, or dishonesty among others. But there IS a reason, an obvious one. Again, experience can predict most potential problems and honesty will expose them. But, if a consultant wants a fee or an overzealous business owner wants to sell franchises, then franchising is going to happen whether it should or it shouldn’t be done.

Franchisors & Franchise Systems Will Most Likely Fail When:

  1. The concept isn’t franchise material.
  2. The franchisor is inept or not well intentioned.
  3. Deception or lack of expertise is present at any stage of decision making.

We’ve written a great deal about the temptations to franchise a business. The fact is, they’re real. Although perhaps hard to accept, appealing to the ego of a business owner and convincing them to franchise their success story is really kindergarten level psychology. Unscrupulous consultants have always succeeded in that game.

Franchise Landmines Are Mostly Avoidable – IF YOU CAN SEE THEM

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