Why Franchisors Fail
There are very clear reasons why franchisors fail. Those reasons are both easy to understand and easy to avoid. But often, unless counseled, prospective franchisors can’t see the obvious. And why would they? It’s new territory. There are so many pitfalls and we’ll take a look at them here. Ranging from consultants who lack knowledge or total honesty to business owners who are just stubborn (or who might also lack honesty), there’s lots to consider. Take one or two critical factors and you’ll probably have a franchise mess. Take a few of those factors and you’ll have a franchise disaster. It doesn’t need to be this way, but it’s a fact of life.
Years ago we published the seminal article titled “Why New Franchisors Fail: Key Development Issues.” Many other pieces under a similar title have since been printed with differing opinions on the subject. We renamed the article ‘Franchisor Success or Failure‘ because the title seemed more uplifting if it included ‘success.’ Now we’d like to readdress the question in simple, completely understandable language. Franchise failure is rampant. That failure kills franchisors, but of greater importance is the failure of the franchisees and their families that trusted in the purchase of a tainted, worthless franchise.
The Reason Why Franchisors Fail – The Alpha & The Omega
THE BUSINESS SHOULD NEVER HAVE BEEN FRANCHISED! Simple enough? Franchise failure rates go as high as 90% in some systems. For even greater detail than found here, please read the article mentioned in the second paragraph above. But, whether it’s the people running the original concept, the concept itself, the timing, dishonesty, or any other number of factors, it should not have been franchised. And, the reasons are fairly obvious to an experienced, honest observer long before the franchising takes place.
Sure, it’s easy to look at any failure, franchised or otherwise, and say it was a mistake. But here, we’re not just saying it, we’re providing the real world reasons for why it happened. Reason #1 is the answer and if you’re successful in business with the itch to franchise, just remember Reason #1 as a reminder to remember Reason #1. You can always go back and check the subsets.
Now, in short order, here are the CRITICAL subsets that lead to failure.
Why Franchisors Fail: Subset 1
THE BUSINESS OWNER HAS BEEN DECEIVED, MISLED, OR THE VICTIM OF INEPTITUDE. Call it what you want. Franchisors don’t start out wanting to fail. (However, there certainly are some that know they offer a lousy franchise. Somehow they can still sleep at night selling their deal to unhappy franchisees.)
It’s simply true that successful business owners can still be putty in the hands of slick franchise consultants, slick operators, and slick packagers who prey on the dreams and egos of otherwise savvy entrepreneurs.
We’ve written time and again on the dangers of being sold into franchising, but ego is a stubborn force of nature. It can take us to places unknown for reasons that, after the fact, are still unknown and never understood. Appealing to the ego of a successful business person, any person, is not rocket science, it’s kindergarten. Unscrupulous consultants have been in the franchise game since day one and will always be available for a quick score. So, rule #1 for all business owners who hear the ‘franchise your business’ song: COVER YOUR EARS AND THINK!
Why Franchisors Fail: Subset Two
THE CONCEPT DOESN’T WORK AS A FRANCHISE. Not all businesses are meant to be franchised. The phrase we coined a million years ago remains true. Just because any business can be franchised doesn’t mean it should be franchised. A business might be successful due to an owner’s personality, a particular location, or an event that took place, but it can’t be successfully recreated under different owners in different places.
Why Franchisors Fail: Subset Three
THE OWNERSHIP IS NOT FRANCHISOR MATERIAL. Not all entrepreneurs or business owners are meant to be franchisors. It’s painstaking, hard work to be a successful franchisor. Oftentimes, once a person has made it in business, frankly they’re tired. They want to relax and enjoy the harvest of their labor. Maybe it could be a franchise, but not under them. Temperament is an enormous factor. Entrepreneurs can be impatient at their very best. That one trait can lead to horrible franchisor/franchisee relationship that will destroy a franchise system.
Why Franchisors Fail: Subset Four
IT WAS NOT THE RIGHT FORM OF DISTRIBUTION. In its simplest state, franchising is just a form of product or service distribution. There are many to choose from if expansion is the goal. Pick the one that makes sense for you and your business. Some examples to explore? Company-owned outlets – no federal/state paperwork as with a franchise; no franchise sales; no franchisees. Partnerships – risky? Yes, but it’s one at a time, not a franchise system with which to contend. Business opportunities – similar to franchising, but less paperwork and perhaps fewer headaches. (Franchising in our opinion is better than a business opportunity, but that’s a different discussion.) The bottom line is that franchising, while a potentially amazing opportunity for growth, is just one option.
Get Straight Answers
We don’t advise clients to franchise their business. It’s not our place to do so. On the other hand, we’ve told many NOT TO FRANCHISE because there was a clear red flag. We point out the weaknesses and offer to work on those, but at that point it’s their decision.
We started the notion of true franchise feasibility to help people understand what franchising might look like in their case. Taking a que from us, many consultants now use the WORD ‘feasibility’, but if you listen closely, it’s just used to cover a sales pitch. Know in your heart that you trust your advisor or move on. Best wishes going forward, but above all REMEMBER REASONS 1 & 2.