Why Franchisors Fail

Why Franchisors Fail

Why do franchisors fail?

At least 15 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. Along the way, for reasons of logic, we renamed the article ‘Franchisor Success or Failure.’ The title seemed more uplifting if it included ‘success.’ OK, fast forward to the now – 2020. It’s time to readdress the question in simple, succinct , direct and completely understandable language. Why? Because franchise failure is rampant. And that failure kills franchising companies and the families associated with them. And of equal if not more importance are the franchisees and their families that trusted in the purchase of a tainted, worthless franchise investment.

Why Franchisors Fail – Reason #1

If you’re a ‘cut to the chase’ type of person, here’s the number one reason. Burn it into your brain. You can’t forget it. You won’t forget it. THE BUSINESS SHOULD NEVER HAVE BEEN FRANCHISED IN THE FIRST PLACE! Simple enough? Franchise failure rates go as high as 90% in some systems. If you want detail as to the why’s, go to the article mentioned in the first paragraph. But, whether it’s the person or people running the original concept, the concept itself, the timing, or any other number of factors, it should not have been franchised. And, it’s reasonably predictable.

Is There Secondary Reason? – Yes, Reason #2

Franchisors Fail Because of Lies

Many franchisors fail due to lies & deceit.

For the most part, franchisors that fail have been hoodwinked. Yes, distracted, hoodwinked, bamboozled, lied to. Call it what you want, but franchisors don’t start out wanting to fail. (However, there certainly are some that know they offer a lousy franchise and can still sleep at night selling their deal to unhappy franchisees.) It’s simply true that successful business owners are normally putty in the hands of slick franchise consultants, slick operators, 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 the 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 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!

Are There Still Other Reasons? – Yes, several. 

Reasons 1 & 2 are by far the greatest reasons for franchise failure. If you’re successful in business and get the itch to consider franchising, just go back to 1 & 2 as a reminder to remember 1 & 2. Now, in short order, here are other CRITICAL issues that lead to failure, but they are still related to 1 & 2 as subsets, if you will. And we’ll make short work of these items as well.

The concept doesn’t work as a franchise.

Not all businesses are meant to be franchised. The phrase we coined a million years ago is true. Just because any business can be franchised doesn’t it 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.

The ownership is not franchisor material.

Not all entrepreneurs/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. Age, temperament and desire are huge factors.

It was not the right form of distribution. 

Franchising is just one 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 have NEVER advised a client to franchise their business. It’s not our job or our place to do so. On the other hand, we’ve told many NOT to franchise because there was a clear red flag. We started the notion of true franchise feasibility to help people understand what franchising might look like in their case. A lot of consulting money has been left on the table over the years, but we never have taken a consulting dollar knowing it could hurt a prospective franchisor. Know in your gut that you trust your advisor or move on. Best wishes going further and do just one thing: REMEMBER REASONS 1 & 2.