How to Avoid Most Franchise Failures
As most of us know, the franchise industry has grown tremendously since the 1980’s. That’s because it offers an unparalleled value proposition to all parties if things are handled correctly. And, of course, ‘all parties’ means: franchisor, franchisee, supplier, and consumer. Franchise failure has been a common denominator for franchisors and franchisees alike. If carefully analyzed, failure is attributed to two key factors: planning and the psychology of the industry. The roots of failure in any area or industry always run deep and can’t be easily pigeonholed. But again, the two causes just mentioned encompass many, if not most problems and reasons for failure.
Planning is Factor One in Avoiding Franchise Failure
Franchisors and franchisees normally rush through their respective processes.
Franchisors fail at a much higher rate than necessary and it’s their pre-franchise planning that is often the cause. Bibby Group has always insisted on a true feasibility study before the decision to franchise is made. Feasibility is often just a hurried phone call with a consultant that praises franchising as a printing press for dollars. This is done because both the consultant and the prospect want to get things going. Analysis of the entire business and its people is required.
It’s a simple fact of life that most consultants still operate in the mode of selling their services and it’s counter to their goal if they point out potential pitfalls. After feasibility comes careful planning that touches on strategy, organization, legal work and the most important of all, learning to be a franchisor. With all the preparation in the world, if a franchisor does not understand how to fulfill their role, they will most likely fail.
Franchisees also fail due to lack of planning and in their case it’s a total lack of concern, or a refusal to conduct proper franchise due diligence. They refuse common sense due diligence before buying because, just like the franchisor above, it’s easier not to do the necessary homework and planning. Whether you believe it or not, most franchise owners really don’t know what they’ve purchased until after the own their franchise; often long after. Why is this so? Because most franchise purchases are made on emotion, not research. Many franchise brokers earn a fine living in franchising due to this fact alone? Be smart, retain competent due diligence assistance if you’re buying a franchise.
Psychology is Factor Two in Avoiding Franchise Failure
Again, both franchisors and franchisees fail because they fall prey to a similar problem; the psychology of franchising.
Franchisors often get started because someone sells them on franchising their business. We’ve addressed this issue many times, but even those who have heard or read our advice will often not pay attention. They run themselves into the ground on the clever words and encouragement of salesmanship. And that salesmanship can come in many forms. It’s often a consultant. It can also be a friend, customer or family member suggesting that a business would make a great franchise. Just because those folks might like a person and their business, they don’t know what makes a great franchise. They offer words of encouragement, but they are dangerous words. The idea of franchising is intoxicating to entrepreneurs and they are prone to place emotions ahead of practical, logical decision making.
Franchisees, as stated above, tend to buy franchises based on emotion, on glitter, on the idea of a so called hot business opportunity. Those are all the wrong reasons for getting into franchising, but they are clever culprits and they win more than they lose. Smart buyers look first at whether or not franchising is a good emotional fit with the framework of a dictated system. And smart buyers also look into what type of business might best fit who they are as a person. That’s why we produced The Focus Program for Emerging Entrepreneurs.
Planning and psychology are the two key elements that usually play a role in both franchise failure and/or franchise success.