There are strong arguments about why franchises fail and you may be tempted to believe that this is the brand that failed and individual franchise failure is simply a side effect of that. However, there are many reasons that franchises fail. In this two part series, we will discuss a few of the common reasons and how you can avoid them in your own business.
# 1 Lack of Business Skills
Running a business consists of several moving parts and requires a little skill in all the areas of: operations, management, marketing, and financial management. A franchise owner must be able to manage all the components of the business.
Problem: When a potential franchisee relies on the success of the parent company’s training plan and guidance, they have set themselves up for failure from the get-go. This is not to say that you have to be an experienced business owner prior to investing in a franchise, but having business sense will help you succeed.
Solution: If any one of these areas are not your strong suite, you can focus your energy toward that skill to help hone it. It is important to be honest with yourself and analyze your business strengths and weaknesses honestly. Analyze your performance and adjust energies appropriately.
# 2 Lack of Franchisor Support
Franchising a business allows a parent company to essentially lease out their brand to business owners. Business owners profit off a tried-and-true brand and business model and are able to launch to success quicker than starting their own small business because of brand recognition. Franchisors benefit by their brand being spread through more locations and they earn royalties on franchisee revenue.
Problem: A major problem occurs when franchisors sell a piece of their pie then sit back and wait for the profits from their downlines to come in. Without franchisor support and direction, the consistency of the brand is compromised and loyalty to the brand may be reduced when the franchisee does not feel valued.
Solution: If you are the franchisee, do your homework. Research potential franchise investments, talk to current business owners, make sure the franchisor is supportive and invested. Companies that are supportive and involved will typically offer corporate trainings and assign mentors or on-site feedback to help get your business launched in the right direction.
If you are the franchisor, take a hands-on approach to franchising. Be available and invested in the individual business owner’s success. Their success is your success. Create formal processes and be prepared to guide business owners.
These are just a few potential reasons a franchise may fail, but more importantly, what you can do to avoid them. Stay tuned, in part two, we will discuss a few more reasons.