Even though franchises have a lower failure rate than startups, they don’t all meet with success
An extremely high percentage of franchisees – well over 80% – are happy and accomplish their goals through franchising. But not all meet with success. At the core of my role as a franchise consultant is to do no harm and help people understand if franchising or a particular franchise is a good fit.
So why do franchisees fail? While there are myriad and unique reasons franchisees struggle, from my experience, these are the main reasons:
They do not want to own a business
To succeed in anything, you need to have a deep desire, and sometimes franchisees are not fully committed to being their own bosses and running a business. Being tired of a boss or having a bad day at work are not reasons to explore franchising. The decision to launch a business can have a profound impact on your personal, professional, and financial life, and as such, should not be taken lightly. Again, franchising is not a way to alleviate or escape a bad career or a long commute.
Low commitment or effort
Owning a business is a big commitment. Whether you are investigating franchising on a full-time or semi-absentee basis, you must commit the hours necessary to succeed and/or hire a strong manager. Conduct thorough due diligence to understand clearly what is expected of you and the effort needed to achieve your goals. If you cannot commit the time and effort required then franchising, or at least the brand you are exploring is not right for you.
Skill deficits
If you struggle in your current role because you lack some basic skills such as communications, management, operations, sales, and time management then those deficits will follow you into business ownership. From experience, the greatest skill deficits are typically in management and sales. This is a big challenge for some franchisees. If you cannot sell or manage and those are core to the franchise, then the results will be less than optimal. During discovery, get clear on what the necessary key skills are, and be honest with yourself. If you don’t have them, joining that brand will be a mistake.
Undercapitalization
Running a business requires money. Yes, the first hurdle is the initial capital investment but that is just the beginning. Working capital (money to keep the business running) is crucial until the franchise turns cash flow positive. Lack of working capital often results in poor performance because when you try to run a business on a shoestring you shortchange the business. For example, if you cannot put money into sales and marketing the business will lag. Review the FDD and during validation ask franchisees how much money is needed and if there were any unforeseen expenses or cash flow issues. Poor financial planning leads to poor execution that dooms many businesses.
Failure to follow the model
Sometimes franchisees think they are smarter and more creative than the franchisor and try to reinvent the brand. In other words, even though they invested in a proven business model, systems, and processes they do not follow them. If you cannot follow a system do not join a franchise! Failure to follow the franchisor’s proven system is one of the main reasons why franchisees fail.
Choose the wrong franchise
People often fall in love with a concept and want it at all costs. Generally, they fall for brands that are sexy and cool. Yet, there is a significant difference between thinking a brand is cool and running the business. Focus on aligning your “why,” interests, strengths, and skills to a brand. Learn everything you can about what is expected of you as a franchisee. If you are not comfortable and excited to do the necessary tasks, it is probably not the right fit.
Bad franchise model
Not all franchisee failures are their own mistake. Franchisees join brands with expectations of a strong business model, support, and so on. But not all franchisors are created equally. This is where your ability to conduct thorough due diligence comes into play. Review the FDD and pay attention to franchisee turnover. A high percentage of failures is a red flag but give the franchisor the opportunity to explain. Also, learn about the systems, training, and support. Pay particular attention to marketing and how you can create efficiencies. Those are some of the major reasons franchisees struggle or fail. There is a final one. They fail to hire a qualified and experienced franchise consultant who can help them avoid these pitfalls. A franchise consultant will share deep franchise insights, provide clarity, and help you uncover blind spots!