The Top 10 Alarming Reasons Why Franchises Fail

By November 5, 2020 November 18th, 2020 Small Business Planning

Franchising can be a lucrative business opportunity for those looking to establish an exciting new career for themselves. However, if you’re looking to franchise your business or become a franchisee, it’s essential to go into the process thoroughly equipped with knowledge of the reasons why franchises fail.

a broken egg on the ground is a metaphor for a franchise failure

Often it’s a combination of missteps on the part of both the franchisor and the franchisee that lead to a franchise’s demise. By learning about the reasons why franchises fail, you can guard yourself against some of the most common pitfalls. 

Why do Some Franchises Fail?

The reasons why franchises fail can vary from business to business, but there are some red flags that almost universally can doom a franchise from the start. Here are a few of the most common reasons why franchises fail:

  1. The franchisor sells to unqualified, inexperienced, undercapitalized, or naive franchisees. Franchisees are unrealistic about the workload that goes into operating a franchise. 
  2. The franchisor fails to control all aspects of the brand that they have created, leading to inconsistency and confusion.
  3. The franchisor fails to fully develop their systems and processes, leaving franchisees without a fully vetted road map to success. Franchisors sometimes rush to sell to franchisees in order to bring in early capital.
  4. The franchisor has not yet proven their concept, and they underestimate their competitors. Said another way, the franchise isn’t filling a unique enough need in the community while the competition already has a handle on the market.
  5. The franchisee is a poor manager and cannot maintain high standards at the franchise. 
  6. The franchise concept is too difficult to scale significantly, thus restricting growth funding for building infrastructure.
  7. The culture the franchisor has created prioritizes the “system” over exceptional service delight.
  8. The franchisee is financially unprepared. They are blinded by the desire to “get rich quick” and don’t realize that businesses, even with established brand names, take significant capital to build. 
  9. The franchisor was too slow to build out and fund the centralized support system with key people to support a distributed business with multiple locations. 
  10. The franchisor sold to franchisees too early or too late, missing the sweet spot.

What Makes a Franchise Successful?

Just like the reasons why franchises fail, the markers of success vary slightly depending on the franchise. However, there are a few common factors across most successful franchises. Here are the points you need to hit in order for your franchise to thrive:

  • Franchisors and franchisees are realistic about the entire process going in. Franchisees are aware of the time and financial commitment it will take to manage a franchise and are prepared to take on the job.
  • There is a demonstrated need for the franchise in the marketplace. You aren’t moving into an area with a lot of heavy competition and offering a business that isn’t really needed.
  • Customer service is phenomenal. The franchise quickly wins over and retains loyal customers. 
  • Franchisees have enough capital to build the business. This includes a marketing budget and plan and a substantial safety net for the first two years.. 
  • Franchisors and franchisees alike are good leaders with strong management skills. They communicate clearly, responsibly, and run a tight ship.  

Don’t become overwhelmed by the reasons why franchises fail. If you are considering becoming a franchisee or are planning to franchise your business, hiring an experienced business coach is a great idea. Fill out my contact form for a complimentary coaching session to ensure your success and prevent you from becoming one of those unsuccessful franchises

Coach Dave

 

Dave Schoenbeck
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