“Failure” is a word that most entrepreneurs would rather not understand. But to achieve the goals that we set for ourselves, it is necessary to be deeply familiar with its meaning. And that’s how it goes for franchising, an industry that – yes, it’s true – does experience failure.
As much as we plan for the best, we also need to prepare for the worst. Franchising offers huge benefits to new franchisees in the form of experience and support, making for a great business opportunity for many people. But despite these advantages and the best of intentions, there are times when a new franchise opening will falter and end in catastrophe.
Don’t let these mistakes happen to you. Recognize the warning signs to avoid experiencing failure on a personal level. Here’s a compilation of the many ways a franchising opportunity can fail.
And because franchise failure can be caused by both franchisor and franchisee, we’ll first list three reasons where franchisees go wrong:
1. The franchisee has insufficient capital, and an unrealistic business plan
Let’s be clear: A new franchise location requires a good amount of money and planning. The numbers will vary, but one thing you can count on is for your costs to rise and your plans to go off-course – even before you open.
Franchises are business opportunities where money is a top priority for franchisees:
- Make sure you have enough capital to last you beyond your opening date
- Plan for emergencies by stockpiling a fund for contingencies
- Expect costs to go beyond their original estimate
Additionally, franchisees need to thorough with their planning:
- Create a robust business plan
- Be realistic, not idealistic; prioritize your day-to-day operations
- Those that don’t plan for failure are likely to experience it themselves
Don’t forget: new franchises aren’t likely to begin turning a respectable profit until long after opening day, signifying that you’ll need to be resilient during your first year. Be sure you have the proper amount of capital and planning, and you’ll be able to steer clear of disaster.
2. The franchisee can’t adapt to the franchise’s branding
Entrepreneurs are creative by nature. They routinely come up with new ways to solve problems and achieve objectives. However, when it comes to branding, franchisees are not expected to demonstrate their creativity, and any continued attempts to do so will increase your failure rate.
A franchise gets its strength from its branding; a customer builds up an expectation off the brand, and each franchise location aims to fulfill this expectation. As strong as this system is, it only works if everyone adheres to its standards and works together to form a cohesive brand. By going off-brand, a franchisee is subverting customer expectations and only harming the franchise to which they belong.
There’s a big difference between a franchise business and an independent business. For franchisees, this means completely adapting to franchise branding. Don’t buy a franchise with the intention of doing things your own way. Instead, think of the customers and how you can give them the products and services they have come to expect.
3. The franchisee is not committed
Franchises are businesses imbued with the values of its founder or founders. As a new franchisee, you’ve become a part of a larger vision. And to continue this vision, it’s important that you follow this vision in order to achieve success.
As a new franchisee, you need to be committed. You need to follow the same core principles that have guided previous franchisees before you. And to uphold this commitment, a new franchisee needs to demonstrate passion and true intent.
Further to this point is the leadership role that a franchisee takes on by joining a franchise. As the local brand authority, it is up to you to ensure all franchise standards are being properly implemented. Everyone from your employees to your customers will view you as the de facto embodiment of the franchise brand, and you need to live up to it.
Truthfully speaking, it is difficult. That’s why franchisees need to be skilled and resourceful people with a passion for customer service. They are unique individuals with valuable characteristics, and are in high demand by franchisors. If you think you’ve got what it takes to become a franchisee, franchisors want to know who you are.
But don’t worry; it’s never too late. If you’re a franchisee who has decided that the franchise industry is not for you, you can always sell your franchise.
With franchisee topics covered, here are three situations in which franchise failure is due to the franchisor’s fault:
4. The franchisor offers little training & support
Among the biggest advantages gained by joining a franchise is training and support. As a franchise expands with each opening, the franchisor should ideally be creating a support system to help each location grow. If you’ve joined a franchise but aren’t receiving this support, this is a clear sign that something is wrong.
When searching for prospective franchises to join, make a point of asking about their training and support. Get specific answers on what you should expect as one of their new franchisees.
5. The franchisor is new and untested
Trends play a big part in the business world where strong hype and word of mouth drive customer awareness and demand. But, for what it’s worth, trends are not as influential in a franchising industry where long track records impress the most.
For this reason, aspiring franchisees should be wary of new business opportunities branded as this year’s “hot new franchise.” Sure, this business may find lasting success in the future, but the fact remains that new and untested franchisors present a big risk for franchisees. No matter their business model, a new franchise is the opposite of a strong brand that has been around for years and has handily earned consumer trust.
To mitigate your chances at failure, stick with established franchises that have a proven record of successful expansions.
6. The franchisor dissolves
Joining a franchise is a commitment that requires you to do your homework. Every prospective franchisee needs to inform themselves on the pro’s and con’s of what could be the biggest decision of their lives. And, in addition to knowing the right questions to ask about franchise agreements and franchise locations, you also need to do your research on the franchise itself. Is it a viable franchise model?
Be sure that you’re joining a franchise system that is on the right track. Look into their financial disclosures and see what type of history they have. Read up on customer reviews to see how they’re perceived by the public. You need to find out if this franchise is in any danger of dissolving because if they do, your business success is inextricably tied to theirs.
Conclusion
Be vigilant and watch for the warning signs. Franchise failure is an uncommon but altogether possible outcome when joining a franchise. Get informed and make the right decision to join a strong franchise to achieve the success you deserve.
Are you looking for a franchise opportunity? St. Louis Bar & Grill is looking to expand, and we’re looking for exceptional individuals to help us. Find out more on our website.