The main reasons for franchise failure

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F. Georges Sayegh, A.S.D., C. Adm., Fellow CMC of Quebec and Ontario, is an expert- consultant in franchising and technology transfer. He is also the author of 18 books on franchising and related businesses. To reach him: gsayegh@gsayegh.com; Tel: (514) 216-8458.

When we talk about franchising, we often refer to the lucrative opportunities the industry offers potential entrepreneurs who want to go into business for themselves. In this article, the author takes a look at the combination of mistakes that can lead a potential franchisee to failure.

From the franchisee’s point of view

Franchisees often don’t take the time to examine their own profile before going into business. In particular, they should consider the following points:

  1. Are they willing to take a moderate risk in life to achieve their goals?
  2. Are they willing to devote time, energy, intellectual effort and a good part of their money to go into business for themselves?
  3. Do they have the willpower and energy to put in long hours to get what they want?
  4. Are they willing to put the needs of their business ahead of those of their family and friends?
  5. Are they the kind of person who can take full responsibility for their successes as well as their failures?
  6. Do they like to come up with new ideas and implement them, even if risking failure?
  7. Are their failures learning experiences for them?
  8. Do they feel comfortable when someone else controls the work environment?
  9. Are they at ease with strangers?
  10. Can they operate in an ill-defined and sometimes even chaotic environment?
  11. When the need arises, can they take on a job that may not interest them and see it through to the end?
  12. Are they willing to work hard to acquire new skills?
  13. Can they lead and inspire others?
  14. Do they need the approval of others and substantial emotional and mental support before embarking on a task or making a change in life?
  15. Can they accept harsh criticism, even on a personal level?
  16. Do they know how to calm an angry person down or satisfy a disgruntled customer?
  17. Can they follow the franchisor’s standards and procedures, formula, organization, and requirements?
  18. Can they cope with tedious, repetitive, monotonous, and boring bundles of paperwork and deal with a thousand thorny details while maintaining a reasonably positive attitude?
  19. Do they like to show or teach others how to do things positively?
  20. Do they enjoy multitasking which franchising requires?
  21. Do they have the determination to get what they want and see it through to the end without doubt or hesitation?
  22. Do they have the management ability to maintain high standards within the franchise?
  23. Do they have the ability to manage and retain staff?
  24. Do they have the capital required to go into business?

Due diligence

The franchisee may not succeed if he does not take the trouble to perform due diligence on the franchisor with respect to the following:

a) The business sector in which the franchise or franchisee is engaged;
b) The business structure and commercial organization of the franchise;
c) The existence of the franchise as a business or a franchise company;
d) The size of the franchise, both in terms of corporate units and number of franchises;
e) The franchisor’s reputation within the sector; and
f) The number of franchises in the franchisee’s territory, metropolitan area and province.

On the franchisor’s side

The franchisee may fail if the franchisor doesn’t have the template they project to potential franchisees:

a) They have not yet proven their concept and underestimate their competitors.

b) They are unrealistic about the whole business process, yet persist in committing to going into business.

c) The franchise concept is too difficult to develop in any meaningful way, thus limiting the growth available to implement the business.

d) They fail to fully develop systems and processes, depriving franchisees of a fully vetted roadmap to success.

e) They do not control all aspects of the brand that has been created, leading to inconsistencies and confusion.

f) The culture created by the franchisor prioritizes the “system” over exceptional service.

g) They sell unqualified, inexperienced, undercapitalized or naive franchisees a dream that is not achievable.

h) They rush to sell the franchisee a dream despite identifying weaknesses in the franchisee’s business behavior.

i) They are a poor manager and cannot maintain high standards within the franchise.

j) They have no human, material, or financial capacity to drive the network forward.

k) They are not financially prepared. They are blinded by the desire to “get rich quick” and don’t realize that creating a business requires more than wishful thinking.

l) They are unrealistic about the whole process and yet persist in going into business.

m) Training and assistance are inadequate and are generally limited to operational issues without taking into account the evolution of products and services offered on the market.

n) They are not involved in the planning process, and do not continuously analyze and monitor the business plans submitted by the franchisee to ensure that the franchisee is operating in accordance with the business plan.

In conclusion, this is not an exhaustive list of reasons why all franchisees fail. Nor are these reasons independent of one another, and sometimes two or more of them are responsible for the premature closure of a franchisee’s business.

Whether on the part of the franchisee or the franchisor, the elements described above inform us that it is necessary to act responsibly in order to achieve the desired result. Both sides (franchisor/franchisee) must manage their business responsibly and profitably. They must not let themselves be overwhelmed by the many reasons why the franchisee fails.

If the latter is planning to go into business for himself, he needs to surround himself with professionals who know all there is to know about franchising to avoid failure for whatever reason. The entrepreneur must not turn a deaf ear to the warnings of professionals. In this way, they can guard against some of the most common pitfalls.