Franchising is a very successful business model. More than 80 percent of franchise owners are satisfied and are able to reach their personal and business goals through franchising. However, not everyone who opens a franchise store achieves success.
So, the question is, why do some franchisees fail? Although there are many different reasons franchisees may be unable to unsuccessful, here are the top ones:
- Lack of Passion for Business Ownership
You cannot be successful in a franchise business (or any business at all) if you don’t have a deep passion for it. At times, franchise owners are not 100 % committed to owning and operating a business. Having a terrible day at work or being sick of a grumpy boss is not a solid reason to consider franchising. Opening a business is a big decision that can affect your financial, professional, and personal life. So, it is a serious matter that requires careful consideration. As mentioned earlier, franchising should not be seen as a way to run away from a bad career or eliminate a stressful work commute.
- Little Effort or Commitment
Operating a business is a big commitment. No matter whether you are researching franchising full-time or in your leisure time, you will have to devote the hours needed to find the right match and run the business successfully or bring in a competent manager. It’s important to do your research to know what the franchisor expects of you and the effort needed to reach your goals. If you cannot put in the effort and time required to succeed, stay away from franchising (or the franchise brand you are pursuing).
- Lack of Skills
If you find your present role challenging due to the lack of basic skills like sales, operations, management, time management, and communications, you will still face the same problem when you become a business owner. In our experience, we have found that the greatest skill deficits are usually sales and management. Many franchisees struggle with this. If you are unable to sell your goods or manage the people important to your franchise business, it’ll be impossible for you to get optimal results. So, find out the required skills during the discovery phase and be sincere with yourself. You will be making a huge mistake by joining a franchise brand without having the necessary skills to succeed there.
- Lack of Enough Capital
You need money to run a business…sometimes, a lot of it. The initial capital investment is the first hurdle to owning a business, but that is not all that’s involved. You also need working capital (money to keep the business in operation) until you become profitable.
Undercapitalization usually leads to poor performance. When trying to operate a startup with low capital, you will probably deprive the business of its essentials. For example, the business will not do well if you cannot invest enough money in sales and marketing. To know how much money you need, check the franchise disclosure document (FDD) and ask existing franchisees this question during validation. You should also find out from the franchise owners whether there were any unexpected costs or cash flow problems. A lot of businesses fail due to poor financial planning, which results in poor execution.
- Not Following the Business Model
Some franchise owners believe they are wiser and more creative than their franchisors, so they try to change things. To put it in another way, they refuse to follow the proven business, systems, and procedures of the franchisor. Stay away from franchising if you won’t be able to follow a system completely. One of the primary reasons why franchisees don’t succeed is failure to use the franchisor’s proven system.
- Selecting the Wrong Franchise
When many prospective franchisees like a franchise idea, they want to go for it no matter what. In most cases, they fall in love with brands they believe are cool and sexy. Surely, it is one thing to think that a franchise brand is cool; it is quite another to operate it. Try to align your skills, strengths, interests, and “why: to a brand you are considering. Find out what’s expected of you as a franchise owner. If you don’t like or are not eager to perform important tasks, then the franchise may not be suitable for you!
- Bad Franchise Model
Franchisees are not always responsible for their failure. These owners partner with brands expecting to get a strong business model, training, support, etc. However, it is important to note that franchisors are not the same. This is where you need to put your research skills to use. Read the FFD and consider the franchisee turnover rate. If the number of unsuccessful franchisees is high, this could be a big warning sign, but you need to give the franchisor the chance to explain the reasons. It’s also important to learn about the franchisor’s training, support, and system. Give special attention to marketing and how to be efficient at it. Those are some of the primary reasons franchisees experience difficulties or are unable to succeed.
Lastly, one common reason for franchisee failure is that they don’t seek the services of a certified and competent franchise consultant who can help prevent these mistakes. A franchise consultant can provide valuable insights, clarify what you don’t know, and help identify blind spots in your franchise.
