EXPERT ADVICE: Jason Gehrke | Director | The Franchise Advisory Center
10 reasons why franchisees fail After more than 30 years in franchising, I’ve seen both franchisees and franchisors achieve spectacular success, and others lose it all. There is no such thing as a sure bet in business, but franchising helps reduce the risks of small business by providing a supported environment utilising both the resources of the franchisor, and the community of franchisees operating under the same brand. Franchisees do not invest in businesses to lose money, but by the same token they don’t always do enough to mitigate their risks either. If their business fails, the franchisor is the obvious target for the franchisee to blame, and on occasion, this is justified. However, franchisees are often the architects of their own misfortune for a variety of reasons that they can’t or won’t acknowledge in time to save the business. So between franchisor-related reasons and 50 Franchising MAGAZINE USA
franchisee-related reasons, here’s my top 10 list of causes of franchisee failure (and which can occur in any order, depending on the business): Franchisor causes:
1
Bad business model
The franchisor’s business model might be the first thing that franchisees would like to blame for their failure, but this is not always the case. Underdeveloped business models are likely to be found in new, startup networks, and this should be factored into a potential franchisee’s assessment of the risks of joining. While the business model risk may be greatest for a new franchisor, it can also re-emerge as a potential cause of failure in mature networks unable to match the pace of change set by nimble competitors, or which have otherwise failed to evolve with their market.
2
Inadequate training & support
Failure caused by poor training or
A business plan should be a “ road map that shows the way to achieve profits by certain milestones.
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subsequent levels of support is also likely to occur in newer, start-up systems compared to mature brands. Training and support is typically limited to operational matters in new brands, with little or no general business training provided. Franchisees can better protect themselves from training and support problems by better understanding in advance the nature, content, frequency and assessment of training and support provided by the franchisor, and if it doesn’t seem adequate, to either ask for more or look for another system altogether.
3Insolvency
When franchisors go broke, often their franchisees will be unable to survive because functions such as marketing, supply chain logistics, IT and other
