Franchise success is not something that is just automatic. Franchise opportunities provide brand recognition, management and administrative systems and a proven business model to small business owners. In theory, this should result in franchises having higher success rates than non-franchise business opportunities. But in practice, franchises can and do fail.
Franchises fail primarily because franchise owners do not adequately research franchise opportunities prior to purchase, and they do not match personal attributes and interests to activities associated with the presented business opportunity.
Franchises fail for the following reasons:
- Prospective franchise owner failing to do necessary research on the franchisor to vet the opportunity
- Franchise system is unstable or the offering is not in demand
- Prospective franchise owner not choosing the franchise type that matches his/her business strengths, lifestyle desires or correct system
- Prospective franchise owner not knowing in advance he/she should not even own a franchise or perhaps any business
To paraphrase Jim Collins, the author of the popular business book “Good To Great”, and his “yellow school bus” analogy, failure in franchising occurs if a franchisee:
- Gets on the wrong bus
- Sits down in the wrong franchise seat on the bus
- Gets on the bus and should instead have gotten on an airplane
An example of this theory is when a franchisee buys a restaurant franchise but does not like dealing with people and employees. This mismatch may be amplified if this same franchisee prefers working at home.
Before considering buying a franchise, a person should determine the following related to his or her franchise success:
- Annual income required in order to provide a secure and comfortable living
- What financial resources can safely be put forth
- How long he/she can go without meeting his/her annual income requirements
- If even financially qualified to consider any franchise purchase
- Tolerance for taking financial risks
- Thereafter, begin researching and seeking out franchises that match his/her financial capabilities and risk tolerance
- Check credit report and clean-it-up if necessary
- Request information about franchises online or at trade shows
- Eliminate franchises that do not reply to requests in a week. This may be an indication that the franchisor will not follow up well AFTER you are a franchisee needing assistance.
- Obtain copy of franchisor’s disclosure document known as an FDD
- Study the FDD closely, making note to ask questions about Item 19, the Earnings Claim
- Review FDD Item 20 which lists all franchisees in system
- Try to speak with newer franchisees in system and ask questions
- How long have you been in business?
- How are you doing?
- Is your volume of business growing?
- Are you pleased with earnings?
- Ask franchisee to share some of their costs
- Rent
- Inventory
- Labor
- Advertising
- Ask the franchisee if there is anything you have not asked them, that they wished they had asked a franchisee before they invested.
In the end, franchise success is dependent on the investor being self aware of his/her own strengths, interests, business and lifestyle needs/wants. These items, coupled with critical examination of the opportunities available for ownership, will help lead most to the right decision. After that, hard work and commitment can turn into the fun of enjoying the fruits of your labor as you build your franchise success story.
