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Why Franchises Fail

Written by: Sebastien Page

Article Overview: According to the U.S. Department of Consumer Affairs, about five percent of franchisees fail. Any number of factors could be responsible for this failure; however, such failure can nearly always be prevented by doing your due diligence at the outset.

Why Franchises Fail

According to the U.S. Department of Consumer Affairs, about five percent of franchisees fail. Any number of factors could be responsible for this failure; however, such failure can nearly always be prevented by doing your due diligence at the outset. Such factors that might contribute to failure include:

1) Poor Location: Seasoned franchisees will tell you that one of the most important keys to a successful franchise is location. Regardless of how well-branded your name is, if you're inconveniently located in an isolated area or otherwise off the beaten path, your chances of sporting a lucrative business diminish.

2) Poor Reception of Your Idea: A community's reception of the concept behind your franchise could make or break your success. For example, when it comes to fast food, hamburgers appear to have more or less universal appeal, whereas some ethnic food may not. Keep in mind that, if your business model is complicated, you are most likely in for difficult times – your goal should be to create an operational standard that can be easily replicated.

3) Nasty Competition: The fact that there are currently over 160,000 franchises in the United States means that there's a whole lot of competition for prospective franchisees. Take a look at your market: Is it already saturated with the concept you're interested in? If so, you might want to consider something that is popular but not yet tapped out. For example: “healthy” franchises are becoming increasingly popular and offer a good opportunity for someone looking to get involved in franchising.

4) Weak marketing/advertising: It's a good idea to be part of a franchise network where the franchisor has an advertising/marketing fund to which all the franchisees contribute monetarily. Some of the larger, more established chains have national advertising campaigns, whereas the smaller ones tend to advertise on a local level. Depending on what kind/size of business you choose, you may have to do most of the legwork – i.e., solicit your own clients. If your concept requires sales skills that you don't have, reconsider choosing that concept – it may not be the right one for you!

5) Unrealistic Expectations: It isn't unusual for a new franchisee to have exceedingly high expectations for his business. Remember: it might take up to three years before you see any profit – if you expect to make a profit sooner, you may very well be sorely disappointed.

6) You're Not a People Person: In order to make it in franchising, you have to put in long hours with a variety of personalities. True, some people are more difficult to interact with than others – but, as a business owner, you need to be able to interact well with all different kinds of people. Remember that the ability to manage employees is essential to the success of your business.

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Article Tags: advertising campaigns, advertising marketing, beaten path, business model, department of consumer affairs, difficult times, due diligence, ethnic food, food hamburgers, franchise network, franchisor, lucrative business, national advertising, outset, poor location, poor reception, prospective franchisees, u s department, universal appeal, whole lot



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