Why Franchisees Fail

Can I speak with a franchisee?

Becoming a franchisee is a life changing decision. For most, the purchase of a franchise means transitioning out of a career, operating your own business for the first time, and investing ones hard earned savings. The good news, in virtually all scenarios, people prior to you have already made the same life changing decision.

In my opinion, the most important due-diligence step a prospective franchise owner can take is to speak with a current (and if possible a former) franchisee of the brand.

These 8 questions will help maximize your conversation with franchise owners:

1. What was your background before you became a franchise owner?

  • Importance of this question: Do I have the experience & skill set necessary to be successful?

2. Can you explain a typical day in your role of being a franchise owner? What is the most challenging part?

  •  Importance of this question: Could I do this work day in & day out?

3. (If local) Would I be able to shadow the operations of the business for a day?

  • Importance of this question: Test drive the franchise before you own it.

4. Would you be willing to discuss your financials; including project cost, revenue, EBITDA, & how long it took to break even?

  • Importance of this question: Does this ROI align with my expectations and goals?

5. What happened after you signed the Franchise Agreement?

  • Importance of this question: Does the franchisor have streamlined on-boarding processes which sets franchisees up for success?

6. What didn’t you learn in training from the franchisor that you had to learn yourself? Did you feel prepared day one to open the business?

  • Importance of the question: Will I be prepared to operate this business successfully?

7. What is one thing you know now you wish you would of known before you purchased this franchise?

  • Importance of the question: What am I missing?

8. If you had to do it all over, would you purchase this franchise again?

  • Importance of the question: Overall happiness of the franchisor/franchisee relationship. Use their experience for better or for worse to your decision making benefit.

These eight questions can be used as a cheat sheet to maximize your time speaking with current franchisees of the brands you are interested in. The desired outcome of these crucial franchise discovery calls is to receive unbiased perspectives of what it is like to become a franchisee of the brand. After a few calls, trends will start to form which will substantially influence your decision making. Carefully take into consideration all findings before you make your very own life changing decision and become a franchise owner.

Here are some other great articles which helped me formulate my opinions and should be viewed as you consider franchise opportunities:

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Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/

Culture of Execution: The Winning Franchise Formula

When it comes to creating the winning franchise formula most small business owners think they know the ingredients. If they didn’t, they most certainly wouldn’t venture out on their own. However, according to the Bureau of Labor Statistics’ Business Employment Dynamics, about 80% of businesses will survive their first year in business. About 66% will survive their second year. Only about 50% will survive their fifth year. And, about 30% will make it to their tenth anniversary. As you can see, if everyone had the winning formula more than 30% of businesses would still be around 10 years later.

 The Franchise Concept

Because of numbers like these, more and more entrepreneurs are turning to franchising. Franchising offers a template for success. The things that business owners didn’t think about when they were formulating their plan, such as: floor plan layout and its impact on operations, documentation of all systems and processes for consistent training and operations, and the impact of a well thought marketing plan on business and brand development are a handful of the things that make a franchise relationship so valuable. A strong franchise brand will have already tested and refined all aspects of the business model, saving the entrepreneur the headaches of doing it themselves. Not to forget saving the entrepreneur from making many potentially costly mistakes.

 The Issue

Ideally, all the entrepreneur must do after engaging in a franchise relationship is effectively implement the standards.  However, that is many times easier said than done. Success in franchising only goes as far as the franchisee’s willingness to adhere to the established systems and standards. There is a reason why some franchise owners in similar markets with similar demographics succeed and others fail. If we did an autopsy of failed franchise businesses I am quite confident that we’d find that the cause of death was rooted in executing the formula.

 The Failed Business Autopsy Report

  • Time: Typically, at the start of the relationship every new franchisee is all in with the franchisor’s systems and procedures. They begin their new endeavor with enthusiasm and great optimism. They implement their training like they were taught. However, as time passes many begin to loosely apply their learning and become relaxed with implementation of the brand standards. Then, shortcuts creep in, knowing a better way rears its ugly head and before you know it, the proven methods begin to be replaced by “a better way”. Unfortunately for many, the better way isn’t better at all. What lured them to franchising in the first place is replaced by loosely structured systems and poor execution. Inevitably, this leads to lost sales, never reaching full potential and lost earnings.
  • Consistency and Accountability: For any business to be successful everyone must be held accountable for results, including the franchisee. Failing to consistently hold everyone accountable to the standards of operation is the first step toward failure. When a franchisee starts to relax on the marketing routine, operational standards and financial fundamentals, the system begins to take on a new standard. That standard usually involves less than great service, average product, below average cost containment, and a less than stellar brand image. The typical result is a decline in sales, which directly effects revenue.
  • Execution: Business is about getting things done and doing them the way they were meant to be done. Failing to get things done leads to stagnation and stagnation leads to status quo. Status quo leads to becoming average at best. No one in today’s world, which is full of many great alternatives, is going to pay for average. Once you become average you become a memory. When there are many options to choose from you must stay top of mind. Those that are top of mind are the highest performers. The highest performers execute.

Commit to the System

Most entrepreneurs invest in a franchise because the franchise has a record of success, a strong brand, a refined training program, ongoing operational support, marketing assistance, real estate site selection assistance, purchasing power, and established systems in place that help lower risk. Therefore, it would appear to be in the best interest of the franchisee to implement the tried and true systems of the franchisor.

If you are considering a franchise as your business template, do yourself a favor and implement their systems, procedures and brand standards consistently and correctly. The franchisor made it to where they are because they’ve successfully done it over and over again. Therefore, their way is the proven way. You’re paying for their knowledge, expertise, and experience. Do yourself a favor and run the business the way they say it should be run. Develop a culture of execution and insist on consistently doing things the way they are supposed to be done. Do this and the odds of your business becoming one of the 30% that make it to the 10 year mark goes up significanlty. Then, you’ll be positioned to renew that franchise agreement so you can do it all over again.

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Randy Stepp is a business and franchise development professional who’s purpose is to help business owners realize their dreams of independence and freedom.

Follow or Connect with Randy on Linked In at https://www.linkedin.com/in/randystepp