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The Reasons Why Franchisors Fail

This week, the Proven Match blog is going to take a closer look at why franchisors fail. Specifically, we’ll look at why many concepts never actually make it to self-sustainability through royalty fees and other payments. Many of the folks who work in the franchise sales industry have their own opinions on which individual factors lead to a dead-end franchise business, but we’ve culled a consensus of the most common missteps for your review:

Undercapitalized!

Many franchise concepts fail because of poor planning and execution. It’s easy to get caught up in the excitement of a new business venture which, on the surface, already seems like a proven winner. But when the national franchise rollout occurred, the concept was unable to get enough franchisees to buy into the proposition. This is often caused by underfunding the effort to franchise in the first place. From a capitalization standpoint, most concepts will need $500,000 to $2 million on hand to offer a realistic chance for long-term success.

Centralization vs. Decentralization

A chain of successful businesses relies on a centralized form of governance. But franchisors and franchisees rely on a decentralized business model. Many businesses looking to franchise their efforts underestimate how their model will perform in the hands of independent franchisees. It’s a question that deserves careful thought and strategy.

Staffing Woes

You’ve heard it before and you’ll hear it again. Hire the best people, then sit back and allow them to do their jobs well. Even the pros can get this wrong from time to time and franchisors are not immune in putting unqualified people at the top. The leadership team of a national franchise brand needs to be solid because it includes many working parts. A brand looking to get into the franchising game should recruit from the industry itself—and find leadership candidates with a proven track record of success.

Sold! Taking What You Can Get

If you’re a franchisor new to the scene and your goal is to sign up as many franchisees as humanly possible in the least amount of time, you’re doing it wrong. When recruiting franchisees, it’s always going to be quality over quantity. A franchise brand willing to sell to anyone with the required investment may be setting themselves up for major headaches down the road. These complications will end up stealing away time and resources for running a smooth franchising operation. Candidates need to be vetted for their ability to work within the system and produce long-term results. Like the old saying goes, “If you don’t have time to do it right the first time, how will you have time to do it over?”

Rush to Market

The hottest brand in the land just got hotter! XYZ stores is now the preeminent franchise opportunity across the country!

Is it?

Or is it more likely that your successful business is about to be another franchise failure? Many concepts never get up to speed because they’ve been rushed into the franchise marketplace. It takes a proper amount of time to put all of the fine details in place to franchise a business concept. Throwing together materials, operations, marketing, systems and support without long-range thought has sunk many an entrepreneurial opportunity. Keep this in mind—if it’s worth doing, then it’s worth doing right. 

Franchising is designed to open the market to a world of possibilities for a business brand. But it’s clearly not for every brand out there—even the successful ones. Offering your goods and services to the public through franchising takes careful planning, consultation and a long-term strategy. It’s even been suggested that a franchise concept needs 7-10 years to become a success. If you’re currently mulling a run at franchising your brand, ask yourself if you can be that patient.

As a franchisor, you’ll want to know which existing and potential franchisees best fit your business concept. Proven Match is the proven solution in determining those factors. Through our proven behavioral assessment techniques, predictive analysis becomes predictive success for your franchise concept. If you’re ready to show your leadership by getting started, give us a call and we’ll put you on the path to a more productive year in 2016. 

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