- Why Do Franchisees Fail?
- Oct 2021
WHY DO FRANCHISEES FAIL?
Not all franchisees succeed even if they start on the right foot. And there are some specific reasons why this happens
In the franchising world, we have seen both franchisees and franchisors achieve spectacular success, and then there are some who lose it all. There is no such thing as a sure bet in any business, but franchising helps reduce the risks by providing a good brand, training and strong systems. Below are certain reasons due to which franchise businesses fail and which any entrepreneur should avoid.
The biggest conflict between franchisor and franchisee is mismatch between expectations New franchisees have very high expectations for their businesses which sometimes are not realistic. So, it is better to have a clear communication whether the terms and conditions laid down by the franchisor are acceptable to you or not.
Not Maintaining SOPs
Standard Operating Procedures (SOPs) is the keyword in a franchise business. Not maintaining SOPS could lead the business to fail. If McDonald’s franchisees do not follow the SOPs, they would not have achieved success.
Lack of Capital
This not only means enough to get the business started but also sufficient to cover losses while the business is growing. Make sure you have got more than you think you will need and you will have a much safer journey.
Location is one of the most important keys to a successful franchise. Even with a leading brand, if you are inconveniently located or in an isolated area the opportunity to be as lucrative as possible diminishes.
For any business to succeed you need to attract a solid base of customers who will buy the products or services. If the marketing program isn’t successful in doing so, then you are going to have problems.
A number of market environment factors such as dissatisfied customers, high cost of raw materials, as well as suppliers, increase in bank interest rates, and recession in the industry are some of the factors that contribute to business failure.
Failure to Follow the System
Many times, franchisees buck the system and try to do things on their own. Though franchisees can also have excellent ideas to improve a whole system, yet if some of their ideas are completely off-track with the brand values then the franchisee may as well have bought an independent small business instead.
Failure to Evolve
In the fast-changing world, if the franchisee is too complacent with his business to adapt to change, he will ultimately become irrelevant.
No System in Place
The system-based franchise business doesn’t just rely on talented people; it’s also got clear, organised systems and rules that the staff have to follow. Creating a systems-based business can be a bit of a hassle initially but later it will be smooth and definitely more profitable.
Many franchise owners experience tightening profit margins due to external or internal problems. External problems often include a faltering economy, a natural disaster that may increase the cost of raw materials, and a shortage of raw materials while internal problems arise when a company mismanages its costs or employees.
When it comes to franchising the last thing you ever want to be faced with is the claim by a franchisee that you “over-promised and under-delivered.” So, it’s a franchisor’s responsibility to be realistic while making commitments to franchise partners.
When Agency Problems Arise
Most brands are in a hurry to spread their reach by taking franchisees on board. The aim here is to maximise profits…
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