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5 Reasons Why Established Franchises Fail

franchise failure

Stop listening will fail your franchise

Despite our lackluster economic situation, we should never blame the recession for our franchise failure.

In franchising, we have witnessed some established franchises made it, while some others don’t – both franchisees and franchisors share their own mistakes; in franchising, “it takes two to tango” couldn’t be more relevant.

Here are some reasons why established franchises fail, looking from both sides – franchisors and franchisees:

1. Franchisors compromise too much, franchisees demand too much

In order to win franchisees’ business, some franchisors are compromising on what’s important, such as product sourcing, pricing policies, staffing policies, etc. Franchisors must not compromise on such important things!

In the other hand, franchisees demand things, often ridiculous ones, to franchisors – if your store’s window is broken, should you call the Support Team? Most likely, what you’ve asked for is silly.

2. Franchisors don’t listen to their franchisees, and vice versa

Listening skills is important in any aspect of our life, including in franchising. Franchisors who don’t listen to their franchisees miss huge opportunities to gain insights from smart business people – they are smart enough to buy a franchise from you, right? Why can’t you trust them?

As of the franchisees – you need to listen to your franchisors – no matter whether you agree with them or not; your franchisor is more experienced than you (therefore you buy the franchise!) – why can’t you trust your franchisor?

3. Franchisors are busy taking care of bad franchisees, bad performing franchisees are becoming “traitors”

Franchisors who are too busy taking care of “bad” franchisees (those that don’t follow rules, those that complaint a lot, etc.) are lacking of resources to manage the cooperative franchisees – those who deserve more attention from you.

In the other hand, franchisees who perform badly are “tempted” to become “traitors” – those that oppose the franchisors, complaints a lot and spread negative word of mouth to others (and seem don’t care if doing so can damage their own franchise units.)

4. Franchisors don’t have strong Management Team, franchisees ask the franchise support team too much

Franchisors cut costs – every business people should cut costs; but cutting cost by hiring so-so staffs can have disastrous effects.

Franchisees share their own mistakes – receiving top notch support won’t satisfy some franchisees; they ask more and more from the franchise support team. Again, asking the support team to fix your broken window is too much.

5. Franchisors make things too complicated, franchisee can’t seem to be able to follow simple rules

Franchises should streamline the franchise operations. Too complicated procedures are turn-offs.

In the other hand, some franchisees are simply lack of intangibility – they can’t simply be guided to follow even simple rules.

I hope those help you to identify what’s important in maintaining the survivability of your franchise.

Ivan Widjaya
On failing franchises
Image by StillSearc

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5 Responses to “5 Reasons Why Established Franchises Fail”

  • Certainly a good list of five key components of franchise failure. Allow me to list additional ones…

    Poor franchise training program – A sustainable franchise system must have an effective, comprehensive training program complete with well-defined and documented process and procedures. Such processes and procedures should be tried and true, and relatively simple to replicate at the unit level. In addition, it is imperative to franchise succees to offer continued training as well as initial training. I agree as the author has indicated, that many franchisors make things too complicated. So, the key is simplicity, but not at the expense of diminishing best practices.

    Inadequate franchise marketing programs – Strong franchise marketing programs are essential to franchise success at both the franchisor and franchisee levels, and should be integrated to ensure brand awareness. Poor brand awareness is a key component in many franchise system failures. The failures are the result of poor unit level sales, minimal interest in the franchise opportunity, and of course, poor communications throughout the system. The latter occurs as the system begins to crumble. In the years since I’ve been responsible from directing two major franchise systems, I’ve been repeatedly asked what I would do differently today? My answer is always, “drive leads to the franchisees!” as everything revolves around franchisee success… increased royalty stream, franchisee profitability, system validation, brand expansion, etc…

    Of course, there are many other factors leading to franchisor failure that could be debated until the cows come home. But, this is a great start, and it’s important to get this out in the open and discuss so as to minimize failure at any level. For that, I applaud the author for choosing this topic, and encourage many more responses.

  • Franchise Attorney, Charles Internicola, recently posted a great article relating to franchise growth, and ultimately fraanchise success, that I believe complements the post above very well. His post may be viewed at the New York Franchise Law blog at http://tinyurl.com/2b435vu

  • […] His thoughts behind each may be reviewed HERE. […]

  • The leading cause of financial death is too high a royalty rate and too low market protection – the trademark is rented out too high.

    I have seen a number of systems try to command a 7-8% royalty and haven’t even got a trademark!

    The problem with most young franchise systems is that the trademark is worth very little in terms customer goodwill – and you are not competitive having to pay 7-8 points on gross.

  • Michael,

    Agree, agree and agree. Royalties – or any other form of expenses recurring on regular basis – put much burden to franchisee, especially in today’s economy. Not complaining, but that’s how franchising works – some do implement different, better royalty systems, but most take royalties from sales – no matter how profitable or non-profitable a franchise unit is.

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