Franchise Failure – Why Does it Occur?

Ivan Widjaya, author of the Franchise Note blog, recently posted about franchise failure. In the post, Ivan listed these five reasons why established franchises fail:

1. Franchisors compromise too much, franchisees demand too much.
2. Franchisors don’t listen to their franchisees, and vice versa.
3. Franchisors are busy taking care of bad franchisees, bad performing franchisees are becoming “traitors.”
4. Franchisors don’t have strong Management Team, franchisees ask the franchise support team too much.
5. Franchisors make things too complicated, franchisee can’t seem to be able to follow simple rules.

His thoughts behind each may be reviewed HERE.

Certainly, this list is not complete, and I felt compelled to add as follows:

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 for 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 Ivan for choosing this topic, and encourage many more responses.


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About Paul Segreto

Entrepreneur, Franchising & Small Business Professional, Top 100 Champion Small Business Influencer Awards 2014 & 2015, Popular Blogger & Podcaster
This entry was posted in Franchise Assistance, Franchise Marketing, Franchise Training, Franchising and tagged , , , , . Bookmark the permalink.

2 Responses to Franchise Failure – Why Does it Occur?

  1. Joel Libava says:

    Paul,

    I’d like to add one, too

    Some franchisors are a lot better at selling new franchises, then they are at supporting them, once they are franchise owners.

    Franchisors must understand that successful franchisees make almost everything else that has to dealt with as a franchisor, easier.

    The Franchise King®

  2. I think it is far simpler.

    The royalty rate is too high for the value of the trademark.

    Many franchise systems that I have looked at would be viable if they
    reduced their royalty rate from 7-8 down to 2-3.

    Let’s recall that Ray Kroc’s initial rate was 1%.

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