Fear and Consequences of Failure: A Story Worth Repeating

I’ve been asked time and again to post the following article that I’ve written about my own personal experience as a multi-unit franchisee where I succeeded at first, only to crash and burn later on. This article has been posted on several of my blogs, and picked up by numerous other blogs and online magazines. I have received numerous comments and inquiries about the article, individuals sharing their personal experiences and requests for assistance. Although I cringe at the thought of any business failing, I admire and respect the fact that franchisees and franchisors alike know when to put their pride aside and ask for assistance, and I look forward to providing my experience and expertise to help determine a practical resolve to their problems.

I’m proud to say this article has been instrumental in helping a number of businesses keep their doors open and work towards recovery. On the other hand, I’m also sad to say several businesses were not as fortunate, but at least the owners were able to exit with dignity and in few cases, with less liability than they previously thought possible. And, in one case, the owner actually exited in the black when we were able to facilitate the sale of her business when she previously thought about just walking away.

Fear and Consequences of Failure

I can personally relate to the trials and tribulations of owning franchise businesses as I have “been there and done that” and have experiences on both ends of the spectrum from achieving overwhelming success to dealing with bitter failure. I have definitely come to understand the fine line between success and failure in trying to nail down the American Dream.

I know it is sometimes counterproductive to even mention failure which is why the subject is always avoided and never discussed. Yet, it’s out there and it’s real. Once franchisees face the possibility of failure and its very real consequences they can be motivated to understand that failure is not an option and commit 100% to a plan that addresses immediate problems and provides solutions accordingly. Even if it’s necessary for the plan to be quite drastic or aggressive due to prevailing circumstances, franchisees that unequivocally realize that failure is not an option are prepared for immediate action.

Let me emphasize one point. Franchisees should not view poor sales and disappointing profits as either potential or immediate failure and stick their heads in the sand. I made that mistake in the past and suffered the consequences. Instead, franchisees should build upon the courage it took to become a franchise business owner and recommit to success as they did when they first took the entrepreneurial plunge.

They need to remember their wishes, hopes and dreams that prompted the decision to own their own business? They need to remember the admiration of family and friends when they heard about the new venture? They need to remember the excitement when they actually signed the franchise agreement?

Unfortunately, there’s a very distinct possibility the root of the problem is embedded in the franchisee’s actions, non-conformity to the franchise system and unwillingness to face reality. However, as there was some shining light evident during the franchise award process, it may not be a totally lost cause if the franchisee is made to completely understand the implications and consequences of failure.

As franchisors are faced with the potential of closed units during this recession that may be the result of things out of their control, it’s imperative they don’t lose even a single unit just because a franchisee just flat out needs a snap back to reality. It’s worth the effort.

Let me clarify something. I failed as a franchisee. Not because of anything the franchisor did or didn’t do but because I put and kept my head in the sand and did not face reality. I could go on and make excuses about things that happened around me but at the end of the day I could have turned things around if I got my own head out of the sand, made some difficult decisions and took full, immediate responsibility.

Unfortunately I was scared of failing. I was afraid of what people would think. I was ashamed at what other franchisees, ones I put in business, would think of me. I couldn’t even think of facing my family. All lame excuses for not taking responsibility. Maybe a hard swift kick you-know-where would have helped.

Did I mention that I previously ran the franchise company where I failed as a franchisee? Did I mention I was elected by fellow franchisees, President of the National Advisory Council? Did I mention that I owned and operated five franchise units?

If I had clearly understood the implications and consequences that were looming on the horizon and if I was able to get my big ego out of the way and address things head on, maybe I could have survived. Maybe I could have at least implemented an exit strategy that would have, in some small way, paid back the loyalty and support of my employees, family and friends.

In the end, I may not have survived because it may very well have been too late when and if I finally took action and responsibility. But maybe I could have at least exited with some dignity. Also, I could have saved many innocent people a great deal of hardship, embarrassment, wasted effort and ill-spent resources if I did face reality. This includes my family, my employees and yes, my franchisor; all who believed in me.

Yes, it was a tremendous learning experience but not one I would bestow or wish on anyone. Now, all I can do is to offer my experience to anyone in the franchise industry that needs assistance. If just one franchise business is saved from the consequences of failure, then we’ve made progress. Progress we’ll continue to build upon.


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Franchisors Financially Assisting Franchisees: Good Or Bad Idea?

The following article was posted at LSJ.com and discusses franchisors assisting franchisees froma financial standpoint in order for the franchisees to withstand the current economic crisis. But, is it a good or bad idea? Does it set precedence that will become expected at the first sign of economic trouble in the future? Will franchisors’ efforts and goodwill be used to hold them hostage in the future? Read the article and then decide for yourself. We look forward to your thoughts.financial-assistance

Some franchisers taking drastic steps to weather today’s tough economy
Staff and Wire Reports • April 6, 2009 • From Lansing State Journal

Co-signing loan papers, buying out operating contracts and modifying licensing fees are among the aggressive steps some franchisers are taking to help their franchisees weather the chilly economy.

Just like small, independent business owners, many franchisees have struggled amid a lingering credit crunch and weak consumer spending.

Their survival is important. Nationally, franchises accounted for 11 million jobs, or 8.1 percent of the private workforce, and produced $880.9 billion in goods and services in 2005, according to the most recent data available from the Washington-based International Franchise Association.

Franchisers, who license the right to operate businesses in their names, have a vested interest in continuing to attract new franchise buyers and to help their current store operators survive. Fewer franchises mean less licensing – and royalty-fee revenue, on which franchisers depend to survive.

A rash of store closures also can mar a franchise’s brand.

“I think we’re going to see a fallout in our industry just like we’re going to see a fallout in other industries,” said Jeff Johnson, founder and CEO of the Franchise Research Institute. The institute, based in Lincoln, Neb., performs surveys for franchisers that gauge their franchisees’ satisfaction.

The strategies franchisers are employing now are not unheard of even when the economy is good, Johnson said. But some of the more aggressive steps, such as buying back stores from franchisees who want out of their contracts and temporarily foregoing certain fees, are rare.

Restaurant and other food service franchisees have been among the hardest hit by the economic downturn. Health care and certain technology-related franchises still are seeing strong demand, though.

Local and national franchisers say they’re still seeing demand from prospective buyers who want to open new franchises. The biggest problem is securing credit.

“It’s like a pendulum has swung,” said Bob Fish, CEO of East Lansing-based Biggby Coffee, which has 109 franchise-owned coffee shops.

A year ago, Fish said, new franchisees easily could get loans to cover the roughly $300,000 cost to open a Biggby store – even with a company stipulation that franchisees have enough cash to cover about one-third of the cost.

Now, he said, franchisees are lucky to get loans for half the cost. “It has slowed things down, absolutely,” he said.

Fish said his advice to franchisees stays the same: Shop around for a lender.

But some franchisers have stepped in to help applicants obtain financing by being a co-guarantor for loans and lines of credit.

“We have literally done a handful of those, but it is not a big number at all,” said Lee Knowlton, chief operating officer for Scotts-dale, Ariz.-based franchising company Kahala Corp. Kahala’s chains include Cold Stone Creamery, Blimpie, Samurai Sam’s Teriyaki Grill, TacoTime and other fast-food restaurants.

One of the biggest challenges for Kahala and other restaurant franchises has been real estate.

In some instances, franchisees who moved into shopping malls and neighborhood strip centers are struggling because major tenants around them closed.

But the economy has created opportunities, too. With the real estate market in decline, there are deals to be had for commercial space to open new stores, said Brent Taylor, president and CEO of East Lansing-based TT&B Inc., which franchises toy stores.

Taylor owns TreeHouse Toys & Books in Lansing Township’s Eastwood Towne Center and franchises under the Brilliant Sky Toys & Books name.

“We’ve been able to negotiate some real estate deals with landlords that are just unprecedented with what we’ve seen,” he said.

Some franchisers have started buying back distressed stores from their franchisees or letting them be shut down.

Tropical Smoothie Cafe, a Destin, Fla.-based franchise that sells sandwiches, wraps, salads and fruit drinks, reopened two Phoenix-area franchises in the last year. “It’s the very first time that we’ve done anything like that,” said Scott Palmateer, a regional franchise consultant for Tropical Smoothie Cafe.

Delhi Township-based Two Men and a Truck International Inc. CEO Brig Sorber said failing franchises can damage the reputation of the whole system.

So, even as growth has slowed at the moving company – which added only six franchises last year – Sorber is focusing attention on improving existing operations.

The privately owned company, with about 200 locations, has been hurt by the national decline in the housing market – which means fewer people are moving.

Two Men is working on ways to help its franchisees cut costs and to get into new markets, such as moving for businesses and interstate moving, Sorber said. “There’s less moving going on, but there also are less people doing the moving,” he said.

Lansing State Journal business reporter Jeremy W. Steele and Andrew Johnson of the Arizona Republic contributed to this story.