Failure in franchising is rare. Given that the annual bfa NatWest survey has for many years highlighted that the commercial failure rate of franchised businesses is less than 10%, it’s easy to see why some could feel that franchising guarantees success. It does not. And there are some important considerations in ensuring that you don’t become one of the minority that struggle.
The biggest cause of failure for any small business is undercapitalisation. Franchising is no different. Therefore the first question a budding franchisee should ask themselves is if they can really afford it. And not just the initial investment: you must be prepared to keep investing after launch. I’ve seen instances where franchisees are unwilling to spend money on essential ongoing activities like marketing, advertising and PR, which can lead to the business grinding to a halt. The old saying is true: you have to spend money to make money.
The advantage with franchising is that there is usually an illustrative trading projection for the opportunity that will allow you to budget for the initial and ongoing costs. But you should be realistic and also stress test your numbers. What happens if things don’t go to plan and how long can you survive if income takes longer to be realised than expected?
Many of the reasons for failure in franchising can be put down to poor preparation and unrealistic expectations of what’s involved. Small-business ownership is hard work and will require sacrifices in time and lifestyle while the business is growing. If a franchisee is not prepared for this and not able or willing to give the required amount of dedication and passion to the business, it simply will not work. It doesn’t matter how good the system is, it must suit what you can and want to give to it. In good franchise systems, the business model is always the same – the franchisee is the variable. Franchisees should take responsibility for this element and ensure that they are outstanding.
Additionally, franchisees must be prepared to follow the system. It sounds a little crazy that someone would invest in a proven concept and then not follow it but if you ask many franchisors why franchisees have failed, most will say that it’s because they didn’t follow the system. In the early years of our business, one of the biggest mistakes we made as a franchisor was giving franchisees a break and forgiving them when they weren’t following the model. We didn’t want to upset a franchisee or get into any sort of confrontation with them and so, in effect, we traded peace for results. We quickly learnt that this wasn’t good for the franchisee in question or for the rest of the network. It was a mistake that we’re no longer willing to make.
A franchisee must be ready to follow the system and not be too entrepreneurial. Changes in a franchise system will come in conjunction with franchisees but these should be evolution not revolution. The franchisor is responsible for ensuring that they police the network and protect the model. The collective success of a franchise network comes from passionate franchisees following a proven path and an organised franchisor helping to steady the route that the franchisees take.
Franchising is not a guarantee of success. What following a proven system does is limit the time that you waste on making mistakes. You benefit from the learning that came from those who tried, succeeded and, in some cases, failed in the past. Franchising should allow for franchisees to be more successful more quickly. The key decider here is the word ‘if’. If you are the right person, have the right attitude, choose a system that really suits you and prepare well for business then you’ll probably do well. With these boxes ticked, franchising provides a less risky, potential fast-track to business success.