Startup Franchisor fail, we all know. Business owners that are considering franchising their business should understand why before taking the plunge.

If an existing business owner is considering franchising their business then understanding why a startup franchisor can fail will provide a clearer perspective of what is key to success. Although data on the number of new startup franchisors is solely lacking, so too is which startup franchisors fail and why, here are some reasons that we have seen in these years.

Startup Franchisors Fail – Reasons Why

1. The business is not an appropriate model for franchising

Simply stated the business can’t be built into a successful franchise model. At the very beginning of the franchising evaluation process, it’s important to be cautious and objective when evaluating a business for a franchise. This means not relying solely on the analysis and opinion of a franchise consultant. Rather, you should do your homework and independent analysis. Consult with your financial and legal advisors and request they provide you uncensored feedback. Remember, if there are no franchises that are similar to your business, there could be a good reason why and it may not be because you’re smarter than others. Related to this issue is that the franchise model must be based upon a well-tested business with no major unsolved operating problems.

2. The business owner and staff lack the business skills to operate a franchise system.

This situation can manifest itself in several ways including the inability to lead or manage a multi unit organization. There needs to be management staff in place or in the wings that can help to operate the new franchise plus the existing business. When a business goes from one company to two management will be operating two separate businesses.

3. The business owner doesn’t fully understand the implications of franchising a business and what it takes to be successful.

The allure of franchising is such that a business owner may only see the success stories and not the failures. Developing and launching a successful franchise program, requires the right ingredients. Unfortunately, a good deal of emphasis is placed upon building the franchise and not the launch and development of the system. The next point presents a key.

4. The franchise model is appropriate and can be successful developed, however, there is a lack of capital necessary to build, develop and operate the franchise.

A major reason why a startup franchisor fails is a lack of capital to sustain the business during the launch of its new franchise. An often unanswered question is, if a startup franchisor had sufficient working capital could that enable them to overcome some of its shortcomings? Perhaps some could and others couldn’t. Some startup franchisors lack the working capital they need to launch and grow their new franchise. The cost of building the new franchise program including consulting and legal fees can cost a lot! And this is before any funds are spent on advertising, processing and closing new franchise transactions. A number of startup franchisors burn their capital on the building stage and when it comes to marketing and supporting new franchises the new franchisor lacks the necessary funds to continue.

The bottom line: Business owners that are thinking of franchising their business need to be cautious and understand what it takes to be successful. Understanding the reasons why a startup franchisor fails should be foremost in the minds of those considering the franchise route.

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What is Franchising? It’s the same old question.

Franchising has been around for centuries and has been used in numerous industries. The main problem people in the franchise community face, is the misconceptions others create about the business strategy. Many think that when you are a franchisee that you are “buying a franchise.”

To be perfectly clear you are investing your assets in a system to use the brand name, operating system and ongoing support. Ultimately every franchisee in the system is licensed to use the brand name and operating system in the way and format specified by the franchisor. In other words they accept the right and the obligation to fully, completely, and consistently implement the Intellectual Property [IP] of the franchisor exactly the ways the franchisor prescribes the IP is to be implemented. And they agree to implement any changes to the IP immediately upon notification of the changes.

Franchising is one of three business strategies a company may use in capturing market share.

1. Franchising is a business strategy for getting and keeping customers.
2. It is a marketing system for creating an image in the minds of current and future customers about how the company’s products and services can help them.
3.  It is a method for distributing products and services that satisfy customer needs.
4. It is a strategy for building a Brand
5. It is a strategy allowing a franchisor to simultaneously enter, penetrate, develop and dominate multiple markets simultaneously.

Basically franchising is an alliance strategically planned out among groups of people who have specific relationships and responsibilities with a common goal to have the majority of a market share. Meaning to get and keep more customers than the competitors.
The difference between opening your own business or becoming a franchisee of a brand is, when opening your own business you are independent and when you operate a franchised location you are interdependent.

Franchising is a network of interdependent business relationships that allows a number of people to share:

– A brand identification
– A successful method of doing business
– A proven marketing and distribution system

The business relationship is a joint commitment by all franchisees and the franchisor to get and keep customers.

Legally you are bound to get and keep them using the proscribed marketing and operating systems of the franchisor. To be successful in franchising you must understand the business and legal ramifications of your relationship with the franchisor and all the franchisees. Your focus must be on working with other franchisees and franchisor’s team members to market the brand, and fully use the operating system to get and keep customers.

Other franchisees and company operated units are not your competition. The opposite is true. They and you share the task of establishing the brand as the dominant brand in all markets entered and reinforcing the customers’ familiarity with and trust in the brand. So in this respect you are working as a team with others in the system. Other franchisees share with you the responsibility for quality, consistency, convenience, and other factors that define your franchise and insure repeat business for everyone. Increasing the value of the brand name is a shared responsibility of the franchisor and franchisees.

| By Andrew Erskine

Source: mgmt2000.com

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