Why Do Franchisees Fail?

Why Do Franchisees Fail?

Mike Bullinger—President, National Franchise Association

There are over 760,000 franchise enterprises in the U.S. across a wide range of industries. There are franchise investment opportunities to fit every type of investor. Yet, every year a significant number of franchisees fail, losing their investment and (often) their life savings.

What is the #1 reason why a franchisee fails?

Franchising is not for everyone. Franchising requires the investor to have excellent business ownership skills while simultaneously being able to follow the rules established by the franchisor. It’s a specific set of skills. Entrepreneurs are happiest when they are creating their own business. Employees are more comfortable letting other folks shoulder the responsibilities of running a business. Between entrepreneurs and employees are people who want to do more than pick up a paycheck but also want the safety of following a proven business process. This last category generally makes the best franchisee. It doesn’t matter which category fits your skill set. The world needs all these types of people. If everyone had the same skill set, the world would grind to a halt. The problems arise when we misunderstand which category best suits our specific skills. Before choosing franchising, spenda little time thinking about your specific skills.

What is the #2 reason why a franchisee fails?

Franchisees fail when they are mismatched with the expectations of the franchise. Franchises have different franchise eownership models. Models vary from owner-operators to absent owners and semi-absent owners. The models require different time commitments of the franchisee.An owner-operator model means you will spend all your time working in the business. An absentee model means you’ll hire a manager to handle daily operations and you will be free to run other businesses. If you want to be anabsentee owner don’t pick a franchise opportunity intended for owner-operators.

What is the #3 reason why a franchisee fails?

A third reason franchisees fail is that they pick a franchise opportunity based solely on financial assumptions. Think of it as get-rich-quick franchising. It doesn’t work. If the product or service doesn’t excite you, if you don’t believe in it, you’ll lose interest and your customers will notice. You’ll be bored and then frustrated as the money flows out in royalties to the franchisor. Franchising is an excellent way to build wealth enabling you to achieve your dreams, but only if you do it for the right reasons. A Certified Franchise Advisor can help you navigate the path to franchising–or not, if it’s not the right fit for you.

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