#1 Reason for Franchise Failures (And How to Avoid It!)



You never hear about the huge number of franchise failures, business that closed their doors. The franchise industry likes to keep this number a secret, but there are literally thousands of failures every single year. These are people who invested substantial financial resources into a franchise thinking they were making a good business decision. Of course everyone thinks they are making a good decision, who invests hundreds of thousands of dollars expecting to lose. But it’s easy for first time buyers to get swept up in the excitement of business ownership, especially when the franchises shows you only their good side. Buyers embrace the vision of how great life would be running this business sun streaming in through the windows as customers line up outside waving their money that they will use to by their mansions and Mercedes Benzes.

But when they actually open the business and they begin dealing with Employees, employee attrition, employee theft, local economic challenges, food spoilage, tax considerations, competition, business licensing and hundreds of other things that were not included in the franchise sales pitch, then they understand. And every business, every single franchise has operational requirements that you may or may not enjoy performing or be good at. And that is the number one reason for failure, but most people don’t realize this, the person bought a franchise that was not a good match for them. And if you can understand this, not just with franchising but with any business you want to start, you will have a huge advantage.

Everybody is different. We have different tolerance for stress, we have varying levels of managerial capabilities,we have different personalities, extroverted, introverted. Good with numbers, not good with numbers. First time buyers massively underestimate their required contributions to the business. They think “How hard can it be I hire some people, they flip burgers, I get rich” and it is that very naive one dimensional perception of business that is the primary cause for failure.

We’re best known on this channel for critical, reviews of franchises. We point out some of the reasons you may not want to buy a franchise. But while these videos might be entertaining, reviews are completely worthless taken out of context. Keep in mind, within every one of those franchise systems are also people who do extremely well, and are extremely happy. Chick-Fil-A for example, they have some of the most contented, happy owners you will ever meet, but the franchise is not right for everybody. For some people however it is the best franchise. The same stands for any business. If you put someone who is a bad fit in a great environment, they wont do well. If you put someone who is a great match in a not so great franchise system or business, they often do very well. They key is to find a franchise or business that is the best match for your operational capabilities, your personality, your goals, exit strategy, budget and other criteria, as well as something that fits your local market demand and demographics, but that’s a whole other topic altogether. I get asked continually, “Robert what is the most profitable franchise””. I show them, then also have to explain why for most people this is not a good fit. These types of franchises are very sales intensive, it is 100% on the owners shoulders to establish business relationships, hire and manage sales teams, join the chamber of commerce, this is not something most people are exceptional at doing.

Another question we are often asked is Robert what is the best franchise? What is “hot” right now. Again this naive, one dimensional perception that somewhere, hidden from public eye is this perfect franchise where everyone who invests is earning millions and not working hard. Does not exist. And if you want proof, look on the Franchise City about us page, not one of us owns the same business or the same franchise. You have people in education, some in services, disaster recovery, food franchises, sports and many others. Now these are people who have access to every bit of franchising data and speak to thousands of buyers, sellers and franchisors each year. The most important aspect is aligning your own very unique goals, skills, operational preferences, local demand and many other factors. And buying a franchise just because of a name, or because someone else did well is a ticket to disaster. Same as making a decision on a small number of bad reviews. They key is in understanding the differences between the people who failed and those who succeeded.

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