Why Do New Franchisors Fail?
There are many franchisors that end up failing soon after a take-off. Some bounce back, others unfortunately do not. So the million dollar question is that why do some franchisors fall on difficult times and find it impossible to come back up? There are 3 critical components that make a franchise tick. The concept, capital and management team, if there is a lull in any of these areas, a franchise will definitely fail.
Following 3 Critical Components that Makes Every Franchise Succeed:
Franchising always starts off with a concept. Some franchises are launched without a clearly drawn concept. A concept should be clearly refined and tested. The franchisor must be confident that a franchisee that follows his system will attain success before he launches it out. The risks must be minimal or at best calculated ones. Moreover, the concept should be one that is adaptable because the markets are highly unpredictable.
When a market swings into a different direction, franchisees that are already struggling may find it difficult to keep their heads above water. Furthermore, the franchisor will find it tough to sell supplementary franchises thereby throwing cash concerns into jeopardy.
In order to steer clear of these types of problems, franchisors should appraise their risk exposure when developing their major locations. In the same vein, they should ensure their main focus is to see their franchises succeed and not enrich themselves first. A concept that does not work for franchisees, franchisors and consumers is destined to crash and burn.
Ironically, this is what drives people into the franchise business in the first place. It is also one of the biggest culprits when it comes to failure. It is true that a franchise is a low-cost means of expanding one’s frontiers in business or being and entrepreneur. But there are some strings attached. New franchisors can be suffocated with loads of developmental and legal costs when they take-off.
They need a working capital budget to cope with the initial phase of their franchising efforts. It is important to note that growth is never guaranteed just because you met your financial requirements and paid franchise fees. Some franchisors might get away with this. But most do not. This is the reason why many franchises have kicked the bucket. When sluggish concepts are combined with under-capitalization, there is a problem. By nature, fast growth requires more capital.
Franchises have been also known to fail because of bad management. Good management ensures the success of both the franchisors and franchisees. Good management makes it possible to source for capital when it is scarce and strategize effectively when there is the need for it.
It does not really matter how fantastic the concept might be or whether the coffers are bursting with money. The truth is bad management will always find a means of destroying even the best business. In other words, there is simply no cure for wayward management.
Bad management is characterized by a lack of vision, low standards, poor communication, pitiable accountability, a lack of enforcement and no motivation. It affects an organization in a million places and in a million different ways. The best managers have been known to fail once a system is not right.
Good management always takes decisions with their eyes wide open and in the best interest of a franchise legacy. They scrutinize opportunities carefully and avoid throwing their resources at anything and everything. Furthermore, before they break out they critically analyze themselves to see if they have what it takes to succeed in the franchise world.