Why Franchises Fail & What to Do About It Part 1

25 thoughts on “Why Franchises Fail & What to Do About It Part 1”

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• Sean I read the whole thread and agree with everything you said, before even reading your comments I thought wow how does someone with this type of attitude even get a franchise? Hopefully someone with initiaive can take over the franchise and make it work with the proper tools, system & attitude. You’ve demonstrated well that franchising is a two way street and both parties should want to be on the road!
  Thanks, Keep Tweeting

• Thanks for your insight, Joel.
  In my experience, choosing the right franchisees and making sure they have the right expectations are critical to the success of young and upcoming franchise systems like Cool Cycles. Franchisors are responsible for providing the tools, but franchisees need to understand, from the start, that it’s their responsibility to build the business in their local market.

• This is a perfect example of a franchisor engaged in the practice of just selling franchises. Franchising, in its purest sense, is a market penetration strategy just the same as if the company were opening their own locations. Would they open a location just for the sale of opening a location and risk it closing? Probably not.

  However, this franchisor is simply collecting fees.

  This person is a perfect mismatched franchisee. If the franchisor had bench-marked who their high performers are and why and then recruited and selected candidates who resemble this profile they would be able to build a solid system comprised of the right people performing the right functions in the right franchise.

  Sears just gave Franchise Navigator a wonderful testimonial that indicated the Franchise Navigator, through recruiting the right people into their Hometown Store concept, increased their average unit sales 38% and almost eliminated their budget to resolve conflict.. This is an amazing testimony to having the right people in the right franchise.

  After almost 40 years of franchising my opinion, and I have been quoted in the media as saying this, there is no such thing as a good or bad franchisee. There are franchisees that match and those that mismatch with the business model.

  Legitimate franchisors are the ones who carefully profile their existing franchisee population and using their own performance metrics create a standard for which all inbound candidates are measured to.

  The others are probably going to go away and take many unfortunate people, such as Jenny, with them.

  To me that is not representational of franchising. To me that is criminal.behavior.

  Craig Slavin
  Franchise Central
  Franchise Navigator
  http://www.franchisecentral.com

• Sean,

  Unreal. to sit in a B2B franchise store, and waaaait for business to come rolling in. Like the franchisor is going to just make that happen..
  1. Shame on the franchisor for not digging deep enough, and at least doing some type of sales profiling toool.

  2. Shame on the franchisee for not doing her due diligence. (Starting with what her skills are!)

  This happens more than folks think.

  Nice job, Sean.

  The Franchise King
  Joel Libava

• Great points, Joel and Craig.

  Franchisees can avoid the devastating mismatch by using a franchise professional (like Joel) who will spend some time with them and steer them away from opportunities that they are clearly unsuited for. Unfortunately, many who claim they provide that service are really just salesmen who will recommend whichever opportunity yields the quickest commission.

  Franchisors can avoid the mismatch by deploying services and tools like Craig’s that evaluate the types of people most likely to succeed as franchisees.

  Good thought, Craig: “there is no such thing as a good or bad franchisee. There are franchisees that match and those that mismatch with the business model.”

  Thanks for your insights.

• Sean
  Great article. Great storytelling. Congratulations.
  I see a few breakdowns.
  1. The franchisee did not have a clear understanding of what it takes to win. This was the franchise candidate’s breakdown. Candidates need to conduct proper due diligence. With all that is written about how to research a franchise (my book Street Smart Franchising is one out of 100 active titles) the franchise candidate cannot plead ignorance.
  2. The franchisor didn’t either properly communicate what it takes or didn’t check in to see what the franchisee thought. This is often what happens when you have a franchisor who “sells franchises” rather than one who carefully screens and educates candidates. The franchisor apparently lacks one or more of three things.
  One, a step-by-step recruitment process to educate candidate about the company and opportunity
  Two, franchise salespeople who have not been effectively trained as recruiters
  Three, poor departmental leadership. No one watching out for the franchisor’s candidates best interest.

  This is a highly avoidable lose/lose situation.

• I agree, Joe.
  Each year there are fewer and fewer excuses for letting situations like this occur. The Internet makes your book and articles easily available, and there are discussions like these to educate, warn and point to resources for help.

• Having been a franchisee, an independent business owner and twice part of franchisor teams, I should be able to accept this sort of situation as normal and not be surprised by it Yes, to those uninitiated readers who currently find yourselves in a state of disbelief: Sean has recounted a frighteningly NORMAL situation. Yet, despite all the failure I have seen, I am still astounded by the efficiency with which business owners can create massive black holes into which they throw their money.

  Even beyond the great points made above (I’m a fan of Joe’s book and Craig’s evaluation tools, which I’ve used) I believe that the fundamental issue here is one of denial. The franchisor and the franchisee are both guilty of it.

  I have zero doubt that there were red flags along the way by both parties. I have zero doubt that SOMEONE at the franchisor questioned signing the candidate and I have zero doubt that the franchisee did hear a thing or two about marketing, and that despite owning the RIGHTS to run a print shop, she knew she had no right to print money. None of that will stop people from being lazy, believing what they want to and regressing to the mean.

  As was mentioned above, no one would dream of opening a corporate store only to watch it fail. Likewise, no independent business owner would set up shop, and proceed to do nothing. What is this disease in franchising?

  Yes, I do think it’s denial. There is so much regulation and so many processes, even rituals that surround franchising, in some way, it must feel to all parties involved that by following all the rules and walking through the steps that they are conjuring real businesses. In fact, they are doing nothing more than signing papers.

  I, for one, am a fan of franchising models that more closely link franchisor and franchisee success, which eliminate the “in name only” problems and get everyone really working together.

  This should be an interesting series, Sean. I’m looking forward to your future posts.

  -Mike

• Sean…the first emotion that comes up for me when I read about Jenny is sadness.

  There is no question both franchisee and franchisor are suffering in this case, and needlessly so. All of the comments made thus far offer good explanation for what could have been done and what should have been done. Let me go a bit further with what still can be done.

  I have been fortunate this past year to work side by side with new franchisees of a well-reputed franchise company. The franchisees were selected by their franchise business consultants as those that could benefit from individualized business/sales coaching with an outside provider.

  As that provider, I spent a minimum of 3 months with each new franchisee. I worked closely with the franchisee’s business consultant so that we were talking the same language and supporting one another’s goals.

  With the franchisee, I worked hard to build trust quickly. This enabled the franchisee to become open to new ideas about selling themselves and their products and services.

  In almost all cases, the franchisee was uncomfortable with sales and marketing.

  Why? Because most people have very negative feelings about selling. They think back to their own poor experiences with salespeople and don’t want to be seen as manipulative or confrontative.

  Once I show them that there is a kinder and gentler way to sell…and a way to sell that is congruent with their personality style and strengths….they breathe a sigh of relief.

  I typically send them a copy of my relationship-selling book, Stop Selling: Start Clicking!, so that they have a resource to refer to in the space between our calls.

  In all cases, revenue growth is our #1 goal. We co-create sales and marketing action steps that they are comfortable with so that they can see a quick result.

  Once their confidence is raised a bit, they are open to even bigger ideas.

  Sometimes franchisors just don’t have the man/woman power to give each franchisee such individual attention. In these cases, an experienced outside provider can really make a difference.

  I congratulate this franchise company and all companies that look outside of the norm for ways to increase franchisees’ comfort level with sales and marketing.

  Nothing is better than seeing a franchisee make that all-important turn in the road.
  The results are increased confidence, stronger skills, and in turn, higher revenue.

  How lucky are we to all be playing on the same team!

• I agree with Craig. This is more than likely a case of a franchisor simply seeing dollar signs and taking on any franchisee. The only other scenario is that Jenny fooled them all. Similar to when someone is great at interviewing and lands the job, but then performs poorly. Or, Jenny is a good candidate and the franchisor dropped the ball during the new franchisee training. Many franchisors wrongly assume franchisees know about sales and marketing or ever that they actually have to (gasp) get out there and sell and not just hang up the ‘open’ sign. We’ve worked with huge systems with 1,000’s of rooftops and they many times have very poor training when it comes to sales, marketing and motivation. A lesson for us all… never assume a franchisee knows anything! Sounds harsh but you will end up covering all the bases.

• Sean,

  More than a few of those who commented share the mixed experience that I have been fortunate to live over the last twenty-eight years within franchising. I have been franchisee employee, franchisee, executive within a franchise and consultant into the franchise industry. I have had the good fortune to work with the consumer to determine their best franchise fit and with franchises to determine their “right” profile; the person who would become their next successful franchisee.

  Wouldn’t it be great to read this snippet and to know what in the world this is all about?

  But, we can’t. This isn’t enough…

  I can see and agree that the franchise company missed something in the selection of this candidate. Craig may very well be right and this particular franchise might be simply sniffing for franchise fees.

  But, in my experience it is just as likely that they got a great interview. We have all had one or ten of these kinds of candidates. They feel they are on a job interview and they are really great at giving up the right information. They would especially be good at it if they REALLY wanted it (think 4 year old, holding a toy, in the middle of the aisle at Toys R’ Us, screaming, “I WANT IT! I WANT IT! IT’S MINE!”) and prepped by saying the right things and knowing the right answers.

  No one associated with any form of business, small business, independent business, mid-sized corporation, big business amongst the redwoods of Fortune 500 companies could miss that the “zee” herself must be sniffing too much ozone for thinking pixie dust had been sprinkled on her business and she would simply await the teaming masses who would be transported to her doors with life-giving work; profits to follow.

  I owned printshops, franchised printshops for fifteen years. To this day some close friends still do and are great friends who succeed and compete in that industry…and it can be tough and competitive and challenging and no easier today than when I sold the last of mine successfully thirteen years ago.

  But c’mon…no one in that industry for 11 minutes thinks you can sit and wait in your office on an old couch you once used in your family room and the work will walk in the door.

  Flo is right on the manpower issue. Mike Sobol is right that this kind of scene, where the franchisee has simply been overwhelmed at the task at hand, now exists in a gray fog. Everyone who hinted that the franchisee should be ashamed at the obvious oxymoron of sitting on your can and blaming the franchise company is beyond ludicrous. And Joe Mathews, whom I respect deeply, makes a great point; the tools are there in order to avoid this scenario…and not just for franchise companies (though they should take the lead) but also for franchise candidates.

  I urge the franchise consulting firms to truly come up with the right tools to “REALLY” profile their candidates. Many people simply are not, nor should they be at this time in their business development maturity franchisee’s…period! Not just with the wrong franchise…but at all! Find THAT out first and then make sure that the instruments you use don’t merely measure personality type or leadership type but those things that create the foundation for success internally within an individual or organization. This is no small task but, as Joe Mathews alludes to, it is doable with all we know and all we can determine in the twenty-first century.

  Mike Sobol is right. The franchisee knew the right thing to do. She had been taught about marketing. He was also right when he said someone raised a red flag when it came time to select this candidate only to be treated like an adult in a Peanuts television special. It is easy to say and think that we (the franchise company) can get a new franchisee “over the hurdle” in training.

  Finally, as a pastor and professional counselor I have to chime in as well to say that there is no accounting for the places humans find themselves. Our journey’s are not constantly up and away! The adequate and competent and consummate professional one day becomes roadkill in the sea of life the next. We just don’t know what stymies or even puts someone else into a tailspin the next day. That is why it is important to see your franchise organization as a living, vibrant organism. Thinking of it as simply a more well oiled production tool today than it was yesterday focuses you away on the human element. And it is this element that makes us better, stronger, richer in character and creativity and more prepared to take on the challenges of today. But it is sensitive. It is fragile. It needs care. Make sure you have operations, marketing, training and executives who care for the whole body and thereby detect when one part of it isn’t producing what it should.

  When I work with organizations I take from my background in pastoral and counseling leadership and I add to it my business acumen. If I can be of service to anyone, in any business unit, whether it is with your franchisees to “generally” market, sell, produce or with the franchise corporation to understand/discover who they are and what they need…it would be my honor to serve you. Find out more at my blog at http://docfranchise.blogspot.com

• Yes, the franchisor could have and should have done a better job of selecting. They should never have accepted Jenny as a franchisee. They could have avoided this right at the beginning by stressing the heavy marketing/sales responsibility during the first interview and suggested you talk to other franchisees about what they have to do on a daily basis.

  There are other ways to improve the selection process, including ours. See http://www.DynamicPerformanceSystems.com for more information.

  In an ideal world, franchisors would live their words about “awarding” rather than selling franchises, but realistically, many franchise sales people are under a lot of pressure to lower their standards. Whether times are good or bad, many franchisors use a business model that depends on the franchise fee to meet operational expenses. Of course doing so is a very short-sighted approach to selection, but it meets today’s financial needs.

  However, we can’t always blame the franchisor for mistakes like this. Especially ones where the candidate is so obviously unsuited. In this case, I think the issue is one where Jenny did not seriously sit down and think about the printing business and what it takes to be successful. Either she didn’t do her research, or she has no concept of what she can or can’t do.

  If Jenny had done the research and completed an honest self-evaluation she would have never have even gotten to the stage of completing the initial application. Unfortunately, we live in an age where our failures are someone else’s fault and our successes are our own and Jenny is a perfect example of this thinking in action.

  Bottom line? In this case 90% Jenny’s fault and only 10% the franchisor’s fault.

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• I’ve been asked time and again to post the following article that I’ve written about my own personal experience as a multi-unit franchisee where I succeeded at first, only to crash and burn later on. This article has been posted on several of my blogs, and picked up by numerous other blogs and online magazines. I believe it is appropriate to post here as well.

  I’m proud to say this article has been instrumental in helping a number of franchisees keep their doors open and work towards recovery. On the other hand, I’m also sad to say several businesses were not as fortunate, but at least the owners were able to exit with dignity and in few cases, with less liability than they previously thought possible. And, in one case, the owner actually exited in the black when we were able to facilitate the sale of her business when she previously thought about just walking away.

  Fear and Consequences of Failure

  I can personally relate to the trials and tribulations of owning franchise businesses as I have “been there and done that” and have experiences on both ends of the spectrum from achieving overwhelming success to dealing with bitter failure. I have definitely come to understand the fine line between success and failure in trying to nail down the American Dream.

  I know it is sometimes counterproductive to even mention failure which is why the subject is always avoided and never discussed. Yet, it’s out there and it’s real. Once franchisees face the possibility of failure and its very real consequences they can be motivated to understand that failure is not an option and commit 100% to a plan that addresses immediate problems and provides solutions accordingly. Even if it’s necessary for the plan to be quite drastic or aggressive due to prevailing circumstances, franchisees that unequivocally realize that failure is not an option are prepared for immediate action.

  Let me emphasize one point. Franchisees should not view poor sales and disappointing profits as either potential or immediate failure and stick their heads in the sand. I made that mistake in the past and suffered the consequences. Instead, franchisees should build upon the courage it took to become a franchise business owner and recommit to success as they did when they first took the entrepreneurial plunge.

  They need to remember their wishes, hopes and dreams that prompted the decision to own their own business? They need to remember the admiration of family and friends when they heard about the new venture? They need to remember the excitement when they actually signed the franchise agreement?

  Unfortunately, there’s a very distinct possibility the root of the problem is embedded in the franchisee’s actions, non-conformity to the franchise system and unwillingness to face reality. However, as there was some shining light evident during the franchise award process, it may not be a totally lost cause if the franchisee is made to completely understand the implications and consequences of failure.

  As franchisors are faced with the potential of closed units during this recession that may be the result of things out of their control, it’s imperative they don’t lose even a single unit just because a franchisee just flat out needs a snap back to reality. It’s worth the effort.

  Let me clarify something. I failed as a franchisee. Not because of anything the franchisor did or didn’t do but because I put and kept my head in the sand and did not face reality. I could go on and make excuses about things that happened around me but at the end of the day I could have turned things around if I got my own head out of the sand, made some difficult decisions and took full, immediate responsibility.

  Unfortunately I was scared of failing. I was afraid of what people would think. I was ashamed at what other franchisees, ones I put in business, would think of me. I couldn’t even think of facing my family. All lame excuses for not taking responsibility. Maybe a hard swift kick you-know-where would have helped.

  Did I mention that I previously ran the franchise company where I failed as a franchisee? Did I mention I was elected by fellow franchisees, President of the National Advisory Council? Did I mention that I owned and operated five franchise units?

  If I had clearly understood the implications and consequences that were looming on the horizon and if I was able to get my big ego out of the way and address things head on, maybe I could have survived. Maybe I could have at least implemented an exit strategy that would have, in some small way, paid back the loyalty and support of my employees, family and friends.

  In the end, I may not have survived because it may very well have been too late when and if I finally took action and responsibility. But maybe I could have at least exited with some dignity. Also, I could have saved many innocent people a great deal of hardship, embarrassment, wasted effort and ill-spent resources if I did face reality. This includes my family, my employees and yes, my franchisor; all who believed in me.

  Yes, it was a tremendous learning experience but not one I would bestow or wish on anyone. Now, all I can do is to offer my experience to anyone in the franchise industry that needs assistance. As we’ve entered 2009 in the realms of economic uncertainty, I’m certain already difficult situations have been compounded but I’m confident a snap back to reality could only help. If just one franchise business is saved from the consequences of failure, then we’ve made progress. Progress we’ll continue to build upon.

• Why Franchises Fail & What to Do About It Part 2
  http://www.franbest.com/2009/12/03/why-franchises-fail-what-to-do-about-it-part-2/

• Some really valuable advice on here as a young franchisor it is with some relief that we are being maticulous in our recruitment process. It is tough though to turn down the cash, but if your franchise is truly built on reputation, then nothing must compromise that, especially a franchisee with the ‘potential’ to fail. The balance is to avoid fear of failure? If you have recruitment criteria too high you will never get anyone? So with this in mind I am going to revisit this today and look at what needs to be a 100% match and what would be good but not essential.
  Thanks for the insights and the advice.
  Iain

• I don’t think most franchisees, and small business owners in general, realize that a major part of business success is marketing and selling your products and services. Even in a franchises system, you still have to run a business……not sit on the couch and wait around for your self fulfilling prophesy to come true.

• Just wondering if you have contacted both the franchisee and franchisor about these problems. They both may not even be aware there is a problem.

• There are many valid point here and some of the usual finger pointing. I’ll say this, sometimes the best of franchisors are guilty of an error in franchisee selection but at other times we have the franchisors who don’t deliver on support, training and their end of marketing. These are typically the franchisors feasting on habitual and deliberate franchise selling to any sucker who can sign their name.

• These Franchisees are just unrealistic. Purchasing a franchise business to start your own business doesn’t you just then have to sit down and see a hundreds of customers come to your stores. Every business, be it a franchise or a totally start-up business, all needs hard work to market and sell your products or services, you don’t have to depend it all to your franchisor. Success comes with hard work, determination and focus in achieving your goals.

• I purchased my print shop almost 7 years ago. I inherited two good employees and a decent previously owned store. I joined all the chambers, leads group & Rotary. Things were great until I moved the shop in 2011 to a lager spot. My Konica Minolta C6501 was down more than up. No support from corporate. Lost a key employee and have yet to find a good replacement. The economy in Oregon tanked & I’m on th edge of losing my shop. I’ll take the responsibility for failingsince I’m the owner, but I feel a lot of other factors contributed. I’d never own another franchise!

• I purchased my print shop almost 7 years ago. I inherited two good employees and a decent previously owned store. I joined all the chambers, leads group & Rotary. Things were great until I moved the shop in 2011 to a lager spot. My Konica Minolta C6501 was down more than up. No support from corporate. Lost a key employee and have yet to find a good replacement. The economy in Oregon tanked & I’m on the edge of losing my shop. I’ll take the responsibility for failing since I’m the owner, but I feel a lot of other factors contributed. I’d never own another franchise!

• This was a fantastic post. No business is going to get successful by having an owner sit around and wish it to happen. Ever. As you highlighted, failure of this franchise was inevitable. It takes a go getter. Not Jenny.

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