The 5 Reasons Franchises Fail

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Generally, on a global level, 30% of small independent businesses fail within the 1st year, with less than 20% going beyond year 5. Franchises, on the other hand, are significantly more successful. Less than 5%
of franchises fail. The reason(s) for failure could be a number of factors, most of which could have been prevented by due diligence during the early phase. The following are the main reasons franchises fail:

1. The Idea. Whether you are franchising your own company or buying into a franchise system, how the concept is received by the community is critical. While burgers seem to have universal appeal, not all food chains meet with majority approval. Also, if your business model is complicated you are in for a struggle. You want to create an operational standard that can be taught to and replicated by any businessperson. A company may be successful when run by the entrepreneur who dreamed up the concept, however, if the business model or prototype is not easily duplicated the chances for success are not so optimistic.

2. Bad Location. Ask seasoned franchisees to name one of the most important keys to a successful franchise and undoubtedly they will say, ‘Location, location, location.’ Even with a well-branded name, if you are off the beaten path, inconveniently located or in an isolated area the opportunity to be as lucrative as possible diminishes.

3. Poor Marketing/Advertising. Well-established and reputable franchisors have marketing and advertising funds into which franchisees contribute monetarily. Chains like McDonald’s and Subway have national campaigns, while other types of franchises may advertise on a local level. Some franchise concepts require a lot of legwork on behalf of the franchisee. Depending on the biz you chose, you may have to solicit your own clients, as in technical and computer support franchises. If you’re considering a concept that requires outside sales skills and you lack them, you may want to rethink your choice.

4. Competition. There are approximately 160,000 franchises in operation in the US. That means a lot of competition. If your market already is saturated with a concept you may want to consider something that still is popular but not yet tapped out. Medical spas and restaurants offering healthy choices are gaining ground among the public but there is abundant room on the business owner side.

5. Unrealistic Expectations. New franchisees are notorious for having very high expectations for their businesses. It may take 2-3 years before you see a profit and if you don’t plan for that you may sink before you have a chance to swim.