Franchise Flops: What failed and why

Posted by Tom Scarda, Certified Franchise Executive on Apr 2, 2019 8:30:00 AM

 

My second franchise, “Super Suppers” failed. I lost almost my entire life savings. Things went downhill rapidly and the auto repossession guys were lurking. 

I made so many mistakes. I bought into a new concept that had never been FA_March18_FBdone before (I talk about this in Franchise Savvy). I guessed that there would be a market because it sounded like a great idea. The franchise company was not a franchise company. They were a culinary school that came up with a cool idea. They were in Texas and didn’t know how to support new owners in New York or anywhere else. They told me that it would be about $100K to open a unit. It ended up costing $170K. It seems we were trying to change people’s eating habits. Unless you have lots of time and money, it’s difficult to change habits. Many people tried us once; most didn’t come back a second time.

Franchisee Mistakes

When franchise owners fail, it’s usually due to under-capitalization. Usually people forget to account for the fact that they make no money in first 6 to 12 months of operation. The other big one? Real estate. Some franchisees will fail because they don’t invest in appropriate location. The solution? You’ve got to be conservative and realistic. 

If a business owner starts with an attitude of “playing not to lose” instead of playing to win, they start from a bad place. Bad attitude can become a self-fulfilling prophecy. For example, a lead manager quits and the negative owner says to himself, “I knew staffing would be tough and there it is. I was right!”

Franchise Companies, Good and Bad

It’s interesting to note, franchises don’t invent industries. They systematize a product or service and then roll it out nationwide. McDonald’s didn’t invent hamburgers, AAMCO did not discover transmission repair, MaidPro did not create home cleaning. They just figured out a better, duplicable way to service the customer. There are no rules, laws or regulations that dictate what business should, be or could be, a franchise operation. There are only rules and laws regarding how a franchise is sold.

Many times, a franchise company founder doesn’t have franchise industry knowledge or experience and, as an example, doesn’t know to ask for help from members of the IFA (International Franchise Association). They don’t understand that a founder will no longer be involved in production. For example, if someone has the best bakery in the world and decides to franchise, they will not no longer be baking cakes as the founder. They are no longer a bakery, they are a franchise sales and support company that happens to sell cakes and cookies. Informed, experienced leadership in a franchise is paramount.

Some people have no business franchising their operation. They are simply in it for the money. What they fail to see is that franchising is a long-term people business. We mentor and build people up, thereby servicing the communities in which we operate.

 So, buyers beware! The franchise company doesn’t have to support you as a franchise owner. Franchisers that are not doing well typically “over-promise and under-deliver” to their franchise owners. Once they make the sale, they disappear. The franchisee may get into the business and realize it costs more to open and operate than they were told, or the margins are thinner than they were lead to believe. Things are just not what they were made out to be. This results in unhappy franchise owner, and that leads to bad validation, then lawsuits, and lurking auto repossession guys. Then it’s very hard to recover!

Only the best companies like MaidPro ”under-promise and over-deliver” in experience, support and guidance to their franchise owners which ultimately help them to succeed.