Franchisor Success or Failure: Key Development Issues

Photo by Emma Matthews

….. is fully dependent upon the amount of expertise and foresight held by themselves and their staff to avoid the inevitable pitfalls. These pitfalls usually spell the difference between franchisor success and franchisor failure. Although critical to negotiating three stages of franchising a business, (feasibility, formation and management) franchise expertise and foresight are not normally among the new franchisor’s skills. During the feasibility and formation stages, a franchisor might have the good sense to hire a truthful, competent franchise consultant and franchise attorney, but it is in the management stage that a new franchisor often attempts to go it alone. That’s a mistake.

A franchisor has two primary functions: producing a quality concept, and attracting/supporting quality franchisees. A franchisor that knows how to do that and then does it, is usually successful. But, they cannot accomplish these tasks if they don’t understand or have the skills to affect them. Well designed growth plans, training and support programs and quality franchisees only results from properly shaping the franchise from the beginning and moving it forward. That is a huge task  and nearly impossible to achieve without a solid franchise education and an experienced franchise mentor. Franchise consultants come in many forms. Choose wisely.

The following is a description of the early stages of starting a franchise and some common strategic errors that can lead to franchisor failure. For franchisor success, the opposite needs to occur.

Starting a franchise brand demands objective analysis of the business concept relative to systems, marketplace and people. Commonly referred to as a feasibility study, this phase is often given little more than a cursory glance because truthful findings impact two critical parties. Those parties are:

1. The prospective franchisor who already sees themselves in the role of franchisor and doesn’t want to disturb that image, and,
2. The hungry franchise consultant who doesn’t want to lose a potential consulting fee.

Together they can easily gloss over fact finding in order to realize their mutual goal of franchising the business. The most common rationale for racing past a quality analysis is the assumption that any business can be franchised. And in fact, that’s true, but not truthful. The truthful statement is: any business can be franchised, but that doesn’t mean that a business should be franchised. Trust your heart and your head. If you feel that a consultant is just in it for the money, run like hell.

Franchise feasibility analysis is critical for a prospective franchisor. It defines the honesty, integrity and legitimacy of the project, the entrepreneur, and the consultant. If the elements required to franchise a business are not present, the entrepreneur should not franchise. Of course, the franchise consultant, if incompetent, will not have the ability to properly evaluate the situation. Or worse yet, if morally corrupt, the consultant may see a problem but not disclose it. It’s both tragic and immoral when a consultant inflates the ego of a prospective franchisor by telling them they will be successful when they simply don’t know that. Incompetence and dishonesty are rampant in franchising. Many a franchisor and scores of failed franchisees are grim testimony to this truth. Do your homework and forget about having your ego stroked.

Know this fact, Mr. or Ms. Prospective Franchisor. The FTC may regulate franchising, but there is no licensing for franchise consultants.

Establishing the franchise company is the beginning of movement. Expertise is required to correctly do this work, but the emerging franchisor often believes franchising is a do-it-your-self project. Some will go so far as to obtain the paperwork of an existing franchisor and treat the project as a fill in the blanks process. Want to fail? Handle the paperwork without the most basic understanding of franchising or the use of competent consultants and franchise attorneys. Want a real chance at success? Hire the right people or don’t do it at all.

A new franchisor travels a road littered with the bleached bones of entrepreneurs too inexperienced to enlist professional help in undertaking the rigorous tasks of compliance with disclosure laws and the drawing up of contracts when starting a franchise. And that’s just the first step!

Engaging a franchise attorney is premature at the beginning of Stage 2. Attorneys can prepare legally correct paperwork, but what is the paperwork describing? A franchisor has the responsibility of telling the lawyer what the paperwork should reflect, a plan, a strategy. The franchisor should own their franchise plan and then have it legally memorialized, and that plan should be developed between the franchisor who knows the business and a competent consultant that knows franchising. Racing to complete franchise legal documents is a fool’s game. One can have quality legal work that has nothing to do with how the franchisor really wants to run the business.

Franchise management assumes that the concept is worthy of growth, as determined by the feasibility study. In cases where neither quality concept nor preparation is present, no amount of franchise expertise will overcome inevitable failure for the franchisor. Where the concept is solid, there is yet another pitfall to avoid. Franchise expertise employed during the feasibility formation stages is often dismissed when the franchise is launched. If you’ve found a trusted advisor, keep them around for awhile. You won’t be sorry.

The new franchisor is usually a successful entrepreneur, but entrepreneurs are a hard headed bunch and they have a tendency to think that their business success will lead to franchise success. Completing the FDD and Franchise Agreement is often their evidence of a degree in franchise management. It’s not. Create a sounding board and do away with many problems.

After some painful and costly lessons, the first-time franchisor realizes that franchising is not an extension of the core business, but a highly complex and competitive industry requiring special skills. The franchisor has two business: the business being franchised and the franchise business.

Want more tough love? Nah, that’s enough for now.

While it’s true the new franchisor has entered the major leagues without benefit of minor league experience, careful planning and quality mentorship will serve to overcome hurdles that otherwise can be a deal breaker. And know this. Starting a franchise presents tremendous opportunities for personal and professional growth. When handled correctly, the role of franchisor can be as exciting and rewarding as any business venture conceived. It should flow into the franchisor in the form of quality franchise consulting and out to franchisees.

Franchising can be the best game in town. But, learn to play before you pay.

Here are some tips for succeeding in starting a franchise:

1. Be proud of your business success, but don’t think it equals franchise expertise
2. Get the best help you can find
3. Complete a legitimate study of your business and yourself
4. Don’t give in to Franchise Temptations & Well Wishers
5. Learn what qualifies as a good franchisee
6. Keep a mentor who knows and cares about you
7. And, avail yourself of a very complete, in-depth Franchise Blog