Franchising: success vs. failure
Provided by Business Partners Ltd, South Africa's leading investor in SMEs
Buying a franchise is generally a lower risk than starting a business from scratch. With the training, support and business model provided by the Franchisor, the entrepreneur has a much better chance of succeeding.
However, this is not a guarantee and the entrepreneur still has to put in the hard work.
The recipe for success
A successful franchisee is one who:
- Chooses a product or service they care about. Being passionate about the business goes a long way in building the entrepreneur’s resilience
- Couples this passion with discipline; by avoiding too-fast growth at the expense of high-quality expansion
- Contacts current and former franchisees to get their feedback. Commitment should not be based solely on information provided on the Internet or over the phone
- Puts in the time by taking advantage of every training opportunity, learning the franchise systems and company’s best practices
- Pays attention to customer service and experiences
- Is prepared to be an owner-manager. The chances of success will be far greater if the entrepreneur is closely involved in the business on a daily basis
- Offers a pro-active presence in the store and continually encourages and motivates their team members to promote problem-free, productive operations
- Balances this with working ‘on’ the business, i.e. has a vision for the company, plans with the team, has key values that determine how the business is run and the proper ‘course correcting’ tools in place
- Treats employees well so they will treat customers well. Making sure employees are properly trained and working in line with the rules is vital
- Follows the rules. Franchises depend on a by-the-book execution of a business plan, adherence to proven systems and a willingness to follow directions
Factors for failure
Knowing why franchises fail can can help the entrepreneur steer clear of potential pitfalls. Some of the most commonly cited reasons behind these failures are:
- A miss-match between franchisee and the business: It can happen that the entrepreneur’s skills, goals and personality do not fit with the franchise
- Ineffective franchisors: There are franchisors that are only in it to make a quick buck. The entrepreneur should contact other franchisees and ask as many questions to determine the viability of the franchise concept
- Unstable concept: If the franchise model is new or constantly changing, beware. It may simply be unworkable
- Compliance rules: If the franchisor does not listen to franchisees' feedback, it may become impossible to work in the system
- Franchisee/Franchisor relationship: Is it a bureaucracy with low concern for franchisee results and relationships? This is another question for existing franchisees to answer
- Inadequate start-up capital: It may take up to three years before one really sees how much money a franchise will make. Too many new franchisees don't think that far ahead and fail to plan accordingly. Lack of funds has doomed many a franchise
- Poor location: Location is everything. A highly-recognisable franchise will still fail if it is hidden away from the view of its target market
- Market saturation: Small territories are restrictive. Are there other similar businesses in the area?
- Inadequate promotion: Brand recognition alone is not enough to promote a business. The store should have its own marketing campaigns that run consistently throughout the year
- Inflated expectations: Many franchises fail because their owners have unrealistic expectations. Like any other small business, it requires hard work, dedication and lots of time before one can reap the profits
- Lack of motivation: If for any reason the franchisee loses motivation to succeed in the franchise, then it is unlikely that the business will be successful. A genuine burning desire to succeed will overcome many obstacles.
Franchising is a great way of getting into business, as long as the entrepreneur knows exactly what he is signing up for.
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