Recent studies show that most of the franchises that started between 2012 and 2015 fell mainly because of unprofitable and small franchises closures. In fact, there was a large wave of closures. According to business experts, this poses a true challenge to both aspiring franchisees and franchisors.
What are the reasons
The main reason is that the business model chosen is appropriate. Also, the business may not have the required skills to operate franchise system. This means that the changes of operating and expanding another franchise may work against you.
On the same note, several successful franchise businesses started with just one outlet. You can name them; McDonalds, Donut King, Subway among others. However, new franchise groups start with several outlets. In fact, some operate that way and do not want to grow. You will find that these are family-run systems. Such businesses manage to thrive regardless of the economic situations or size of the group.
It is advisable to start small. This is the key to running successful franchise system. Moreover, this will help you avoid profit traps.
Reasons why franchise startups fail
It is not an operations manual or legal agreement
You should never think of a franchise that way. This is the common mistake made by investors as they do not have a clear structure how their business operates. They spend a lot of time drafting legal agreements, which protect their intellectual property and creating various operation manuals, which act as sales tools for the prospective franchisees.
Product and location
In a successful business, the service or product is tailored to the specific target market or a group of people that love you and spend a lot of time with you. It is important to understand demographic characteristics. This is necessary as you will be honing your service or product to the desires of your profitable customers.
Think of ongoing fees
Most new franchisors often overlook the need to charge the sustainable ongoing fees that cover support services. This is quite difficult in startup days. You should take the time to examine the support you are required to offer in the long-term and how you will meet the costs.
Support and marketing
As a franchisor, you are tasked with two main jobs. It is your duty to ensure marketing of the group is very strong. This includes the way your brand looks, acts, and feels.
The perfect person you should take as a franchise is one who is instrumental in propelling your system forward. Thus, you need to understand the combination of skills, passion, personality, and experience.