Why Do Franchisors Fail?

The same principles hold true for established franchisors. New franchisors may tend to start slowly, thinking that once they've sold a few franchises they can accelerate quickly. These franchisors are well advised to remember that more fuel burned when accelerating than when simply maintaining your speed and planning accordingly.

Moreover, when concept difficulties are combined with undercapitalization, the faster growth comes, the worse the problem becomes. Fast growth, by its very nature, requires more capital. But it also more rapidly deploys the limited capital of franchisees.

If a franchisor needs to go back to its franchisees to make modifications to the underlying system, it's more likely that these franchisors may have neither the capital nor the inclination to do so. These disaffected franchisees will likely validate poorly and will generate less revenue for the franchisor -- again exacerbating the problem.

The Unifying Factor: Management

Given the importance of capital and concept, it's hard to believe that there could be an even more important factor affecting franchisor success. But the truth is that the majority of franchise failures were a result of bad management.

Think of it this way: Great management will make concept adaptations quickly to help ensure the success of both franchisees and company-owned units -- and will not franchise a concept that isn't ready for that step. Great management will find capital when it's in short supply or when more aggressive growth plans are called for. Absent this capital they'll keep their growth at a level their capitalization can withstand.

But there's simply no cure for bad management.

No matter how good the concept and no matter how well capitalized the company, bad management will find a way to destroy the business.

Bad management manifests itself everywhere. in a lack of vision systems, standards, motivating, communication, measurement, accountability and enforcement. Or in the good friend who's allowed to stay the good friend who is allowed to stay on board despite the fact that they are not adequately doing their job.

Bad management can infect an organization in a thousand different places and in a thousand different ways. And even good managers can be guilty of it on occasion.

Franchising offers many advantages to those desiring growth. But it's not without risk and it's certainly not easy.

The best managers -- and owners -- know this and go in with their eyes wide open. They'll critically examine the concept and their marketplace before making such a profound strategic decision. They'll carefully monitor and conserve their resources; even if that means they must slow their growth to a level below what the market might support. But most importantly, before doing anything, they will start by directing their critical vision inward to be certain they have what it takes (or can obtain what it takes) to achieve the success they're planning.