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2 ways franchisers may set franchisees up for business failure

On Behalf of | Jul 17, 2023 | Franchise Management

When an entrepreneur wants to start a business with minimal personal risk, a franchise might seem like the ideal solution. They don’t have to come up with their own business concept or products to start a successful franchise. All they really need is adequate capital to qualify to buy into the franchise. Most businesses that offer franchise opportunities provide regional support and hands-on training for those starting a new business.

Sadly, not all investments in franchise opportunities lead to successful businesses. Some franchises fail even though a parent company remains popular and reports excellent sales. Oftentimes, problems with the local market or with business management play a major role in the failure of a franchise operation. However, sometimes the failings of the franchisor directly contribute to the failure of a local operation.

How can a franchisor diminish the likelihood of a new franchisee’s success?

They oversaturate the market

When looking at a review of the most successful fast food franchises in recent years, there is only one relatively new entry on that list. One of the most successful new franchise operations, a chicken restaurant chain, helps drive the success of its franchisees by having very strict requirements not just for finances but professional history when choosing who can purchase a franchise opportunity with the company.

More importantly, the organization limits local operations so that there isn’t a glut of its restaurants in any given community. People will wait in long lines for products that they perceive as scarce or harder to come by and may bypass a business where there is total market saturation, as is the case with certain names that dominate the franchise restaurant industry.

They don’t provide adequate support

Someone investing in a franchise may have business management experience, or they may not. They will typically require training in everything from store operations to human resources management. The best franchise opportunities include comprehensive training and ongoing support from regional professionals that work directly for the franchisor. Additionally, franchisees largely depend, especially in the early years, on the local market contributions of the franchisor toward advertising. When a company doesn’t invest in reaching the local market, those that start a franchise in the area may have an uphill battle ahead of them.

Those hoping to invest in a franchise typically need to learn as much as possible about the local market and carefully evaluate their options so that they have the greatest chance of securing a reasonable return on their investment. Being able to identify the shortcomings of different franchise options may help those looking into specific business models for a near-future investment.

NOTICE: This blog is intended solely for informational purposes and should not be construed as providing legal advice. Please feel free to contact us with any questions you may have regarding this blog post.