Why Do Franchises Fail?

One of the greatest mysteries of franchising is not knowing why franchises fail until it actually occurs, According to a recent study, the success rate of franchises is only 40% globally but still franchising is the most successful selling business model. A Subway or a Papa John’s would be too crowded at some locations and totally deserted in some other locations. It would be the same case with many other franchising categories like entertainment, fitness, education, healthcare, automobile and so on so forth.

Various factors affect businesses, if taking a franchise is on your mind you should consider the following suggestions a bit seriously. Let’s look into the surface level reasons why most of the franchises fail and learn out of it.

Wrong branding execution

Branding is of two types, ATL (above the line) and BTL(below the line), to keep it simple, ATL branding aims at creating brand visibility, whereas BTL branding is area/unit-specific which aims at conversions.

Television commercials and newspaper ads fall under ATL, Flyer insertion, kiosk put up, Standee or a Local theatre Ads come under BTL. ATL is generally franchisor responsibility and  BTL is done by the franchisee to generate immediate footfalls.

There is a famous saying ”if you blink at a girl in dark, it is only you who knew it, not even the girl”, the result is same with the business that is launched with wrong branding execution. Either your franchisor should guide you with an ATL and BTL branding strategy to target the customers or you should take the support of a branding expert well before the launch. The first impression is always the best impression, branding should create curiosity among the audience to step into your premises.

Wrong business location

Independent building with a good frontage space in the ground floor for a preschool, commercial shutter space with spacious lounge and valet parking for a coffee shop, spacious full floor with a rooftop for a bar/pub are the most ideal real estates for successful businesses, relate this with few successful businesses you know, they all have sizeable and exceptional real estate which fits for the purpose.

Too many franchisors take a passive or hands-off approach in identifying and negotiating a favourable property for the franchise, hence the franchise has to do an tremendous groundwork in identifying the right business location.

Adverse climatic and cultural conditions

Launching a cold coffee bar at the Himalayas or a leather jacket store in Chennai is really a bad idea, considering the climatic conditions, the chances of a favourable outcome is very sleek. A Dhokla (Gujarati breakfast item) outlet at Orissa or an Idly shop in Punjab is also a foolish idea as the cultural eating habits are different.

One of my friends spotted a busy Vadapav centre in Mumbai and launched its franchise at Vishakapattanam, no one was interested in eating it, he closed it in less than 6 months. The product you choose should always gel up with climatic conditions, locals lifestyle and cultural practices.

Having too many working partners 

Doing business with your friend or relative sounds good initially, later there are fair chances of a difference of opinion and change in interests which may lead to the collapse of your business. Try to avoid partners, if not, at least try to bring less working partners on board and let every partner take charge of what they are good at and never cross paths.

High manpower cost

I have done consulting to a restaurant in the recent past and noticed too much manpower being used, due to this high overheads, the ROI has gone for toss, although I suggested that they can run the show with just 1/4th of the force what they have now, they declined to do so as there are too many absentees every day and they need these extra force for backup, later we differentiated skilled workers and unskilled workers, skilled workers were cut down to the necessary volume and unskilled were outsourced to an agency which ensured 100% attendance at work.

It is always suggested to take timely suggestions from experts to cut corners.

Franchisor inability to deliver promises

Franchisor responsibility is to ensure good branding, training, technology and R&D support to its franchise. But in reality, many fail in delivering it, this will do serious damage to the business. A well-known Coffee shop brand which is doing great at Bengaluru failed to support its franchise units in Hyderabad which resulted in heavy losses to franchises, all the units stopped paying them royalty. In such cases, I suggest to issue a legal notice to the franchisor and quickly move out of it and make your unit a stand-alone till the conflict gets resolved.

Being Less active on the social platform

Imagine there was a famous marketing expert, who went unconscious 5 years ago and woke up just now, I strongly believe none of his earlier marketing techniques will work now, he has to start again from the scratch, he has to unlearn everything and relearn today’s digital marketing strategies. To my knowledge, the majority who get into franchising nowadays are around the age of 40, they have very minimal knowledge about social, online platform and its outreach, hence losing the benefits they get out of it, new franchises should educate themselves on the basics of digital marketing and should leave no stone unturned in reaching local target audience.

Always stick to the thumb rule of marketing, “Advertise where your customers are”, instead of putting a costly hoarding, try reaching your customers on Facebook, Twitter, LinkedIn and other social platforms which have the wider reach and cost-effective too.

Biz Innings

By Chaitanya Gundluri

Chaitanya Gundluri is a Serial Entrepreneur, Business Investor, Passionate Marketer, Business Blogger and an Influential Sales Leader.

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