It has been seen many times. The latest franchised business opens its doors, only to close them within months.
Like all businesses, franchised businesses do fail – though at a statistically lower rate. But why do some franchised businesses fail when others succeed – what makes a franchised business successful?
We can explain this by adopting the analogy of a three-legged stool. We know if a leg is missing or dodgy, the stool falls over.
So let’s look at the three legs that can help make a franchised business succeed.
When we think brand, we think product. However, when we are talking about a franchised business, there is a lot more than the consumer-facing offering that constitutes the brand.
It includes systems and processes, and supply agreements, through to the training of franchisees and staff.
Franchisee support and marketing are also critical success factor.
Finally, the softer elements – the company culture and psychology – matter more than you might think.
It would be easy to attribute success, or failure, solely to the brand. In other words to a poor offering that lacks significant market appeal.
Yes, this often can be the case, as evidenced by whole systems failing or disappearing from the commercial landscape.
The linkage to failure when a brand is not well-designed, or well-delivered is obvious.
However, this does not explain why we have individual site or franchise failures in very successful brands.
There are other key factors at play – the other two legs.
The market positioning
Well-established brands will have known success indicators, which can be matched against statistical socio-economic data when evaluating a market in which to establish.
Market positioning also includes the physical location. Some obvious positions work, such as cafes on the going to work side of the road, fuel and takeaways on the going home side.
The wrong side of the road can literally break many franchised businesses. Also obvious is the impact of timing and trends, including seasonality.
A retail surf shop that opens in April may not make it through winter, whereas the same business opened in October could be extremely successful.
There are also other less obvious market positioning factors, such as direct competition offering the same or similar product and services or perhaps alternatives.
Any of these factors can result in even the best of brands not surviving if they are in the wrong location, the wrong market or even if established within the wrong time frame or period.
But why do some franchised businesses work really well and then suddenly disappear?
Or perhaps harder to explain, why do some seem to initially struggle and then become extremely successful?
The franchisee factor
It’s no surprise to learn that the third leg of the stool for a successful franchised business is the franchisee. What is surprising is the extent to which the franchisee influences success.
Research conducted by The Franchise Relationships Institute suggests that the success or failure of a franchised business can be influenced by the franchisee by as much as 40 percent.
This doesn’t negate the value or importance of the brand or market positioning, but it does highlight the importance of a franchisee being aligned with the brand and their ability to use and implement the systems at their disposal.
The three legs supporting a successful franchised business may need to be equally strong, but do they carry the same load?
From time to time the weight may vary, but each leg is critical for an individual franchised business to be successful.
This needs to be remembered and considered by all stakeholders – franchisors, franchisees, landlords and all financially interested parties.