2019/07/05(Source: FCオーナーズ運営事務局)
This article will discuss examples of franchise business failures and how to avoid them.
As a consultant, I have met many people who have joined franchise businesses. Many say their businesses have been successful and they have found their dream job, but I have also seen many who have failed. This time, I would like to discuss three examples of failures and how to avoid them. I hope this information will be helpful to those who are considering joining a franchise.
Failure Example 1: "Lack of Practical Skills on the Store Manager's Side"
Some owners fail because they think that with a franchise, anyone can manage the business because the headquarters has the know-how.
Unless you have abundant capital, most franchise owners start out as store managers. As the store becomes successful and expands to multiple locations, the owner's work shifts from practical operations to management, but they start as a store manager.
There are various types of franchises, so it's difficult to generalize, but basically, to run a store, you need practical skills such as managing employees and communicating with customers to turn them into repeat customers. Without those practical skills, even a franchise business with ample information and seemingly easy success rates is highly likely to end in failure.
Avoidance Strategies:
Gain work experience in the same industry before joining a franchise, or hire someone with practical skills as a store manager before joining the franchise.
To acquire at least the minimum practical skills, it might be a good idea to work as an employee in the industry you are considering joining. Even a year of work will provide considerable information and skills. This information and these skills will be extremely useful when you open your own franchise. With a few exceptions, successful franchise owners I know all have some experience in their respective industries.
Alternatively, if you have sufficient funds, find a store manager candidate with experience and high practical skills in the industry before opening your own franchise.
In the case of a retail business, the situation changes significantly depending on the store manager. With a highly skilled store manager, good operation is possible. Even if the location isn't ideal, you'll gradually build a base of regular customers and become profitable.
Failure Example 2: "Managing Businesses in Your Own Way"
There are owners who, despite joining a franchise, refuse to learn from the franchisor.
One owner I consulted with was experiencing significant losses, but he told the franchisor's employees not to come to the store anymore because he didn't like them, saying he would do things his own way. This owner adopted a customer-centric attitude, treating the franchisor's employees arrogantly, and failed to build a good relationship with the franchisor. Naturally, in such a situation, it becomes difficult for valuable information that should be available from the franchisor to reach the franchisee.
A major advantage of joining a franchise is gaining access to the know-how accumulated by the franchisor.
This know-how is not limited to what is written in the manuals distributed during training after joining the franchise. This is because the franchisor collects know-how generated from the daily operations of franchisees nationwide, and this information for success is constantly evolving. Furthermore, even within the same franchise chain, the measures that should be taken will differ depending on the current situation of the store. By correctly understanding the current situation, you can effectively utilize the franchisor's know-how. Accurately understanding the current situation and selecting appropriate measures is where the expertise of franchise headquarters staff becomes invaluable. Franchise headquarters staff have observed numerous franchisees, and their knowledge and information are extremely beneficial for franchisee success.
Avoidance Strategy:
Build a good relationship with franchise headquarters and create an environment where you can obtain the information necessary for success.
After joining a franchise, building a good relationship with franchise headquarters staff and creating an environment where you can easily contact them at any time is crucial for success. Create an environment where good information easily reaches franchisees.
The relationship between franchise headquarters and franchisees is not that of service provider and customer. It is important to view franchise headquarters as a business partner and to have a humble attitude of learning from them. Furthermore, you should attend seminars hosted by franchise headquarters, even if you are busy. The latest information gained there will undoubtedly be useful in your daily management. Also, connecting with other franchise owners who attend these seminars is extremely valuable.
While I said to build a good relationship with franchise headquarters staff, as people are, there will be those you get along with and those you don't. Therefore, before joining a franchise, try to meet with the supervisor in your desired store location as much as possible. If you are dissatisfied with the supervisor, request a change of supervisor from the franchisor before deciding whether to proceed with the franchise agreement.
It's crucial to determine whether you feel you can build a successful store together with your assigned supervisor. Assess whether the supervisor is easy to talk to, provides appropriate advice, and offers support.
Failure Example 3: "Insufficient Working Capital"
Some franchise owners experience a cash shortage within six months of opening a franchise. While franchise recruitment materials often include an estimate of the initial investment, they frequently don't specify how much working capital is needed. This is because it's impossible to give a single, universally applicable amount of working capital. Therefore, if you join without adequately preparing working capital and your business doesn't take off as expected, you'll quickly run out of funds. While it's ideal to receive a loan from a bank or the franchisor, if that's not possible, you'll be forced to sell or close your store immediately.
Avoidance Strategies:
Prepare sufficient funds to withstand potential business failures before joining a franchise.
Don't assume the business will go exactly as planned by the franchise headquarters; create your own financial plan for unsuccessful scenarios. It's also recommended to prepare enough working capital to operate for at least a year, even if sales are minimal. If the business is still operating at a loss after a year of effort, it's extremely difficult to turn it into a thriving business. Therefore, selling or closing the business might be the wiser option.
When applying for a loan, consider not only the initial investment but also the working capital.
Summary
A franchise is a package of a successful business model, and the chances of success are higher than starting a business from scratch. However, it's still about independence, so don't neglect preparation. This includes preparing sufficient funds before starting the business and developing the skills necessary to become a business owner. Actively learning from others (such as the franchise headquarters) is also crucial. Those who can implement these measures have a high probability of success in a franchise business.
[Article Supervisor Profile]
Tsuyoshi Morita
Certified Management Consultant
He worked at a major franchise consulting company listed on the First Section of the Tokyo Stock Exchange, providing support for franchise development in the food and beverage industry, tutoring centers, etc. His support included business strategy development, store opening, personnel recruitment, fundraising, and operational support for store management. He then studied business management at a business school (MBA) and currently manages two restaurants in the Philippines. His restaurant, GO GO CAFE, is a highly popular restaurant in Cebu and has been featured in various media outlets. It has been featured on the Philippines' most well-known information programs and newspapers, and in Japan, on the popular TBS program, "World Summer Resort."
In the future, he plans to work as a franchise management consultant, supporting franchise chains in their overseas expansion into Southeast Asia.
GO GO CAFE: https://www.facebook.com/gogocafe.cebu/?ref=bookmarks
AJITO: https://www.facebook.com/ajito20150504.cebu/
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