1800 TV MAGICThere are only two reasons why franchise businesses fail
Before we explain those two reasons; it must be said that statistically franchising has a much higher % of success rate (than non-franchised businesses) including the, "not so good" franchise models.
It has been reported that over 80% of businesses fail within their first 12 months...(non-franchised)
..and of that remaining twenty percent .. 90% of those are no longer around 5 years later.
In franchising however, you can nearly invert those statistics. Flip that on its head.
The statistics in franchising were that 80% of start ups succeed and only 20% fail.
If twenty(20) % of franchise startups still fail, why?
Why isn't it 100% success?
Here's why..
"WHAT ARE THE TWO REASONS BEHIND THOSE FAILING 20%? "
There are only two reasons why franchise businesses fail
- The failure of the business came down to the franchisee not following a system (usually due to personal setbacks / circumstances that are often unrelated to business- think poor health, relationships etc) .. and they would have equally failed had they had a non-franchised business;
- They invested in poor franchise business model - statiscally and mathematically the model was designed to reward the franchisor more than the franchisee. The expectations were unrealistic, there was a lack of support/leadership, inadequate training or poor site selection etc
About #1 - Every Good Franchise Brand does its best to filter out poor candidates - Poor Franchise models say "yes" to anyone who will write them a cheque.
Granted! It can be ANYONE'S MISFORTURNE that you could be the STRONGEST OPERATOR in the world and one day you BECOME A "POOR OPERATOR"
Why? Because Life happens!
It happens to the best of us. It could be a divorce, a relationship break-down, a sick child, a death in the family, a sports injury, the finding of new love, the necessity to move home/s, sickness or a million other reasons.
And unfortunate circumstances happen to just about everybody - and everybody handles it differently. If you are a business owner you can expect that your personal life will effect your business life and your business life will effect your personal life!
PLEASE NOTE!
That business owners are not the only ones effected. A personal setback would effect your normal P.A.Y.G job / career just the same!
A non-franchise business owner who is a high performer and is suddenly struck by misfortune is equally effected.
Franchisors have helped more people start a business than the number of times you have problably started a business.
Here's what GOOD franchisors are looking for!
Many of the 'good franchisors' have had their fair share of speaking to prospects who have an opinion on franchising. When the question is asked: "Does franchising work?" or "What makes you any different to any other franchise brand?" We understand that what they are really asking is (that they are unaware of is) "Is the franchise brand I am enquirying about a "Good egg" / "a good opportunity" or is it a "bad one"?
The answer to this question is simpler than you might think - Does the franchisor "give a shit" or don't they? Do they believe in the whole concept of franchising - the "win / win / win" concept? For if they do, this automatically & dramatically increases the LIKELIHOODihood of providing a successful business model for you as a prospect. You see, mathematically it doesn't matter what the start up costs or ongoing fees are.. every industry is different. For example if a business costs just sixty-three dollars ($63) and you are GUARANTEED an income of two-hundred and fifty dollars($250) profit per year .. by definition and technically that's a successful, profitable business! Or if a business had an entry level of $1million and in the purchase of the business you are guaranteed $15million in annual revenue and the ongoing fees are $14million every year... (so you only got to keep $1million out of $15mil you make) you still have a $1million per year profit lets say) - by definition that's success too! and very attractive! The problem is.. some franchisors care more about the money they're going to make - more than their people and their success. THIS IS A HUGE PROBLEM.
Where everything falls apart is when we talk about LIKELIHOODS and the 'greed factor' of a franchisor. For some new franchisors they don't know what they don't know .. and they "accidently" have a poor business model (of course they believe it's great and will sell you "on how great it is"). What you may not know is that some of the MOST SUCCESSFUL FRANCHISE BRANDS IN THE WORLD didn't sell their first franchises! They actually granted their first bunch of franchise stores / units for free and made OUTRAGEOUS GUARANTEES and RISK NUETRAL GUARANTEES because they cared MORE about the reputation more about their customers and people; than the gain of one extra sale. They matured and perfected their business model first - before they went to market and started selling franchise territories. They essentially earnt their stripes /badges by way of sacrifice; by proving their concept over a minimum of a dozen franchisees (whom didn't reward the franchisor much in the beginning) before they then started to sell the franchise for what it was really worth. If there was one way to learn about what the opportunity you're considering getting into it's to ask the following two questions 1. How they started and 2. Is what they're doing now the same as what they did in the beginning? Or are you now being squeezed into an oversaturated brand?
Please note: The Psychology behind "Over-saturation" is one that must be backed by facts and real statistics. It is true that a brand can expand and grow the more it saturates the market... this growth however usually reaches a point (at some stage) where each extra echelon of growth or extra branch opening - stops having the same efficiency - this is know as the LAW OF DIMINISHING RETURNS. If you've invested into a franchise system at that time; the only efficiency you're likely creating is growth for the brand name - not for your pockets. The strong franchise brands of Globe are aware of 'Over Saturation'.. unfortunately it would seem that only 50% of franchisors are aware (or care) about over-saturation.
Why is it that they don't care? No doubt all franchisors want to grow .. the more they grow .. the bigger the brand becomes. What's often ignored is- with that growth; comes the potential to hit that ceiling of diminishing returns. That's why we are constantly looking for ways to grow and augment the business model internally or diversify into other income streams within the same model - to enable 'deserved growth' and the right to sell extra / divide territories. If a franchisor is not doing that:- They may just be giving franchising a bad name. If the rate of franchisee success is not over 80% - the model is not providing any real reason why a franchise prospect SHOULD invest in their model as opposed to trying it on their own. For Australian franchise brands - that's why some of the BEST - "GOLDEN" OPPORTUNITIES to get into a franchise system is to choose one that has between 20-60 franchisees. Your investment is low risk because it would be deemed that the franchise is very successful (they have a minimum of 20 x proven cases) and you're not entering into an over-saturated franchise brand. The only other GOLDEN OPPORTUNITY is where you are considering a very well established franchise brand and a TERRITORY RESALE opportunity comes up; and you're buying an already-established business within a strong network. Please note: The topic of 'over-saturation' predominently applies to metropolitan / larger towns/cities. If you are in interested in taking a franchise concept into any new, regional area - do not be as concerned about over-saturation. Do not ignore it completely! But do not be "as concerned". The question/s you should ask your potential franchisor is - how many other territories are available for sale around me? And will I be the only one? OR will I potentially be sharing this (x area) with future franchiseees?
Where many new Franchise founders fall short, is that they can too much emphasis on the profits and not on what the concept / brand was meant to stand for. The scales are too far tipped towards putting money in the bank and not enough counter weight on the value provided for its franchisees or for the end user (customers).
In franchising you're not deemed proven / successful by banks / other franchise brands until you hit that magic number of 15x franchisees.
These new franchisors often think that they've done all the work building their successful business model and now they are just thinking about selling the concept over and over again and 'gettting paid forever for it'.
In any (most franchises) you will have a franchise fee "royalty" and this is paid regardless of your franchise business being a success or a failure or not. One thing that TV Magic and many of the 'good forces' of franchises think about is : well we don't actually deserve that royalty unless we're providing value! We recognise that if we are privileged to have a franchsiee invest in our brand.. we recognise that they could equally go out there and attempt to start the business themselves! So the BIG QUESTION is - what does the royalty give me? Is value stacked so high in exchange for that royalty/ franchisee fee that they would be nuts to not pay it? ?? ooorrr are they better off going out on their own ? - because going out on there own would mean they would save that $$ and earn more? If you don't know the answer to that question and you're considering any franchise then perhaps you should think twice about the franchise model you're investing in! We tell you this - not because we want to risk convincing you NOT to buy one of our franchise territories.. but because we MOST DEFINITELY don't want you to buy one of the "bad franchise brands" where you'll become another 'statistic' that's adding to the mass consciousness that "franchising is not a good idea!"
The attitude we have is simply this: - if the franchisee would genuinely earn more by going out on their own... why do we have a fee to begin with!? The whole idea is help people.. it's what the franchise brand stands for right? Having a successful model that people can tap into? and there's a genuine HIGH PROBABILITY that they will succeed! Because the franchisor isn't greedy, the fees are providing value in many forms that help the business make EVEN MORE IN COMPARISON (to going out on their own) and the VALUE OUTWEIGHS its own expense and 100% NEGATES / cancels out the "expense of paying the fee" in the first place! Otherwise, why have it!!!?? TV Magic has 15x Value Adds to offset its franchisee fees Learn More Here - Their franchisees would be 'nuts' to leave (and they know it!) & that's why their successful & happy. TV Magic isn't the only franchise model with stacked 'value -adds' but whatever franchise concept you're investing in - be sure to ask the question and understand it!
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