Under-Capitalization Is The Single Biggest Reason For Franchisee Failure?
The post itself isn’t all that meaningful, basically it’s a statement of the obvious, but the comments are the meat of the conversation.
They didn’t fail for a number of reasons and chief among them was that they had a better plan. Some even had a proven system. If they followed the system, they didn’t fail. They may have still stumbled for a period of time, but if they made good on following the system, they made good on succeeding in their business.
I do not believe that under-capitalization is the single biggest reason for franchisee failure. I believe that not following a proven system is the single biggest reason for franchisee failure.
Under-Capitalization Is The Single Biggest Reason For Franchisee Failure
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August 18th, 2008 at 8:39 am
I would like to see a definitive definition with guidelines for the term “proven system”
What, Where, Why & How would be a good start. In my opinion it just seems to be a subjective description for any franchised “product” being sold. There seems to be no over-sight, that I can see, that guarantees that a “proven system” has been proven. What does that really mean?
In my opinion when that term is thrown out there is automatically legitimizes in a persons mind whatever the product is that is being marketed.
August 18th, 2008 at 8:46 am
I wish the FTC would step in and hold the franchises accountable for stating they have a proven system. I have a nightmare over and over. The weak I went to training to learn the proven system, the corporate store was so short on clients, we had to travel to another owner’s store to do training. By that point when I saw that, we were 1 week from being done with build-out, couldn’t do a darn thing about it. I got through it by looking at other stores and seeing their ‘full schedules’ which now I realize was part of the marketing system to show those sessions as full. Who holds the people accountable that we investigated, researched, and listened to?
August 18th, 2008 at 8:52 am
Sorry, I hit the wrong key and published.
The one problem we had was that numbers for operating capitol were based on sales figures estimates and recommendations from our franchisor. We know now that the operating capitol recommendation was grossly underestimated. However, there are very few small businesses that have unlimited or even limited reserves of capital. If you can’t show a potential or trend of growth no bank is going to give you additional credit for operating capitol and personal capitol is usually quickly drained.
I know of at least one instance that the initial operation was financed privately through family and so no banks were involved. The financier may not get a ROI, but it also means that there are no loans to outside institutions that have to be met. That is what cripples an MA the most. But again how many people have access to that kind of cash?
I think the comments made were great and it was an interesting read for me. The success stories were indeed inspirational, but in today’s economic climate I’m not sure of those kinds of “success” stories are realistic. The other point that has been made before is that the cash flow for most franchised businesses flows upward away from the franchisee.
August 18th, 2008 at 8:56 am
Guest,
No one.
August 18th, 2008 at 10:13 am
Guest … I feel your pain. My husband and I were just talking about our ‘training week’. I went to the training week alone and I remember when it hit me that this was not going to be anything like what we had been sold. I remember calling him after our ‘in-store training’ and I was crying because I knew we were involved in a fraud. And yet, you are 1 week from completing build-out and you just feel completely stuck.
I remember being told that we couldn’t go to training until we were ready to open because so many people had ’stolen’ the system and it was to protect their ‘rights’. I know now that it was because they had to have you in that trapped position or you would have never opened in the first place.
Sometimes, I just feel like the biggest sucker ever. We are now coming up on our first year of freedom of MA. I’ve become very reflective as of late but I still have not reached the point where I can say I’m glad I did it. I wish I had never, ever, ever given MA a chance. I have a first-class degree from the school of hard-knocks.
August 18th, 2008 at 11:49 am
I know a lot of the people who post here that feel the same way.
I remembered those things you posted about training and the lack of customers about 6 months after we closed-lack of people in the session, more newly- minted franchisee’s at the sessions than customers.
You are WAY ahead of the curve on that one!
The other day I had a flash-back of getting the news that our build-out was going to be an extra $70,000 above what we budgeted(told by out franchisor we would need) I remember I flopped onto my bed an cried hysterically thinking it was the worst day of my life how were we going to raise another $30,000?- but because I was so convinced this was the right thing to do that I just thought my world had ended! I cried & dusted myself off and promptly went another $30,000 in debt by taking out an additional loan to cover the costs.
I know now that the worst day of my life was NOT that day.
I cringe everytime I see a person who is thinking about opening an MA.