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Franext Consultancy | Franchise Development & Market Research Consultant
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Published Apr 25, 2023
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It is imperative to issue a stern warning that franchises, contrary to what some brokers, consultants, and even franchisors might claim, are not failproof. As with any business endeavour, there are inherent risks involved, and it is crucial for potential franchisees to approach the opportunity with diligence and caution. By understanding the reasons behind franchise failures and carefully evaluating any franchise opportunity, individuals can make informed decisions and mitigate the risks associated with investing in a franchise.
The success of any franchise business is determined by the combined efforts of the franchisor, franchisee, and master franchisee. However, even with the best intentions, some franchises fail to achieve their objectives. This article explores the top 11 reasons why franchises fail, offering insights from the perspectives of the franchisor, franchisee, and master franchisee. We will also discuss a published case study to help illustrate these points.
Case Study: Quiznos Sub
Quiznos, a popular sandwich chain, experienced a significant decline in the early 2000s. One of the key factors contributing to its failure was the lack of effective marketing strategies. Quiznos failed to differentiate itself from its competitors, leading to a loss in market share and store closures.
A widely cited statistic from the U.S. Bureau of Labor Statistics states that about 20% of small businesses fail within the first year, and about 50% fail within the first five years.
Franchises tend to have a slightly lower failure rate compared to independent small businesses, as they come with established systems, brand recognition, and franchisor support. According to a study conducted by Dr. Timothy Bates, a professor at Wayne State University, the failure rate for franchises over a four-year period was about 38%, while the rate for independent small businesses was around 65%.
Nevertheless, it is crucial to keep in mind that these figures are not universally applicable, and the success of a franchise depends on various factors such as the franchisor's support, the franchisee's management skills, and market conditions. Potential franchisees should conduct thorough research and due diligence before investing in a franchise to minimize their risk of failure.
This article presents the personal opinion ofZainal, the Managing Director ofFranext Pte. Ltd. Malaysia, a consultancy company in the franchise development and market research industry. In this article, Zainal shares his insights on this field, drawing from his extensive experience and expertise. If you would like more information or questions, please call him at +60108319772,WhatsAppor email himhere
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