Thank you for an informative article. As a new franchisor, I am constantly trying to improve my chances to build a successful franchise system. From my experience as a business owner, I think another reason for franchise failure, as well as any business failure, is a lack of concern for the customer. I can not tell you how many times businesses refuse to return my phone calls, provide shoddy work, and do not follow up on work completed. I feel that a lack of customer service drives customers away. Whether it is a local business, or a franchise, I do not think business owners have a real concern for their customer. It only takes a few minutes to ask a customer, “What can I do to improve service?”. It follows that if a business owner has a lack of customer service for their customer, then the franchisor has a lack of concern for the franchisee. One reason people buy a franchisee is for the support, otherwise the franchisee would start a business on their own. Lack of support means the franchisee may not feel that the parent company has its best interest at heart. The end result is poor performance by the franchisee, and ultimately, the collapse of the entire franchise system.

One, franchisors don’t treat the franchise relationship as an interdependent relationship where success at all levels in the organization is dependent on each party to the franchise agreement. Ignoring this fact causes franchisees to feel they’re treated like unappreciated employees, breaks down communications and ultimately fractions the system itself. This results in untimely royalty payments and focuses franchisor’s attention on collections and possible legal actions.

Second, franchisors, especially startups, whether out of necessity or overzealousness, use the practice of checkbook franchising. That’s the difference between selling a franchise and awarding a franchise. Just because a franchise candidate has the funds doesn’t mean he will be successful as a franchisee. Too many of these franchisees cause problems in all areas and affect the system as a whole resulting in closed units and legal problems. Both of which must be disclosed in disclosure documents that ultimately affects franchise sales.

In the end, franchisors experience reduced revenue streams in both royalties and franchise fees while increasing legal expenses. Once this cycle begins it’s extremely difficult to stop without drastic change.