Why Franchisors Fail - and How To Help Them Succeed, Part 4

This is Part 4 of a series on why new and emerging franchise brands fail. In the first two parts, we discussed 8 reasons they fail. Part 3 began the discussion on how franchisors can get it right. The remaining installments will cover what they can do to succeed.

Investing your first million

Your first $150,000 to $250,000 should be used to surround yourself with smart people to make sure your systems are tight and franchise-ready. Then allocate $250,000 for for franchisees and a highly experienced franchisee recruiter. This $250,000 should come back in the form of franchise fee revenues, and the department should run at breakeven within a year. Expect no deals for 4 to 6 months, and anticipate 6 to 12 franchisees over the next 6 months. If your initial franchisees ramp up quickly and validate well, you can expect some rapid acceleration and growth from there.

Allocate an additional $500,000 to bring in key personnel such as VP of operations, field support, director of marketing, and finance. It would be great to have an additional $500,000 to $1 million on the sidelines to draw from for brand refinements, to round out the leadership team, and to cover emergencies or breakdowns on the way to royalty self-sufficiency.

Getting educated

One of the greatest things the IFA has ever done was to compile the ICFE Study Guide, an amazingly dense mind share of some of the most brilliant content experts in franchising. Most of what it takes to run a successful franchisor has been identified and fleshed out in this study guide. It's a great source of information to show new or would-be franchisors their blind spots: what they don't know that they don't know.

We also recommend bringing in an experienced and successful franchise executive on retainer early on to help you evaluate your model and personnel and determine your readiness. Notice we said "experienced and successful." Franchising is populated with franchise executives who are merely "clingers" with weak track records. We also recommend you attend the franchisor-focused conferences and events to get a better grasp on what you need to be concerned about as a franchisor.

Launching your concept

A franchisor's first inclination might be to bootstrap it, putting together a marginal program and hoping it is good enough to start, believing, "When I have more money, I will do it right."

Ask yourself this: If you were a smart franchise candidate, would you bet your farm on a company that was knowingly undercapitalized and didn't have the resources to go with their A-game? Of course you wouldn't. So, right out of the gate, an undercapitalized franchisor is set up to recruit B-level franchise candidates at best.

Is this how iconic brands are built? Is it any wonder bootstrapping franchisors and franchisees get chewed up in the marketplace?

Next time: Isn't there a better way?

Joe Mathews is a founding partner of Franchise Performance Group,, which specializes in franchisee recruitment, sales, and performance. Thomas Scott, senior consultant at FPG, is a franchise lead generation specialist and an expert in creating franchise websites, blogging, SEO, social media, and PR campaigns to recruit qualified franchisees. This is an excerpt from their recent e-book. Contact FPG at 615-628-8461 or joe@franchiseperformancegroup.com.

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