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Franchise lifecycle stage disrupts operations
Written on the 14 July 2009 by Fiona Taylor
Entering a more mature franchise system may not necessarily involve less risk than entering a newer franchise, according to leading researcher Professor Lorelle Frazer.
Research conducted by Professor Frazer, who is Director of the Asia-Pacific Centre for Franchising Excellence, looked at whether there was a link between possible causes for franchise disruption and different stages of the franchise lifecycle.
Professor Frazer said although antidotal evidence suggested it was less risky for potential franchisees to invest in a well-established franchise, surprisingly the research indicated larger, older franchises were more likely to experience disruption.
Disruption was considered in terms of the number of substantial disputes with franchisees, as well as the number of outlets that were franchised and now closed, company-owned or run independently.
“Most people assume entering a more mature, well established franchise system involves less risk, however the research reveals this is not necessarily the case,” Professor Frazer said.
“Older and larger franchises are more likely to suffer problems between franchisor and franchisees that result in substantial disputes, which are often severely disruptive and costly — financially and morally.”
This has important implications for franchisors and franchisees and is a trade-off investors must consider when choosing a suitable franchise.
“It seems communication problems are the greatest cause of disruption, and more mature systems generally have more complex communication requirements which could explain why they generally experience the greatest problems,” Professor Frazer said.
“However, not all mature franchise systems experience high levels of disruption nor are all smaller systems necessarily free of disruption, which is why due diligence is so important.
“Any phase of a franchise’s lifecycle involves risk – from the introductory stage, to growth, maturity and eventual decline – so although the common train of thought is it’s safer to enter a more mature franchise this may not necessarily be the case.”
Author: Fiona Taylor