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How to avoid franchisee failure
Written on the 5 March 2013 by Lorelle Frazer
When a franchisee leaves a system, it may not always be on bad terms — they may have planned their exit, want to retire, feel they have reached their full potential in the franchise and seek a new challenge, or sell for a profit.
However some franchisees leave because they are disappointed.
To better understand why some franchisees become disappointed and leave a franchise business the Centre conducted interviews with 30 ex-franchisees and 30 franchisors.
Professor Frazer said it was important to understand the reasons for franchisee exits as every failed franchisee unit impacted on others in the franchise business.
"Further, in Australian franchise regulations, disclosure documents must include contact details of ex-franchisees," Professor Frazer said.
"By being aware of common characteristics shared by unsuccessful franchisees franchisors can make better franchisee recruitment decisions, franchisees can focus on areas for improvement and potential franchisees can better assess if franchising is for them."
Common characteristics among unsuccessful franchisees
When asked if they made suitable franchisees many failed franchisees freely admitted they lacked the appropriate skills or personality and were unable to build the business.
Professor Frazer said one of the main problems revealed through the research was they were not comfortable with ‘selling’ the product or service.
"Franchisees need to be good salespeople with a customer service orientation, regardless of which franchise business they’re with," Professor Frazer said.
Franchisee perception on the selection process
The majority of unsuccessful franchisees felt they had been selected on their ability to pay franchisee fees.
Other reasons given by franchisees were they believed their selection was based on their trade background, sales ability and personality.
Some franchisors admitted in the early days they may have selected franchisees primarily on their ability to pay, although as franchises matured franchisors became more savvy with their recruitment criteria.
Level of compliance by failed franchisees
A few of the franchisees admitted they didn’t fully comply with operational procedures, however didn’t feel these contributed to their poor performance.
Where are the unsuccessful franchisees now?
Most are in paid employment again and if had their time over would never get involved in franchising, Professor Frazer said.
"Some were able to sell their franchise unit when they exited, but many just walked away, suffering considerable financial loss," she said.
"However many felt it was not necessarily the fault of the franchise – franchising had just not been for them. And many were able to see the positive side of the experience, particularly if more than a year had passed."
Lessons learnt from franchise research
Franchisors and franchisees agreed franchisee selection was critical, with sales ability and business skills considered important skills for franchisee survival.
By understanding what causes franchisees to exit, franchise systems can take action to minimise risk for potential investors and disruption to the franchise business.
Author: Lorelle Frazer