Six Major Mistakes of Emerging Franchisors

There are over 500 start-up and emerging franchisors competing for only 3.6% of all new franchise sales. This situation makes it challenging for you to build your franchise system to sustainable levels. Many franchise founders start their franchise with a great deal of optimism and have invested significant money to build their franchise system only to find themselves with less than five outlets, three years later.

Being overly optimistic can lead you to make poor spending decisions. With a gluttony of poor advice out there, here are the six biggest mistakes you can make:

1. Seeking overly optimistic advice from franchise consultants or others. This creates unrealistic expectations that can lead you to make faulty decisions. It creates the impression that selling new franchises is easy.
2. Exhibiting at franchise trade shows which are very costly and rarely deliver results. At these shows, it’s common to find a large number of exhibiting franchisors with less than three to five franchisees. The cost of the show is better spent recruiting franchise prospects online.
3. Outsourcing the franchise sales process to franchise brokers which is costly. Brokers should be used to supplement franchise sales efforts not lead them. Brokers favor franchises that offer the highest commissions. This can lead you to charge a non-competitive franchise fee in order to help pay for the broker commission.
4. Approving a franchise candidate with weak qualifications. It will take discipline for you to turn down a candidate. The motivation to earn that initial franchise fee is hard to deny. However, it’s very important that you maintain standards when qualifying and approving franchise candidates. A failed franchisee can be costlier than simply losing a franchise fee.
5. Developing a poor franchise strategy. Our recent “Facts and Figures: Does the State of the Franchisor HQ Make a Difference in Success?” proves that the location of the franchisor headquarters (HQs) does not affect franchise success, but rather poor franchisee development is the problem. Granting new franchises in disparate geographic areas makes it very difficult to build brand recognition and support new franchisees. The most effective strategy is to develop new franchises in territories contiguous to franchisor HQs and migrating outward.
6. Overlooking data for strategic support. Today data is key. Making business decisions based on proper research and analysis is critical; how and where to develop new franchises, tracking franchisee profitability, strategic marketing strategies, consumer demographics, etc. Understanding the components of your business based on research is critical to success.

The challenges facing you can seem daunting at times. But by avoiding the previously mentioned six mistakes, you’re on your way to franchise system success. Be reminded that FranchiseGrade.com can help you avoid these major pitfalls and put you in a strategic position to sell franchises to the right candidates.