Is Your Business Built to Last? Why Emerging Franchises Fail

Taking the leap to franchise your business is exciting, but it requires careful planning. Think of it like building a new home – you wouldn’t pour the foundation without meeting with an architect to develop the blueprints. The same applies to franchising. Just because you’ve created a successful business concept doesn’t mean it’s ready to share with the world.

In my experience working with emerging franchisors at The Entrepreneur’s Source, many stumble because of early-stage mistakes, rather than a flawed concept. The journey from a single location to a thriving franchise system is filled with potential pitfalls that can derail even the most promising brands.

Understanding these challenges is the first step to building a foundation for sustainable, scalable growth. With the right strategy, you can avoid common errors and create a lasting brand.

The pitfall of short-term wins

One of the most common mistakes new franchisors make is focusing on the wrong financial wins. Receiving the initial fees paid by a new franchisee is an exciting moment, and the influx of cash can make you feel like all your entrepreneurial dreams are coming true. However, this first payment is not a sign of long-term success. True profitability won’t come from startup fees from one or two franchises; the brand will need many to achieve franchise self-sufficiency. This means your system can support itself based on the ongoing production and success of its franchisees.

Franchise fees are a one-time boost. Sustainable business models are built on the long-term revenue generated through royalties. Chasing initial fees often leads to a dangerous numbers game, where the goal becomes selling as many franchises as possible without considering the long-term impact.

Lacking a standardized process

Launching a franchise system from the ground up can feel overwhelming, especially without a defined process. Lacking guidance, many new franchisors end up with inconsistent procedures for attaining new franchisees. This haphazard approach results in every candidate having a different experience, which creates confusion.

A structured process guarantees every potential franchisee goes through the same steps. This might include an introductory presentation, a deeper dive into marketing and franchisee support, or calls with leadership. Consistency puts you in the driver’s seat, steering candidates through a successful process that ensures they are fully vetted before the franchise is awarded.

The difference between selling and awarding

The pressure to expand adds another critical error: selling franchises quickly rather than awarding them thoughtfully.Studies show franchise failure rates can run as high as 50 percent within the first five years, and the first 10-15 franchisees often determine whether a brand thrives or fails.

Those early franchisees are the most important ones, acting as the foundation on which the brand's reputation and validation will be built. That’s why it’s imperative to understand the difference between selling and awarding.

• Selling: This approach focuses on securing a signature and a check. It often means rushing candidates through the process and pressuring them to sign. This can attract franchisees who aren't ready or aren’t the right fit for your culture, putting your brand and system at risk of failing.
• Awarding: This meticulous process focuses on finding the right business partners while creating a consistent experience that educates candidates, builds relationships, and ensures alignment on priorities and goals. It’s about being selective and recognizing it's better to walk away from the wrong candidate than risk awarding a franchise to someone unprepared for success. One struggling franchisee can affect the entire system.

Setting up your franchise for success

Avoiding these pitfalls requires a shift in mindset from short-term gains to long-term, sustainable growth. For emerging franchisors, programs tailored to their unique needs provide the necessary framework to succeed. These programs take a practical, hands-on approach, supplying the tools, resources, and procedures needed to build a successful awards and onboarding process.

The goal isn't just to reach a certain number of units, but instead to build a system of successful franchisees. By carefully awarding franchises to the right partners, preparing them to be self-sufficient, and implementing a consistent, supportive process from day one, you can navigate the challenges of the emerging franchise landscape and build a brand that stands the test of time.

Susan Stilwell is an executive at The Entrepreneur’s Source, North America’s leading career ownership coaching organization that has guided thousands of professionals through career transitions, where she oversees the ZorCoach program designed to aid development for emerging franchisors.