Assumptions You Should Never Make When Starting a Franchise

Thinking of starting a franchise? The franchising industry in the US accounts for $787.5 billion of economic output. Moreover, franchises have an estimated success rate of approximately 90%, far higher than independent small businesses. On paper, at least, franchising looks like a great way to get your foot in the business door. 

But franchise failure happens. In fact, with an average of 773,000 franchise establishments in the US, even 10% failure rates include many franchises each year. As a business owner, that’s terrible news and can come as even more of a blow than trying to start from scratch. After all, surely you have to screw up pretty badly to fall flat with a franchise?

Or perhaps not. In reality, franchises aren’t the ‘business-in-a-box’ many of us assume them to be. Starting a franchise is not easy. Franchise owners have to put in a great deal of work to see them succeed. And, if success doesn’t happen, it’s often because franchisees make the following fatal assumptions. 

Assumption 1: Your Overheads Will be Low

You know what they say about assumptions….well, never is that more evident than with the franchisee who doesn’t bother to save up any capital. Who would do such a thing, you ask? A surprising amount of franchisees, that’s who. After all, a franchise isn’t a new business, and it can be cheaper to start than a brand from scratch. But, franchise overheads can also vary a great deal, from as little as $10,000 to $5 million or more. 

On average, costs are between $100,000 and $300,000. After all, you’re paying for a brand, not your business space, equipment, or staffing. THOSE costs are extra. Remember, too, that, like any business, a franchise might not be profitable for up to a year after your initial outlays. Assuming low overheads and starting with less capital reduces your chances of surviving through that year. So, franchise or not, you should never start a new business pursuit without ample money in the bank to last you. 

Assumption 2: The Name Will Speak for Itself

If we had a dollar for every time a franchisee made the mistake of assuming a brand’s name would market itself, we’d be rich enough to earn the capital missing in that first point.

In reality, building on an established brand isn’t enough to ensure attention or success. Are you instantly better positioned on opening day with that brand logo in your window? Yes. Will people keep coming back if you fail to deliver a quality service or overlook marketing efforts altogether? Probably not. 

The simple fact is that when you’re part of a franchise, there’s likely another store serving the same base products a few towns away. If their service/marketing/general business acumen outstrips yours, even local customers will go further. They’ll get the same product for a little extra effort, but your chain won’t feel any of the benefits of starting a franchise. Hence, perfecting things like staff training and top-notch equipment is vital.

Franchise marketing is also incredibly important and should include things like digital campaigns and brand audits from a company with specific knowledge of how to help a franchise stand out. That way, consumers will never need to head to your direct competitors because no one could rock that brand better than you.

Assumption 3: You Don’t Need Specialist Knowledge

Most of us wouldn’t consider starting a business from scratch in a field we know nothing about. As well as lacking passion for the project, we simply wouldn’t know where to start. But starting a franchise? Well, that’s a ready-established brand, and too often, franchisees consider potential returns before they think about their own skill sets. That can quickly become fatal. 

The simple fact is that while you might not need a specialist standing to get your franchise brand off the ground, you do need to know your stuff to ensure it succeeds. For instance, you need hospitality experience to successfully handle a fast food chain that will require quick service, quality, regulated food prep, and fast food promotions. Equally, if you’re franchising a hotel but have no idea about entertainment, cleaning protocols, and swimming pools, you could quickly get shut down or boycotted. Instead, you need to feel comfortable taking on whatever mantel you’ve chosen based on literal job experience or training you’ve already had. 

Assumption 4: Thinking Your Franchise Can Operate as an Island

Your business is your baby, and you’ll have your own ideas about how to keep it in tip-top shape. In fairness, you’re also within your rights to implement things like your training, equipment, and systems as long as you stick to your franchisor’s values and contractual concerns. However, the power of a franchise comes not from an individual chain but from a collective group outlook. If you’re constantly refusing your franchisor’s suggestions or refuse to use things like a whole-company ordering system, then you’re at risk of becoming a weak link. 

The reality is that while you might know some of what’s good for your local audience and specific space, a franchisor has a much bigger picture of brand success. They’re also experienced in working with various franchises. They will suggest things like whole-business systems of operation based on a whole load of stats and data you’ll never be able to collect.

In particular, deviating from the continuity of the things about a franchise brand that consumers have come to expect (e.g. a certain online ordering system, or a specific restaurant layout), will lead to disappointment and confusion. And, that’s regardless of how well your unique plan is executed. Don’t let it happen – accept and embrace your franchise as part of an established whole. 

Takeaway on Starting a Franchise

Starting a franchise can be a great first business or just a lower-risk business undertaking for any entrepreneur. You simply need to avoid falling into that 10% bracket of franchise failure by avoiding these assumptions as soon as you consider creating your franchising dream.