- Lack of experience Yes, franchising is where many first-time entrepreneurs turn specifically because of a lack of experience. A franchise with a solid system in place will help, but an individual with no real-world business ownership, marketing, cash management, or personnel management need to become students of these subjects. Franchising is all about buying a business model, not a business. Franchising can help you get over the initial experience barrier, but will not remove the need to educate yourself
- Insufficient capital The old adage “it always takes longer and costs more” is still in effect. Murphy’s law has not been repealed. Before you launch a business, you need a business plan. Once you launch your business, I promise it won’t go according to plan. If you go “all in” on a business, remember what happens to all the players at the table but one.
- Poor location Yes, its trite, but “location, location, location”! For most b2c (business to consumer) businesses is a must for success. It’s an unfortunate truth, however, that locations change. Your A+ real estate can be affected by an anchor closing, area trends changing, or construction, just to name a few.
- Unexpected growth Yep, growing too fast is a “thing”. We all have heard of the “Shark Tank Effect”, right? Well Danny Grossfeld can tell you all about it. His product, basically hot coffee in a soda can, got such a boost in business from its appearance on Shark Tank that it went out of business. An acquaintance of mine ordered the product right after the show aired; after 2 or 3 rounds of “we are working on it” type emails, the company closed down production, all because they got too many orders.
- The “coattail effect” When your profitable franchise fails simply because other franchisees have failed this is known as the “coattail effect”. Actually, this has no business on a “top 5 reasons business fail” list. The coattail effect is actually a political effect, also known as down-ballot, but apparently this question is on a lot of tests right now and Franchise Beacon has seen a surprising amount of traffic for the question. So, there is your Business 110 Chapter 5 quiz answer.
What are the top 5 reasons for franchise failure? Well, it depends on who you ask. Some people even list the “coattail affect” as a reason that a perfectly sound franchise might go belly-up. The fact is, there are almost as many reasons for small business success or failure as there are small businesses. Some of the most common reasons for failure