Franchise is a business relationship. In fact, franchise is the most relationally intense business concept that exists. This relationship links a company that wants to distribute a product or service and an entrepreneur who searches for franchise opportunities to run his or her own business. Just as there are endless questions to be asked before buying any franchise opportunities and committing to a franchise, there can also be endless reasons why franchises fail. However, there are three major reasons why some go out of business long before they should. This applies to all businesses, not just franchises.



The first factor is a judgement error. This can be anything from having too little capital to stretching resources too thinly to hiring the wrong people. This type of error is sometimes reversible if caught in time, but not always. And after the negative repercussions become apparent, it's usually too late to do anything about it. As Robert Greenleaf writes in his work on servant leadership, leaders should become more aware than others. This means you are constantly doing the environmental scanning necessary to make the right moves at the right time.

A second primary reason for failure is a development that affects the entire industry and dooms it. Today, this often is referred to as "being disintermediated". This tends to come from technological shifts that make some products or services obsolete. Imagine being in the cassette tape manufacturing business when CDs hit, or in the buggy-whip business when autos arrived. You'd have to change the entire company on a dime or go bust, two options that are less than desirable. The rise and acceptance of the Internet and other technologies have produced countless ripple effects that businesses must contend with to prevent becoming obsolete.

The third primary reason why franchises fail is a lack of integrity and values. A successful franchise has a solid foundation and all of its parts work together. The parts and people are interdependent, not independent or working at cross- purposes. A strong sense of values also runs through the system and affects decisions ranging from how people will be treated to how money will be invested. This integrity ultimately shows up in the individual franchises as a solid product or service, great customer satisfaction, and happy, motivated employees and franchisees.

If these kinds of foundational values been fully understood, you might avoid any failure in your franchise businesses.