10 Small Biz Mistakes that Lead to Failure

When I started to pen this thought piece I did so in considering small business in general. I’m going to keep that theme in part but I am also going to add to each challenge point, 1 through 10, at least a simple reason why franchising can provide some level of solution and security from the aforementioned mistake.

These mistakes are not the top 10, the only 10, the best 10 the researched and validated 10 or anything else of a kind. They represent the ones I have had to deal with most in my life, with my friends whom are mostly small business men and women and my clients who are mostly small business developers called franchisers. They do represent over two thousand business owners and I would guess this is a good top 10 list (I am probably right 7 or 8 out of 10 anyway) but I am not going to “shine you on” by telling you they are the result of my “extensive research.” They do represent what I feel. I’m pretty good at this stuff though but some of you have your favorites. Feel free to add them to the mix.

I hope you find this useful… - John

1. Insufficient Working Capital

The most common reason why new businesses shut down is that the owner get his business up and running but completely misses that he will need some start-up capital (and often this is not a small amount) to fun his business until it becomes self-sufficient and can pay its own way.

Cash flow is critical to a startup business. You could be profitable and still have to close your doors because your customers are taking too long to pay you or, you are generating revenues but your bills are coming in on the front end more quickly than full payment is being generated to you. Liquidity is king in a startup venture. Know what your business needs to survive start-up.


Franchise Solution: Most franchises and certainly the top 500 in the United States, require that you have sufficient start-up capital available when you open your doors for business. You don’t have to wonder. You will have it or you will not be granted a franchise license.

2. Winners Stick-to-it Attitude

Starting a business is all about survival. How do you stay around one more day so that you can learn more about your market and close new customers?

At the beginning stages of a business this may mean doing work that might not be completely what you want to do but it helps pay the bills. You need to do whatever it takes to survive and get through until the business can fully support yourself.

Franchise Solution: A franchise company has gone through these iterations and virtually all of them have operating units that have gone through the myriad of challenges that face a new business. You have both the company and a fraternity of franchisees to rely on to help you stay the course and recognize the next action you need to take to open the door tomorrow.

3. Death of Your Vision

There is a sort of mystic fog that exists to those who make it past the anxiety of changing their work path and become business owners. They make the decision to become entrepreneurs, they start the business, they work and slave and get the permits and licenses and build whatever needs to be built (websites, walls, displays, computer networks, etc.) and even begin to make customer contact. But then something happens. The result is energy level drops, activity levels fall to dangerous levels and if they don’t completely check out they at least do so mentally.

They quit.

Building a business is all about momentum. If you had 24 hours to spend on a business they would be put to far better use by spending one hour a day than for 24 hours straight.

It takes time to develop a new company and for people to react to what you provide. Keep your momentum building. Even if your business is only a part time initiative for you at the moment, make sure that every day you are making progress of some sort to move your company forward.

Franchise Solution: A franchise company helps provide you with a business plan and marketing strategy for your first quarter, 6 months, and year and beyond. You have an activity chart. You can evaluate what you are doing against a very specific set of actions and responses.

Further, operational support is there on a regular basis to ensure you are keeping an eye on key indicators. They let you know what is lacking. Is there an area where additional training or marketing needs to be added? A franchise company has a vested interest in your success and one way they demonstrate this is to let you know you are slipping and need to pick up the pace!

4. I am a Rock – I am an Island

Business ownership is not an exercise in self-sufficiency. It is not you being “bossless” or mentorless. Nobody is perfect or has the skills to do everything themselves. You need to understand what it is that you bring to the table and what you need to surround yourself with. You need to resource against your weaknesses. If, for example, you are very strong at statistical analysis but don’t have strong customer service skills then you need to find a strong frontline employee who enjoys client contact.

I want you to understand you need to learn and be willing to do anything to keep going. However, you won’t create high levels of success by forcing yourself to do things that you don’t enjoy and in which you lack core competencies. Know where you stand and what value you can offer. Take a Meyers-Briggs or DISC evaluation if you never have. When you surround yourself with others that complement your skills, you will have more fun and demonstrate to your stakeholders you recognize what is needed to create a world-class business unit.

Franchise Solution: I won’t draw this one out because if you have studied franchising you’ve seen this in type before: Franchising is about being in business for yourself but not by yourself. People, in part typically become franchisees because they realize their inadequacies (and they want to blame someone else when they fail! – No, just kidding). You get into a franchise system to take advantage of the collective

5. Are You Sure You Want to Hire Uncle Rupert?

Never hire from convenience or nepotism. Focus on tasks the CEO should accomplish. Think of yourself that way. Think what will best serve your customer in the long run. Why are you doing work huddled in the back office when you should be out meeting clients, generating PR buzz, and increasing the reach of your networking efforts?

Franchise Solution: A franchise plan will focus on the varying skill set iterations of their successful franchisees and how they interact with the business in advance of your engaging in the business to determine if you fit that model. This may affect working capital needs as well but they will be able to provide you a more precise human resource needs assessment than you might generate as a lone entrepreneur.

6. It’s About the Big Bucks

There are many who tell you to follow a passion. Many of us to be fair do not have passions affiliated with work. You need to enjoy the work. You need to gain great satisfaction from a job well done. But creating money as a goal or as your driving force is like the tender of an apple orchard who constantly picks apples because they are what he sells in order to create a living but who never tends to the soil or the trees themselves.

Ensure you select a business where you gain personal satisfaction by the process; by servicing the client and their needs and by your ability as “CEO” in developing your people, your team.

Franchise Solution: The great franchises have a process to determine if what they do as a business matches your expectations, personal drivers, abilities and investment capabilities. Your honesty in divulging what it is you hope to accomplish and their honesty in presenting their business case ensures to a very high level, that you get into the business that meets both the companies and your criteria.

7. I think I can…er, maybe not

Goal one, yes job one is for the entrepreneur to make it to the end of their first year. Many of them do not. And, we’ve covered some of this already. Many start a business on an impulse and got excited about a perceived opportunity but didn’t do the proper research. These entrepreneurs become disillusioned. Without a backup strategy or the ability to change course or raise additional capital they fold in a matter of months.

The second year can be just as challenging and the goal is that a business really begins to come into its own and hit the stride through 36 months of continual operations. Think of year one as your freshman year in high school; it was exciting and frightening You’re high on energy and ready to take on the world. In year two, your sophomore season, you have learned the lay of the land but may or may not have had the kind of impact (especially financially) you desire. The startup excitement has faded but you are move even. If not, you are part of the second wave of failures. You’ll need to work your way through the downturn and know that the money is coming if you keep at it.

Franchise Solution: A franchise company will have continued to press you right through years one and two in areas of improvement. You will have gained mentors within the family of franchisees. In many cases you will find a colleague in another unit and you will challenge one another. In addition, ongoing or advanced training, webinar events and perhaps a national convention will be in the cards; all of which will provide you with the momentum to carry forward.

8. And Great Was The Fall…

The best way to make a lot of money quickly is to find a customer who has a problem and is willing to pay you to solve it - and then you go out and build the solution. Entrepreneurs who build a business on a customer or on a sliver market component (i.e. the lunch crowd in an industrial park that is controlled by just one company…oh, say, Motorola!) often find themselves calling the printer and instructing him what to put on the “Business Closing for Good!” signs.

Make sure you have a plan if you plan on being a niche business. But this isn’t the only challenge that fits into this category.

The companies with the highest failure rates are restaurants because they are usually built around an owner’s personal tastes. Meanwhile, the entrepreneurs with the lowest failure rates are medical professionals, lawyers and accountants because they are based around a service that we all need (whether we like it or not!) Talk to potential customers, see what they are interested in, identify who has money and what their pains are and then create your product/service.

Franchise Solution: A franchise business model, virtually by definition is replicable in significant marketplaces. They focus on a series of capabilities that fit into a general category that the general populous or the whole of a niche has need of what they provide. It’s simple enough to investigate to determine the components that lead to their success and what it is you would want to avoid. As a matter of course the franchise company will understand the pitfalls and provide navigation around the slippery slopes. That is, provided you are teachable. The key to disaster avoidance is sensitivity to those who’ve traveled the path previously.
Franchising is nothing if it does not help you pilot past the shoals and the reefs of disaster.

9. I’ll Just Read About it…

The Internet has created a generation of nimrods. Pseudo-geeks who believe that if they can just Google it they can learn the entire story; the ins and the outs, the ups and downs and all the juicy insider tidbits.

A great way to get a business going is to find out what other people have done to achieve success and implement those strategies into your own company. This has to be more than just reading about it. We all need to find mentors who have knowledge of our industry and who will give you time out of their day to provide instruction and guidance.

You could set up a formal board of advisers and compensate people for their time but if you’re a startup you can play on the fact that most entrepreneurs are willing to help out a fellow business owner as a way to give back. If you show genuine appreciation and approach the right people, the advice you get will help make or break your company.

Franchise Solution: Uh…this is self-evident. However, let me just say it. A franchise company IS a mentor. They provide the organized development of your business. They start at what you need to do on day one and take you through what you will do when you elect to exit the business. You will receive training, a business system, a marketing strategy, a back end or back office administrative system to analyze data, create reports and evaluate progress and in all sincerity that is usually just the beginning.

10. What the World Needs Now…(er…Come Together…Um, I am NOT a Rock nor an Island?)

My experience is that the person who will not seek out help will also not seek out how to create other important relationships. As it relates to your stakeholders this would mean your involvement in the community that embraces your customers and potential customers.

Connecting with other young entrepreneurs and finding out what they are up to (and how you can help generate countless opportunities) is a great tie-in to your community. Discovering and involving yourself in the areas of service that your clients have interest and passion should truly be a no-brainer. You will get new business opportunities, partners, investment, media attention, ideas for productive tools to use, advice for your company, and many other resources that otherwise would take you years of trial and error to figure out (if you ever do at all).

Franchise Solution: Most every significant franchise I have ever had the pleasure of serving (roughly most the top 200 and another 100 or so in the top 1000) has a strategy these days that recognizes the value of the community the franchisee serves as an integral part of their marketing. Even in franchises where the franchisee works on the business and not in it or is involved part-time, they are taught to focus their efforts on visibility within their service market.

Does Big Name Create Big Earnings and Security?

Most people equate franchising with those Top-of-the-Mind mega systems. We think of names like McDonald's, Burger King, Taco Bell, Subway and perhaps Dominoes Pizza. Hotel chains like Wyndham, Hampton Inns, Hilton and even Marriott have large numbers and international reach. Other business-format franchises like H&R Block, Thrifty Car Rental Curves or ServiceMaster are just big.

But what is the advantage of this and are there disadvantages?

I am sure you've guessed the answer already haven't you?

First-time franchise buyers are typically hoping to receive at least two benefits from their decision. They hope the franchise has a valuable brand and they expect it to have a proven operating system. The primary advantage of big franchise companies is that both of these are basically set in place. You can easily research consumer awareness and attitudes about the brand just by asking around. A well planned visit to operational outlets will provide you with some local subjective information about their customer service and operational execution.

There are other advantages of course. Safety and security are assumed. The risk of failure when aligning yourself with a larger franchise system should be lower. Most of these are more mature systems that have worked all the chinks out of the armor which is their business system. Success isn't guaranteed but you will feel more secure..

Is Bigger Always Better?

Of course you know the answer is no. The major downside issues are:

• Cost of entry (the value proposition) will be greater per unit
• Reduced Opportunity because of limited territory availability
• More maturity – more applications = Greater Experience Expected on the part of the franchiser
• The tendency of these systems to favor seasoned operators with current holdings
• There is less wiggle room for entrepreneurial spirit
• The older and larger the system the greater the expected compliance

The bottom line is that any large system has developed enough territory and build-out significant units that approval to open a new unit as a new franchisee can be a long drawn out process.

It is more likely a new franchisees will enter a large franchise organization by purchasing an existing franchise. While this can actually be an advantage to you, since it allows you to review the operational and financial performance of the unit or units before you decide to buy (And make sure that you do!). Buying an existing business with profitable operations has massive challenges, primarily related to relational issues with clients, employees and a fully developed culture. What appears a benefit, in terms of the record, is not nearly as good as over 50% of all re-sale franchises fail within the first 24 months. I never recommend resales unless I first and individually investigate them personally.

My Bottom Line

While I understand the mindset surrounding the issue of branding the fact of the matter is that there are 1000's of national franchise companies all of whom have highly successful business models and profitable franchisees. You and I can only name a few in comparison to the size of the market in franchising. What about the rest? Where is their branding? The truth is you and I may only remember them if our memory is jarred (Snap Fitness, Massage Envy, J. D. Byriders, Friendly's, Disaster Kleenup International and 1000's more. By the way, the ones I named are even in the top 100 in terms of operating units!) but the people who matter, their client and prospect base knows who they are...intimately.

What's the point?

The point is that virtually every franchise business that is successful in North America and Europe simply needs the right franchisee that matches their profile in order to succeed. Branding and market positioning is created at the local level; the level at which the franchise unit exists. Find the franchise that matches your goals, skillset, interests...YOUR priorities for business ownership and you will find a beautiful thing be it large or start up.

Every franchise is seeking franchisees with the talent and capital to make their business a success. Big or small, most franchise companies care deeply about the success of all their franchisees. You can find just as much heart in a small company as in a larger one; frankly usually more and more passion and more communication. My recommendation is hook up with a consumer franchise consultant. Call me if you need a recommendation. With their assistance you can take the time to look into a number of alternatives when you're contemplating franchise opportunities--big company or small--and with their expertise and previous investigation into the various systems you'll find the right one to maximize your chance for success.

John is a 26-year professional in the franchise industry. Previously he has been a franchisee, a franchise executive and an advocate/consultant to the public. He currently works with and has worked for dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at dr_franchise@consultant.com

Should I Use A Franchise Consultant to Find a Business

The Value of a Consultant to a Potential Franchise Buyer

In 1980 when I first became a franchisee there were no professional intermediaries to provide guidance to someone entering the world of franchising.

How I wish there had been. Three franchise’s later I would still highly value the service! Not only value them but also recommend them to individuals virtually on a daily basis.

But Why

My work is primarily with franchise companies. Once these franchisers, these companies have developed their concept; put it into a format; created the systems and tracking devices to determine success and positioned themselves in the market their real challenge begins.

Their greatest challenge is finding qualified potential candidates; someone who makes sense for the particular needs of franchise format business. I can tell you this with near certainty if you could line up 100 founders of established and growing franchise systems, any 100 franchise Presidents and CEO’s on any given day, 90 of them would regale you with tale after tale of poorly chosen or nearly disastrous franchisee selections. Many of those choices are my franchise buddies I am sad to say.

From the standpoint of the franchise company they (most often) could only wish to have had a professional providing guidance to their franchisees prior to the person having come onboard as a new franchisee with the company. I can attest to the value personally and from experience.
But what is the value to you; the potential franchise buyer? What does such a service provide?

Settling for Almost

There are many advantages to getting help from a professional who knows the inside workings of an industry or issue. Just having someone who can help interpret the terminology associated with a topic that is new to you can be a tremendous aid. Most people wouldn’t go to court without a lawyer or purchase a home without a realtor. A franchise consultant through the use of sophisticated evaluation tools can assist you to identify franchises most closely aligned with your investment level, skillset, goals, passions and expectations. Again, from personal experience you could spend months (and I’ve known some who searched for years!) evaluating a myriad of opportunities. You could be diligent in your efforts and still miss the best opportunity.

Many make the mistake of thinking the Internet provides solution. Not true. The Internet is a valuable tool for research, but it is limited. If you do not know where to look or if you rely on search engines to produce the results, you will only find the companies that have paid to be listed high in the search rankings. High visibility on the Internet does not correspond to the relative value of a business opportunity nor does it tell you anything about how you match up. Then too there are whole sites given to the detractors of a concept. Honestly, nothing prevents them from running amuck. Due to the immense amount of data that is available on the Internet, it tends to create more questions than answers and it can be a frustrating experience.

There are over 8,000-registered franchise brands and marks (about 3200 of which have more than 5 operating units) and more than twice as many “Business Opportunities” or “Biz Ops” available in the USA. A consultant can help you understand the difference between the types of opportunities so you can determine which format is right for you. Whether it is a franchise or Biz Op, there are many terrific choices and invariably there are many that are otherwise good businesses but a poor choice for you! A competent consultant can help you focus on businesses that have met certain quality standards and help you avoid making a potentially big mistake.

Consultants are rarely limited to a certain company or companies (at least the good ones) and can obtain the sell rights at no additional expense to you. The key is if it meets your profile as well as you matching their qualifications (this is a business relationship and decisions are determined mutually). It is possible that your consultant has pre-evaluated concepts as well that cover a spectrum. The key advantage is that the agreements they do have are with solid, up and coming or established concepts that will meet the requirements of a variety of franchise buyers.

Thinking From Both Sides of the Table

As I previously mentioned, the great challenge for franchise companies is uncovering candidates who will be a good fit for their particular business model. As you can imagine, franchisers get thousands of requests yearly for their information packets, but most of these come from people who are not qualified or not particularly motivated to actually become a part of their organization or any organization. Franchises generally cannot support the amount of staff necessary to do an effective job of bringing in new franchisees. This is why the value of a consultant-referred candidate is so significant. The company is being introduced to a pre-screened individual who meets more than just the financial requirements, is informed about the opportunity and is truly interested in franchise business ownership.

The broker not only is an immense professional, educated resource for the buying public but also to franchise companies. Their professionalism saves the franchiser a great deal of time and money. This allows the consultant to minimally charge or perhaps not charge the candidate a fee at all. The franchise company pays a fee to the consultant if the candidate joins their system as a franchisee. This creates a winning scenario for all parties involved.

In the final analysis, the choice and the responsibility for researching the opportunity are the individuals; they are yours. But as you weigh up business ownership I would recommend you do not leave this stone unturned. I deeply and seriously even request you take advantage of it.
Getting help from a competent consultant is one of the best decisions you can make in your pursuit. They become a neutral, knowledgeable resource you can employ and since the seller (franchise company) pays the fee, the service is free to you.

So, the question becomes: Why would you not use a franchise consultant?

John is a 26-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at dr_franchise@consultant.com