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.

LOCATION LOCATION LOCATION? Not So Much...

Franchise location, when considering retail and location driven franchise businesses are always a hot topic. Many papers written on the subject drive the subject as if it is the major component of success in the concept. Recently a Wall Street Journal article suggested the homogenizing of American business simply relegated where a business located to a secondary value. The reason? You can now go virtually anywhere and get anything. That would be accurate for most everything we want in our day-to-day lives.

Regardless of what you might have heard to the contrary (or spoken) the same principle holds true in franchising. Industry research suggests that brand positioning, operational and consumer perception factors play a more significant role than location in explaining franchisee success.

Why is location less significant in explaining franchisee success?

Part of the reason is that as our economy has shifted from manufacturing to services, the uniqueness of location has waned. Fifty years ago, most of our gross national product was based upon the manufacturing and agricultural sectors, transportation costs were high, and there were vast regional differences in products and services.

There was a time that if you wanted sourdough bread with your lobster, you had to travel to one of two places in the continental USA, San Francisco and/or Boston. What about today? Now you can enjoy that combination nearly anywhere. In the new economy, services, ideas, and knowledge can be easily transported and replicated, and many regional and local differences no longer exist.

Franchisees and franchisors have certainly benefited from the shift to a service economy with strong distribution channels. The proliferation of services also means that location plays a smaller role in franchisee success. Nearly all products and services can be purchased anywhere.

What is the Practical Application for Prospective Franchise Buyers?

If I were buying a location-based franchise today I would be skeptical of the franchisor whose major selling point is the location of one particular unit or even the organizations ability to select the “home run” sites for future development. If they focus on location we all know how a location can change overnight.

As you search you should focus on operational excellent, the integrity of the franchisor, the uniqueness of the product or service offering and their positioning within their market space and the culture and synergy of the franchisee community. Location has some impact on franchisee success, but fortunately, the impact is significantly less than what most people believe.

Knowing that location has limited impact on franchisee success will save you countless hours of frustration and allow you to focus on those things that really drive success.

What are those things? How about:

1. Your ability to learn and apply management principles appropriate to the system
2. The relationships you develop with the business stakeholders
3. Your involvement in the wider community in which you operate your business

Surprisingly, very few people figure out that franchising success is driven not by the location of the franchise unit, but by the behavior of the franchisee. As part of the ongoing consulting of my company we were working to resell marginal franchisees out of a particular system in Phoenix. Every one of them that wanted out in part blamed location and the company for allowing them to be in their mutually agreed on site. Oddly enough, years later, the new franchisees who were handpicked to take over these "distressed" units are moving right along as a group and growing their business; many of whom were owners previously and took over these “loser stores.”

NOT A LOSER STORE

The franchisees that followed in their footsteps-in the same location—are some of the most successful franchisees in the system, with strong sales growth, low employee turnover and above-average margins. If it were really a "loser location," the argument goes then nobody would be able to turn it around.

THE KICKER

Disillusioned franchisees that believe that their site is the significant driver of success can easily avoid responsibility for the growth and development of their units and instead blame things they cannot control. Stupidity never ran rampant so easily and misery was never able to find more friends. I would advise you to follow three steps to be a successful franchisee.

First, act like a CEO. Regardless of whether or not you are comfortable with the title, if you’re a franchisee, then people who work with you, work for you and purchase from you believe that you’re the CEO.

To be successful as a franchisee you have to develop an executive mindset, one that meshes leadership and learning as the cornerstone. I have personally interviewed executives at some of the best-managed companies in America, and I consistently find that successful senior executives share at least three characteristics in common:

• A scope of personalities, perspectives and reading materials that stretches them outside of their career and market box.
• Strong interpersonal skills that drive them to understand others and create trust.
• A business acumen that drives them to understand all aspects of business success.

Second, develop your social assets. This refers to the relationships you have with others.

Franchisees with the highest levels of social capital have the highest sales. Period.

Success is driven not by the location but by the behavior of the franchisee.

So why doesn’t everyone develop high levels of social capital? Well, it’s tough to find the time to interact with others when you’re running your own business. Also, once you become an expert in something, it’s easy to believe that you won’t learn anything from anyone else and learning is a HUGE part of developing your personal relational assets.

But the most successful franchisees find the time to interact with others, and they develop relationships with at least the four critical constituencies: franchisors, other franchisees, customers and employees.

I have heard numerous unsuccessful franchisees complain, "The franchisor doesn’t understand my local market or know who my customers are." Ok, so teach them about your local market, and while you’re at it, learn something about your franchisor’s business and challenges.

BOOST INTERACTION

Similarly, if you have only limited interactions with the other franchisees in the system, you won’t be able to get support, help and advice from the people who might be able to help you most. By developing strong ties with other franchisees, by sharing your ideas and strategies, you’ll help build a stronger system.

Many unsuccessful franchisees elevate customers to royalty status with common slogans like, "The customer is king!" Customers are important, and you would do well to have strong enough relationships with some of them so that you can learn how your services and products can be improved. There is more to the subject than this glib slogan.

Employees are equally important to your success, and the high-performing franchisees realize this is where you start in the value chain. Employees should be, in your mind as the CEO and business owner, your first level customers. You need to invest in your employees. The best treat their employees well, create clear objectives so they personally can measure their success, provide them with growth opportunities and hold them accountable to high standards they have seen the franchise owner model.

It doesn’t take a genius to know that employee morale has a direct (and positive) influence on customer satisfaction. High customer satisfaction levels impact your future business, can lead to referrals to other potential customers and increase opportunities for additional revenues through otherwise missed opportunities.

It is equally important to have fruitful relationships with employees, since employee development is not a cost of business but an investment in the future growth of your business.

Investing in your social capital and developing relationships with franchisors, franchisees, customers and employees will help elevate your business to one of the very best in any system and, in the long run, boost your bottom line.

Finally, invest in your community. The most successful franchisees in my experience invested in the communities represented by their business scope as well as direct investment into their businesses.

This form of investments means involvement in activities and associations that are not solely self-serving. You certainly may already have certain volunteer, non-profit or community associated activities such as any number of disease oriented causes, food banks, holiday fund and material drives. Your local church may also be very community oriented. The key is to find the soft spots your marketplace has developed and dive in. It doesn’t really matter what you do as long as you make an investment in your customer bases view of “community.”

The franchise trademark alone will not lead to high performance. (We will discuss this soon!) Just as wrong is to believe that location is the most significant factor in franchisee success. The range of franchisee performance in every system varies, and I have yet to hear a franchisor say, 'So-and-so is our highest revenue franchisee because of their location."

A mentor of mine once said, “If we took every franchisee in our 300 unit system and moved them one store number to the right (store owner No. 1 now owns store No. 2 and two owns 3, and so on) we would simply move the results of our revenues geographically not increase them financially.” I believe she was right. The evidence supports that thinking.

Barring acts of God or the governing body of the area you are located, your ability to perform as a franchisee is virtually independent of location. Invest in yourself, your relationships and your community, and then you will be a high performer.

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