Why Franchisees Fail
11 May 2007Last week in the Wall Street Journal there was a nice article on Why Franchisees Fail (subscribers only, but a copy is here). Even with an established system you can still screw up royally.
Weathering unexpected situations without a financial cushion can be problematic even for an established franchise. Ed Moran, an accountant in Tucson, Ariz., recalls a McDonalds Corp. franchisee whose dominance of a small California community was suddenly challenged by the arrival of a competing burger restaurant. The first year, the rival knocked 30% off the McDonalds stores sales. Unwilling to scale back on his lifestyle, the McDonalds franchisee instead reduced his labor overhead and raised prices. He went into a spiral and never came out, Mr. Moran says.
Unwilling to scale back on his lifestyle... that sounds like an epitaph rather than a sound business strategy. (In our business plan we still break even with a 20% sales drop.)
