Lessons from a Failed Franchise Venture

Buying a business franchise was one of the first options I pursued when I knew that I will be losing my first job as an engineer in semiconductor manufacturing. Franchising was a popular choice for first-time businessmen especially those formerly employed like me. I had a little amount of money for capital. Franchising appealed to me because I did not have to start from scratch. I needed only to learn the system that has already been proven to work. It looked like it was a formula for success in business with little risk involved. 

But like all business ventures, the risk was real even with a business franchise. I learned this the hard way when my venture failed after six months in operation. I lost a considerable portion of my savings that I used as capital. It was a heart-breaking experience realizing how the money I worked hard to earn vanished into thin air. Lucky for me, I did not put everything I had in the business. The people who depended on me for financial support were hardly affected. But it was a painful experience nonetheless. 

I have never had the opportunity to try another business venture again but I am not afraid to do so. I feel that I have grown wiser because of the experiences I gained in my first business franchise. I have learned several things that I think would help me make better decisions next time around.  I believe that entrepreneur wannabes who are considering a business franchise for the first-time will find these lessons useful.

1. Starting a business is a huge amount of work
One of the things that I underestimated was the amount of work that I needed to exert just to start the business moving. From registration of a business name with the Department of Trade and Industry (DTI), to acquiring a business permit, sanitary permit, tax registration and all the other government requirements that were needed, I spent a few weeks to get through all the bureaucracy.  I did all these myself which may explain why I felt there were too many of them. I also arranged the location for my business. I negotiated a lease in a small mall called Waltermart. I made sure everything the business will need in terms of materials, personnel, equipment and supplies were there on opening day. Sure I got help from some of my relatives and the franchisor but mostly it was me working to get it all done. 

A business will be a lot of hard work and the more you set yourself for the physical and metal fatigue that will surely arrive, the better it will be for you and your business.

2. Running a business can be even harder
If you don’t want to run your business, you can always hire someone else to do it for you. For me, I had to do it myself because I wanted to be involved with every aspect of how my business would run. I eventually found out how exhausting it can become. The hard work did not stop when I finished setting up the business, it continued as the business progressed. Since my crews were trained by the franchisor, I did not worry much about them. My three major concerns were my supplies, my revenue and paying taxes. Each day I had to make sure that the supplies were enough for the demand that we expected to come. This involved analyzing the amount of current inventory, calculating how much more we needed to order, coordinating the order with the supplier and making sure my personnel knew about the deliveries. 

I had a revenue target each day that I needed to meet in order to become profitable. I knew that revenue would determine if I was going to succeed so I had to make it a point that I take actions to promote the business in order to increase revenue. I asked my crew to give away free samples and give out flyers to prospective customers. I designed the flyers myself and had it printed in a nearby printing shop. I expected the help of the franchisor in this regard but none came. My revenue target was not met most of the days the business operated. It revealed how wrong I and the franchisors were in our sales forecast. 

There were several types of taxes that I paid on a monthly and quarterly basis. This would not have been so much work if I did not have to line up for half a day just to get it done. It was a testament to how inefficient the system of the government was in collecting business taxes. I could have hired someone to do this but it would have added more expenses to my already struggling venture.

3. Micromanagement is essential 
Looking back now, I realized that even with all the hard work I did for my business I still fell short. I did not get my hands dirty enough to understand why our sales were not picking up. I could have been more aggressive in managing the business because I later had feedback that came to light some of the problems I didn’t realized the business had. I was not hard on my personnel to do a better job in producing and selling the products because I did not witness how they do their job that often. I did not study how customers reacted to our business and what they liked and didn’t like about our products. In hindsight, I think I focused on the wrong things and did not exert the necessary effort to make the business more profitable.

4. Market study is very important, always be conservative on estimates
When I found out about the opportunity of franchising this business, my mind was set on starting one immediately. I was determined to prove I can earn a living by being a businessman so I pursued this dream with passion and tenacity. I may have become too engrossed that I failed to take note of the signs that indicated how this type of business could be a struggle for the market I was going to be in. Firstly, a similar franchise started on a mall not far away from my location and did not last too long. There was also a similar business before (although not the same franchise) on the mall that I chose to be in but it floundered as well. I explained away these events as hard as I could to convince myself to continue. It turned out they were bad signs I should have paid more attention to. 

5. Location is crucial
Most importantly, the location of my business was the ultimate factor that led to its demise. My products were great as all my customers could attest. The mall was attracting the right amount of traffic but we weren’t getting the sales. Why? It turned out people just didn’t want to spend on the products that we’re selling because the price was too high for them. People who came by the mall were what marketing experts would call Class C and D while our products were more suited for people who were Class A and B because of their price points. Other franchises of this business were successful for the sole reason that they located their business appropriately. I, unfortunately, had to learn that it was a crucial thing to consider through a painful learning experience.