There are two primary benefits to buying a franchise. First, under normal circumstances, franchising provides an entrepreneur with the opportunity to own a business using a tested and refined business model. Think of the last time you visited a Chick-fil-A or Subway restaurant. One of the reasons it ran so smoothly is that the employees were following a well-refined set of steps designed to serve you quickly. The second benefit of buying a franchise is that the trademark that normally accompanies it has value. If you are traveling and see a Chick-fil-A or Subway, you are more likely to patronize that restaurant than a local eatery you know little to nothing about. Despite these benefits, owning a franchise is not a guarantee of success. If you buy into a franchise system, the business model may not be as refined and the trademark as strong as those of Chick-fil-A or Subway. A five-year study by the franchise consulting firm Fran-Net reported that 92 percent of their franchise placements remained in business after two years and 85 percent after five years. While at first glance these numbers appear encouraging, they do verify that some franchisees fail. Apart from the Fran-Net study, there is anecdotal evidence suggesting that even strong franchise systems have individual franchisees that fail....

Discussion Questions:

1. Think of a sixth reason that you believe could cause franchisees to fail. Briefly explain how a potential franchisee can guard against failing for this reason.
2. Identify a franchise outlet that you patronize regularly (it could be a Chick-fil-A, McDonald’s, Subway, Gold’s Gym, or another franchise organization). In brief, explain what you think are the minimum requirements in terms of technical and management skills needed to operate that franchise unit successfully.
3. Think of a franchise outlet you visited recently that failed to impress you, largely because of how the firm operates.
What problems did you notice during your visit to the establishment? You may have to speculate to answer this question, but can you attribute the problems you saw to any of the five factors mentioned above?
4. Of the five common reasons that franchisees fail, which reason would cause you the most pause if you were investigating a franchise opportunity?