Preventing Franchise Failures: Seth Lederman's Insights on Franchise Mismatches and How to Avoid Them

Since the onset of the COVID-19 pandemic, interest in joining the franchising industry has experienced an unprecedented surge. The desire to captain one's own ship is now appealing to a growing number of people, fueled not just by the work-from-home experiences reported during the lockdown but also by job insecurity and mounting corporate disillusionment.

The economy's volatility, when combined with the long-term success rates in franchising (especially compared to non-franchise businesses), has made this dynamic industry an enticing prospect for aspiring entrepreneurs. This model has repeatedly demonstrated a tried and true recipe for success with a clear formula to follow.

That's, at least, if one is keenly aware of the inevitable roadblocks that lie waiting. According to Seth Lederman, founder of Frannexus, a prominent franchise consulting firm, transitioning to a new ‘one’s own boss’ career, especially after losing a job or becoming too frustrated with corporate life, is undoubtedly an appealing path, but with franchising, in particular, success is neither guaranteed nor a given in certain cases.

This is equally true among investors looking into business ownership to diversify their portfolios instead of keeping all of their assets in the public sector.

What is the main cause of franchise failure? Mismatches. “There’s a pattern of franchisees struggling or failing due to poor decision-making. Often, they chose franchises based on personal preferences rather than well-informed business decisions. This is a one-way ticket to failure,” Lederman states.

Lederman advises everyone to deeply assess whether they’re ready and well-suited for franchise ownership before even making the decision to join the franchising industry. This includes deciding if one has enough risk tolerance to run a business and if one genuinely has the time required to ensure a successful outcome.

“This is just the first step. Next, people need to understand that finding the perfect franchise isn’t like finding a soulmate. There isn’t just one ideal option out there for you. There are many excellent businesses, and you should find multiple options that resonate with you and tick your specific boxes,” Lederman says.

Needless to say, clarity on what those boxes are is essential. Lederman warns that many franchisees only consider opportunities that make sense for them. Yet, remaining confined within one’s comfort zone can be risky for both a franchisor and a franchisee if the only factor taken into consideration is personal interest.

“It’s critical to pair investors with franchises that align not just with their personal, but also professional and financial objectives,” Lederman says.

One can’t help but wonder: what happens when this alignment is off? The repercussions of franchise mismatches are multifaceted. For one, it’s a matter of expectations — where a franchisee’s vision for growth, income, or operational management differs vastly from the franchisor's model.

“When a franchisee is not in sync with the franchisor’s culture or business practices, it not only strains the relationship but can also impact customer experience and brand reputation, both crucial for success in franchising,” says Lederman.

Furthermore, mismatches can stem from either party's lack of understanding of the local market. A franchise model successful in one region might not translate well in another without adjustments. This leads to financial strain due to misaligned market strategies and operational models.

Ever since he joined the franchising industry, Lederman has seen these scenarios countless times and has lent a helping hand to struggling investors. He has also played an instrumental role in business development, assisting ventures that haven’t been franchised yet or are emerging franchises in their national expansion by helping them navigate this terrain with more confidence.

Yet, dissatisfied with the idea of repeatedly rescuing ‘sinking ships’, Lederman has endeavored to prevent the catastrophe from happening in the first place. Owing to his exceptional model with Frannexus, he has made significant strides with this mission.

Lederman's strategy involves a blend of algorithmic and methodical approaches to guide people through the vast landscape of franchise opportunities efficiently. Having noticed owners and brands not achieving success due to a lack of a formalized approach to selecting the right franchise, Lederman has streamlined this process by finding the 'ideal fit' out of thousands of available options, saving clients time and enhancing their investment value.

But how does Frannexus’s method actually work? Lederman reveals that the firm employs a proprietary system that combines confidential questionnaires and psychometric assessments. This approach facilitates optimal matches between franchisees and franchisors based on factors like compatibility and long-term success potential.

“What we've mastered is our vetting process, effectively weeding out those who aren't well-suited, aren't ready, or lack the necessary resources,” Lederman explains. “The process of disqualification is just as important, if not more so, than qualification. Prospects need to be ready, willing, and able to invest, and have the minimum amount of time required - it's not a passive or absentee commitment.”

To enhance the process further, Lederman has built a treasure trove of educational resources, as well, including but not limited to how-to articles, videos, and even e-books, all designed to empower investors and franchisees on their roads to success.

Looking ahead, Lederman predicts the franchising sector will keep on growing. He expects an investor shift toward the more dynamic non-brick-and-mortar franchises. With Frannexus, he aims to stay not one but several steps ahead and keep assisting investors, franchisees, and their businesses on their entrepreneurial journeys.

As he says, “The right match can mean the difference between a flourishing venture and a missed opportunity. My goal is to illuminate paths that others might overlook, ensuring our clients step forward with confidence and clarity.”