When a Franchisee Fails, Whose Fault Is It Really?

The Blame Game

Ask most franchisors, or the brokers who help them sell franchises, why a location failed and the answer usually comes fast and scripted:

“They didn’t follow the system.”

But this knee-jerk response glosses over something much more complex. In franchising, failure isn't always as simple as an operator going rogue. More often than not, it’s the system itself that was flawed, incomplete, or never designed to ensure franchisee success in the first place.

This isn’t just nuance. It’s a critical reality check.

The Myth of the Perfect System

Franchisors love to promote the idea that their systems are turnkey: follow the playbook and success will follow. But here’s the truth:

• Some systems aren’t based on successful company operations at all.
  Many emerging brands offer franchises before ever proving their concept at multiple company-owned locations. You can’t follow a system that’s still being written.

• Operations manuals don’t guarantee operational success.
  Just because a franchisor hands you a thick binder or portal full of SOPs doesn’t mean they’re functional, up-to-date, or tailored to your market.

• The “system” might prioritize franchisor revenue over franchisee viability.
  Required vendors, inflated pricing, or marketing fees spent on national branding (not local traffic) can all bleed a unit dry, even when the operator does everything “by the book.”

Franchisees Who “Did Everything Right”

Over and over again, we hear from franchisees who followed every rule, completed every training, and met every metric they were told mattered, yet still couldn’t survive.

They were undercapitalized because the startup costs in the FDD were misleading.
They couldn’t achieve breakeven because the location guidance was poor or unrealistic.
They paid royalty and ad fees that were never reinvested into the brand.
They watched as franchisors launched side brands, ghost kitchens, or online platforms that directly competed with them.

And then, after closing, they heard the same refrain:
“They just didn’t follow the system.”

The Blame Trap, Exposed

Here’s the irony:
If you do follow the system and fail, it’s your fault for not being entrepreneurial.
If you don’t follow the system and fail, it’s your fault for not following the rules.
Heads, the franchisor wins. Tails, the franchisee loses.

But this line of thinking breaks down under scrutiny.

If 83% of your franchise locations have closed and your response is, “They didn’t follow the system,” doesn’t that say more about your system than the franchisees in the trenches testing it?

You can’t have it both ways. A system that collapses under real-world use isn’t a system, it’s a theory. And failed franchisees aren’t proof of disobedience; they’re the collateral damage of a model that couldn’t withstand the market.

What About the Franchisor’s Picker?

Franchisors love to say, “They weren’t a good fit,” after a location fails. But let’s not forget one critical fact:

The franchisor is the one who vetted, approved, and signed that franchisee.

They reviewed the application.
They interviewed the candidate.
They collected the franchise fee.
They issued the FDD and countersigned the agreement.

So if a high percentage of franchisees are failing, it raises a different question:

What does that say about the franchisor’s vetting and approval process?

Either they’re unable to identify qualified operators, or they’re intentionally lowering the bar to collect more fees, knowing full well the odds of long-term success are slim.

In either case, it's not the franchisees who should be shouldering all the blame. It’s time to start asking whether the system, and the people selling it, were ever built for sustainable success.

Due Diligence Tip

If the franchise system you're considering has a high rate of turnover or terminations, don’t accept blanket excuses like “They didn’t follow the system.”

Ask the franchisor:

• How many franchisees closed in the last 3 years?

• What were the stated reasons for those closures?

• What percentage of franchisees have transferred, terminated, or abandoned their outlets?

• What percentage of candidates were denied approval in the last 12 months?

• What has the franchisor changed in the system to improve outcomes?

You’re not just buying a brand, you’re buying the system behind it. If that system has a track record of failure, believe the data, not the pitch.

Reality Check Summary

When a franchisee fails, don’t assume it’s because they didn’t try hard enough or didn’t “follow the system.” Ask better questions:

• Was the system ever proven at scale?

• Were the startup costs realistic?

• Did the franchisor earn more from vendors than from franchise royalties?

• Were franchisee closures treated as red flags, or just cost of doing business?

• Is the franchisor approving candidates responsibly, or just rapidly?

Franchise failure is rarely black and white. But if the pattern repeats again and again, the problem likely isn’t the people…it’s the playbook.