What You Can Learn From a Failed Franchise Investment
Entrepreneur's franchisee Q&A series, Franchise Players, is packed with more than 200 stories of successful, happy franchisees. However, franchising, like any form of entrepreneurship, is never a guaranteed path to success.
When we received an email from an entrepreneur who invested in a fro-yo franchise in the midst of the frozen yogurt craze, it seemed like a great opportunity to showcase the story of someone who had dealt with failures in the franchising industry. Here's what A.J. Russo has learned about doing his homework before making an investment and the challenges of the frozen yogurt business.
Name: A.J. Russo
What franchises have you been involved with?
Yofresh Yogurt Café, in Lebanon, Pa.
What were you doing before you became a franchise owner?
Before getting involved in franchising I was a multi-unit restaurant manager.
Why did you choose this particular franchise?
At the time the yogurt business seemed to be a positive investment and Yofresh had seemed like a great company to be a part of. The company had a reasonable build out cost and help with financing. Plus, I liked the look of it. To me, it was clean and simple but inviting.
How much would you estimate you spent before you were officially open for business?
The total investment in my 1,000 square foot yogurt shop:
Franchise fee: $25,000
Build out: roughly $100,000
Where did you get most of your advice/do most of your research?
My research consisted of searching online about the industry, as well as Yofresh Yogurt Café.
What were the most unexpected challenges of franchising?
As far as challenges, the franchise was a great help with product decision and cost of building out the unit. As far as most irritating moment, I would say dealing with being a first-time business owner and not doing more homework on properly placing the business. The unit in which the yogurt store was located needed a lot of work. I should have looked for a unit that was a little more up to date and wouldn't need as much work, such as all new flooring, electrical, water lines, etc.
At what point did you realize that you were going to have to file for bankruptcy?
After a year and a half and trying every option, we decided to file for bankruptcy.
There had been leasing companies I was directed to by the franchise that ended up tacking on upwards of $15,000 to $20,000 purely in interest. When we thought we owed one amount, it actually doubled our payoff. There was absolutely no way out of it. After unsuccessfully trying to negotiate with the lenders, I then looked into bankruptcy.
If you could go back, what would you have done differently?
If I had the opportunity, I would go back and really dedicate myself into looking into many industries and choosing a right path. I'm a 28-year-old man who only ever dreamed about being a multi-unit franchisee in the food industry. Then, my first franchise investment was a complete failure and took me down with it. I blame myself for my poor decisions, but at the time the yogurt scene seemed like a sure way for me to make it big with multiple locations.
What are the biggest red flags you would tell other franchisees to look out for?
As far as the red flags, truthfully, I'd say stay away from yogurt and seasonal markets. I don't necessarily believe all seasonal business are bad ideas. But, some negative things I can say are that businesses such as a frozen yogurt business, Rita's Italian Ice and other similar concepts are that the build out can be outrageously expensive. Then, you have only a few key months to not only hopefully profit a little something, but also pay back up to several hundred thousand dollars to banks or wherever else you borrowed money from.
As far as the yogurt business, I believe it grew too fast, too quick. I personally know many other Yofresh locations and privately owned yogurt stores that all closed within a year or a year and half. In fact, I know at least eight other Yofresh franchisees who closed up their shops.
What are you doing now in terms of your career?
Today I am a partner in a small hoagie shop.
What are your plans for the future? Would you ever become a franchisee again?
At the end of the day, my dream is to be involved in a strong growing franchise. I want to become a multi-unit franchisee in the future.