Why My First Business Failed (And How You Can Avoid It)
Jul 30, 2024
The American Franchise Academy is a product of one of my life’s traumas. In fact, our focus and goal are also driven by that, to help others avoid going through what I went through.
About 37 years ago, I opened my first business, a small boutique that imported products and textiles from another country. I was very young, just out of college, and I thought I knew everything about the business world, which gave me the courage to start. However, as the months went by, I discovered I was wrong, and within a year, I had to close the shop before I became seriously into debt.
I was almost 22 years old, and I had failed. But I wasn’t going to sit in a corner and cry. While I figured out what to do with my life, I decided to get a job in the franchise industry, as happens for many college graduates, and I became a pizza delivery driver for Domino’s.
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To me, this job was easy. I would be in my car, running around, listening to music, and everybody would be happy to see me when I arrived. It was the perfect job until I decided what to do next.
What I did not realize is that this would open the door into an exciting industry and be the start of a lifelong journey and fruitful career, or should I say “love affair”, with franchising and everything that came with it.
This job also taught me what I needed to learn about businesses and, actually, revealed why my business had failed.
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Not enough clients or sales
My first business failed because not enough people were willing to give me money for the product I was selling. Even though I did have some customers, I needed more to pay the bills.
What’s more, people didn’t know I existed. My brand awareness was zero because I didn’t know how to advertise the business so that more people would visit my store and buy, giving me a chance to earn revenue.
Ignorance on how to create or read a P&L
Another reason my business failed is that I did not know how to make a profit and loss statement (P&L) for my company or how to use it to make smart decisions to improve the operations and the results I was having.
Not knowing how to calculate the break-even point
Besides being unable to read a profit and loss statement, I didn’t know how to calculate my break-even point. That meant I didn’t know how much sales I needed to cover the business expenses or my salary to make a living. Therefore, I had no specific objective or understanding of what I had to do to make a profit.
Clueless about how to price my product correctly
Along with not knowing how to market my business, I did not know how to price the clothing I was selling to the few customers I did have. I was guessing how much people would be willing to pay, regardless of whether or not I was making a profit from every product I sold.
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No idea what my product cost was
I was the only employee of the boutique, so labor cost was not an issue. But the cost of goods certainly was since I didn’t even know what the cost of my products was in the first place!
As you can see, I knew little about business management when I opened my first business. Thankfully, I was smart enough to close before things got worse. I also have to give myself credit because I could notice that something was missing from my business.
Within the first couple of weeks after I joined that first franchise organization, I could see the difference between my business and that business and what I was missing as a business owner. The most important ones:
- The franchise provided extensive training for team members, managers, and assistant managers so they could run the store properly and profitably.
- The P&L was taped to the wall so everyone could read, learn, and understand it—even myself because the manager explained it to me.
That’s what really attracted me to this franchise industry: that it’s all driven by systems, processes, procedures, and clear policies that allow these businesses to be successful. And, of course, by shared knowledge and information.
If you are an entrepreneur, business owner, or franchisee just starting this journey, you can capture this knowledge in many ways.
- You may have previous experience in small business management.
- Some family members or friends have shared that entrepreneurial information with you.
- Perhaps you joined one of these companies in the past and, like me, learned how to manage a business successfully through observation.
- You have reached out to mentors and coaches.
I want to present you with another option! In the last eight years, I have poured all of the knowledge and experience I received, from day 1 in that pizza delivery driver job through my over 37 years in this industry, into the American Franchise Academy.
We offer three professional training programs for franchisees, multi-unit leaders, district managers, and unit managers or single-unit franchisees who want to learn how to make their franchises as profitable as possible.
Take the experience of my failed business and the knowledge and experience I have acquired since then, and explore our programs to see if they can help you achieve your dream of business ownership through franchising and turn it into a multi-unit enterprise.
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Reflections:
- What is the biggest challenge you are facing in your business right now?
- How skilled and confident are you in facing that situation successfully?
- Do you know how to control the most critical numbers in your organization?
- Can you identify what’s missing to run your business profitably?
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