Any small business owner who has experienced a total economic collapse of a new business knows all too well the emotional and financial consequences of failure.
After failing in a business launch, many an entrepreneur’s next move is to start over, sometimes with a fresh idea, and often with other people’s money.
The next, big thing is launched with fanfare and marketing spin. The new venture enjoys success in the short-run. Then, things begin to go awry – again.
News reports describe cash flow problems, defection of key executives, excessive spending and other gory details that suggest the wheels are beginning to come off. The troubled start-up goes under, the principals disappear and everyone involved suffers.
Investors lose money, employees lose jobs and vendors go unpaid. In many cases, the founders and other guys at the top make soft-landings elsewhere while the remaining employees become victims and are left to their own resources.
The problem is usually the same kind of issues that plagued the entrepreneur’s earlier efforts. Undercapitalization and misjudgment of the true start up costs and the timeline to a positive cash flow are among the top reasons for new business failures. These troubles certainly played some role in the demise of many carwash start-ups. They are also likely culprits preventing the blossoming of a national carwash franchise.
The failure of the Rapido Rabbit franchise is just the most recent example in our industry. It deserves some post-mortem if the industry is to draw lessons from this and other failures to build hopes for a brighter, successful future in carwash franchising.
A lesson learned
In the grand scheme of things, it really doesn’t matter if we ever know the entire story of what actually happened with the Rabbit – or all the details of any private business failure. What matters is whether there is enough detail to put together some lessons on what to do and what not to do when attempting to establish a carwash franchise – for both franchisees or franchisors.
A positive note: business failures usually do little to diminish the pool of bankable, passive investors who are more than willing to take a risk on new ventures. This may be particularly true of a “people-less” business like an express exterior carwash.
Another positive note, as provided by a carwash equipment manufacturer in the April cover story of this magazine: the Rabbit’s failure is not an indication of any frailties with the express exterior carwash concept. That idea will continue to enjoy success in many markets.
The caveat is that if lessons are not learned, a lot of investors will be disappointed.
The future of franchise
By most accounts, none of the existing companies offering a carwash franchise opportunity are on a trajectory to achieve national prominence within the next few years. Since this is the type of growth that will be necessary to attract enough funds to make the attempt, we shouldn’t expect to see the formation of a national carwash chain anytime soon.
Obviously, those that want to achieve this lofty goal will need to avoid typical franchise pitfalls. According to most franchise experts there are several keys to success in franchising:
To succeed in the carwash business, a franchisor will need a strong management team and an unwavering commitment to the business model.
A good carwash franchisor will be wise enough to limit participation to investors who are both bankable and capable. The carwash franchise will be created by growing the business through sales, not by selling carwash equipment.