LOCATION LOCATION LOCATION? Not So Much...

Franchise location, when considering retail and location driven franchise businesses are always a hot topic. Many papers written on the subject drive the subject as if it is the major component of success in the concept. Recently a Wall Street Journal article suggested the homogenizing of American business simply relegated where a business located to a secondary value. The reason? You can now go virtually anywhere and get anything. That would be accurate for most everything we want in our day-to-day lives.

Regardless of what you might have heard to the contrary (or spoken) the same principle holds true in franchising. Industry research suggests that brand positioning, operational and consumer perception factors play a more significant role than location in explaining franchisee success.

Why is location less significant in explaining franchisee success?

Part of the reason is that as our economy has shifted from manufacturing to services, the uniqueness of location has waned. Fifty years ago, most of our gross national product was based upon the manufacturing and agricultural sectors, transportation costs were high, and there were vast regional differences in products and services.

There was a time that if you wanted sourdough bread with your lobster, you had to travel to one of two places in the continental USA, San Francisco and/or Boston. What about today? Now you can enjoy that combination nearly anywhere. In the new economy, services, ideas, and knowledge can be easily transported and replicated, and many regional and local differences no longer exist.

Franchisees and franchisors have certainly benefited from the shift to a service economy with strong distribution channels. The proliferation of services also means that location plays a smaller role in franchisee success. Nearly all products and services can be purchased anywhere.

What is the Practical Application for Prospective Franchise Buyers?

If I were buying a location-based franchise today I would be skeptical of the franchisor whose major selling point is the location of one particular unit or even the organizations ability to select the “home run” sites for future development. If they focus on location we all know how a location can change overnight.

As you search you should focus on operational excellent, the integrity of the franchisor, the uniqueness of the product or service offering and their positioning within their market space and the culture and synergy of the franchisee community. Location has some impact on franchisee success, but fortunately, the impact is significantly less than what most people believe.

Knowing that location has limited impact on franchisee success will save you countless hours of frustration and allow you to focus on those things that really drive success.

What are those things? How about:

1. Your ability to learn and apply management principles appropriate to the system
2. The relationships you develop with the business stakeholders
3. Your involvement in the wider community in which you operate your business

Surprisingly, very few people figure out that franchising success is driven not by the location of the franchise unit, but by the behavior of the franchisee. As part of the ongoing consulting of my company we were working to resell marginal franchisees out of a particular system in Phoenix. Every one of them that wanted out in part blamed location and the company for allowing them to be in their mutually agreed on site. Oddly enough, years later, the new franchisees who were handpicked to take over these "distressed" units are moving right along as a group and growing their business; many of whom were owners previously and took over these “loser stores.”

NOT A LOSER STORE

The franchisees that followed in their footsteps-in the same location—are some of the most successful franchisees in the system, with strong sales growth, low employee turnover and above-average margins. If it were really a "loser location," the argument goes then nobody would be able to turn it around.

THE KICKER

Disillusioned franchisees that believe that their site is the significant driver of success can easily avoid responsibility for the growth and development of their units and instead blame things they cannot control. Stupidity never ran rampant so easily and misery was never able to find more friends. I would advise you to follow three steps to be a successful franchisee.

First, act like a CEO. Regardless of whether or not you are comfortable with the title, if you’re a franchisee, then people who work with you, work for you and purchase from you believe that you’re the CEO.

To be successful as a franchisee you have to develop an executive mindset, one that meshes leadership and learning as the cornerstone. I have personally interviewed executives at some of the best-managed companies in America, and I consistently find that successful senior executives share at least three characteristics in common:

• A scope of personalities, perspectives and reading materials that stretches them outside of their career and market box.
• Strong interpersonal skills that drive them to understand others and create trust.
• A business acumen that drives them to understand all aspects of business success.

Second, develop your social assets. This refers to the relationships you have with others.

Franchisees with the highest levels of social capital have the highest sales. Period.

Success is driven not by the location but by the behavior of the franchisee.

So why doesn’t everyone develop high levels of social capital? Well, it’s tough to find the time to interact with others when you’re running your own business. Also, once you become an expert in something, it’s easy to believe that you won’t learn anything from anyone else and learning is a HUGE part of developing your personal relational assets.

But the most successful franchisees find the time to interact with others, and they develop relationships with at least the four critical constituencies: franchisors, other franchisees, customers and employees.

I have heard numerous unsuccessful franchisees complain, "The franchisor doesn’t understand my local market or know who my customers are." Ok, so teach them about your local market, and while you’re at it, learn something about your franchisor’s business and challenges.

BOOST INTERACTION

Similarly, if you have only limited interactions with the other franchisees in the system, you won’t be able to get support, help and advice from the people who might be able to help you most. By developing strong ties with other franchisees, by sharing your ideas and strategies, you’ll help build a stronger system.

Many unsuccessful franchisees elevate customers to royalty status with common slogans like, "The customer is king!" Customers are important, and you would do well to have strong enough relationships with some of them so that you can learn how your services and products can be improved. There is more to the subject than this glib slogan.

Employees are equally important to your success, and the high-performing franchisees realize this is where you start in the value chain. Employees should be, in your mind as the CEO and business owner, your first level customers. You need to invest in your employees. The best treat their employees well, create clear objectives so they personally can measure their success, provide them with growth opportunities and hold them accountable to high standards they have seen the franchise owner model.

It doesn’t take a genius to know that employee morale has a direct (and positive) influence on customer satisfaction. High customer satisfaction levels impact your future business, can lead to referrals to other potential customers and increase opportunities for additional revenues through otherwise missed opportunities.

It is equally important to have fruitful relationships with employees, since employee development is not a cost of business but an investment in the future growth of your business.

Investing in your social capital and developing relationships with franchisors, franchisees, customers and employees will help elevate your business to one of the very best in any system and, in the long run, boost your bottom line.

Finally, invest in your community. The most successful franchisees in my experience invested in the communities represented by their business scope as well as direct investment into their businesses.

This form of investments means involvement in activities and associations that are not solely self-serving. You certainly may already have certain volunteer, non-profit or community associated activities such as any number of disease oriented causes, food banks, holiday fund and material drives. Your local church may also be very community oriented. The key is to find the soft spots your marketplace has developed and dive in. It doesn’t really matter what you do as long as you make an investment in your customer bases view of “community.”

The franchise trademark alone will not lead to high performance. (We will discuss this soon!) Just as wrong is to believe that location is the most significant factor in franchisee success. The range of franchisee performance in every system varies, and I have yet to hear a franchisor say, 'So-and-so is our highest revenue franchisee because of their location."

A mentor of mine once said, “If we took every franchisee in our 300 unit system and moved them one store number to the right (store owner No. 1 now owns store No. 2 and two owns 3, and so on) we would simply move the results of our revenues geographically not increase them financially.” I believe she was right. The evidence supports that thinking.

Barring acts of God or the governing body of the area you are located, your ability to perform as a franchisee is virtually independent of location. Invest in yourself, your relationships and your community, and then you will be a high performer.

John is a 26-year professional in the franchise industry. Previously he has been a franchisee, a franchise executive and an advocate/consultant to the public. He currently works with and has worked for dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at dr_franchise@consultant.com