The IFA (International Franchise Association) did a study back in 2006 asking several hundred first-time franchisee's what were the reasons they decided to get into franchising as opposed to other business models. Here is their list in order of priority:
* Reduced risk of failure
* Turnkey operation
* Proven products/service offering and systems
* Standardized financial and accounting systems
* Collective buying power
* Supervision and consulting within the business system
* National and local advertising programs promotes branding
* Uniform packaging, branding and recognition
* Ongoing research and development
* Financial assistance
* Site selection guidance
* Operations systems and manuals previously developed
* Sales and marketing assistance
When pressed to discuss if these were the reasons they continued in operations 80% said no. Virtually everyone said they realized other benefits and had re-prioritized the initial value they put on these 13 items. Almost everyone realized after the fact the value of being involved in a system that united not just brands across geography but also the value of having a "comrades in arms" mentality of the franchisee system. Many valued this hidden factor as the most significant value of their franchise system.
The second significant factor takes into account several of the aforementioned specific values; a franchise expert organization that provided a look both at the industry on a perpetual basis and had a more universal view of trends in the market place they would otherwise miss simply because they are so locally involved in day-to-day operations.
There should never be a singular factor that creates the proverbial straw and tilts one over into franchise business ownership. But finding a franchise that meets your needs and fulfills your business ownership priorities would include many of the listed items. Just remember to get to know some of the franchisees to get a sense of the culture. It can be the most valuable reason of all.
John is a 26-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at docfranchise@gmail.com.
Tuesday, May 19, 2009
Monday, May 18, 2009
10 Qualities of High Performance Small Biz Owners
1. Internally - Personally and Self-Motivated
Everyone knows that you need motivation and drive to be successful in life. However, when you are running a small business, you will need to be able to not only motivate yourself, but motivate your employees as well. The best small business people realize you are often your highest and best resource. They've embraced and deal with it daily and keep themselves and their team thinking "We can!"
2. Goal Oriented
Successful business owners are always goal oriented - they know what they want to achieve and they have a sense of how long it will take them to get there. Moreover, they have learned that visionaries think critically and create the path...the baby steps and short-term goals to get to the biggies.
3. Personal Management & Prioritization Skills
When you own a small business, time equals money. If you want your business to be a success you will need to understand the concept of "first things first" and,
What do I need to do next in order to ensure the ongoing success of my enterprise?" Having said that, do not take take personal management to mean time management nor either to mean they control time or have priorities you and I would embrace. To the contrary many great small biz whizzes simply have one set of priorities that are wholly self-serving.
4. Fiscal Capability and Allocation Skills
In addition to managing their personal and business priorities, as a small business owner, you also need to be able to properly manage your monetary resources. The best have a timing sense about spending and holding. Oh by the way, if your passion is operations then you better get a great numbers person you can dance with...who will speak so you will be motivated when change is needed!
5. They Take Personal, Physical Care of Themselves
Too many small business owners often forget to take care of their health when things get busy. Poor nutrition can lead to a lack of energy and being susceptible to colds and the flu and being put on the sidelines in an untimely manner.
6. Nimble for The Times They are ALWAYS A'Changin'
Having the ability to adapt to changing market conditions is critical and a habit shared by the small biz whiz community. Products and services are quickly part of the fading landscape of the desires of a fickle market. You must be prepped to read the market and understand where it is planning to go.
7. Step Outside of Their Comfort Zone REGULARLY
Successful business owners need to be confident in taking risks. You have to take risks to reap rewards. This means controlled failure and the best of the best get that.
8. Communication Skills
Being able to communicate well with others is a must. In addition to communicating with your staff and customers, you also need to be able to network with other business owners.
9. An Unusually Wide Range of Interests
In addition to being able to communicate with others, you also need to be able to listen. But beyond that the very best are able to take the analogy of success and failure from a wide range of subject matter and apply it to their situation. The ability to associate truth, market conditions, opportunities and see beyond the narrow scope of ones own workspace is rare and unique and leads to an endless world of business possibilities. No one is ever-right 100% of the time, and there are times that even the most successful business owner will need to heed the advice of others and see things from a completely different perspective.
10. Work Right Not Just More!
If one of the reasons you are going into business is to work less - think again. Similarly, if you think you have to work longer, harder and more often then you are missing the point. The point is to focus attention, time and energy where you maximize your opportunity and create the largest possible audience for your goods and services. Make no mistake the best small business owners are committed to their business and frequently work 60 or even 80-hour weeks. But the key isn't the hours. The key is a concerted effort to do what the business needs you to do and train others to do the rest with the same fervor, intensity and pride you take in your work.
If you are challenged in your current small business give me a call and we can discuss your situation. I would be honored to be of service.
John is a 26-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at dr_franchise@consultant.com
Everyone knows that you need motivation and drive to be successful in life. However, when you are running a small business, you will need to be able to not only motivate yourself, but motivate your employees as well. The best small business people realize you are often your highest and best resource. They've embraced and deal with it daily and keep themselves and their team thinking "We can!"
2. Goal Oriented
Successful business owners are always goal oriented - they know what they want to achieve and they have a sense of how long it will take them to get there. Moreover, they have learned that visionaries think critically and create the path...the baby steps and short-term goals to get to the biggies.
3. Personal Management & Prioritization Skills
When you own a small business, time equals money. If you want your business to be a success you will need to understand the concept of "first things first" and,
What do I need to do next in order to ensure the ongoing success of my enterprise?" Having said that, do not take take personal management to mean time management nor either to mean they control time or have priorities you and I would embrace. To the contrary many great small biz whizzes simply have one set of priorities that are wholly self-serving.
4. Fiscal Capability and Allocation Skills
In addition to managing their personal and business priorities, as a small business owner, you also need to be able to properly manage your monetary resources. The best have a timing sense about spending and holding. Oh by the way, if your passion is operations then you better get a great numbers person you can dance with...who will speak so you will be motivated when change is needed!
5. They Take Personal, Physical Care of Themselves
Too many small business owners often forget to take care of their health when things get busy. Poor nutrition can lead to a lack of energy and being susceptible to colds and the flu and being put on the sidelines in an untimely manner.
6. Nimble for The Times They are ALWAYS A'Changin'
Having the ability to adapt to changing market conditions is critical and a habit shared by the small biz whiz community. Products and services are quickly part of the fading landscape of the desires of a fickle market. You must be prepped to read the market and understand where it is planning to go.
7. Step Outside of Their Comfort Zone REGULARLY
Successful business owners need to be confident in taking risks. You have to take risks to reap rewards. This means controlled failure and the best of the best get that.
8. Communication Skills
Being able to communicate well with others is a must. In addition to communicating with your staff and customers, you also need to be able to network with other business owners.
9. An Unusually Wide Range of Interests
In addition to being able to communicate with others, you also need to be able to listen. But beyond that the very best are able to take the analogy of success and failure from a wide range of subject matter and apply it to their situation. The ability to associate truth, market conditions, opportunities and see beyond the narrow scope of ones own workspace is rare and unique and leads to an endless world of business possibilities. No one is ever-right 100% of the time, and there are times that even the most successful business owner will need to heed the advice of others and see things from a completely different perspective.
10. Work Right Not Just More!
If one of the reasons you are going into business is to work less - think again. Similarly, if you think you have to work longer, harder and more often then you are missing the point. The point is to focus attention, time and energy where you maximize your opportunity and create the largest possible audience for your goods and services. Make no mistake the best small business owners are committed to their business and frequently work 60 or even 80-hour weeks. But the key isn't the hours. The key is a concerted effort to do what the business needs you to do and train others to do the rest with the same fervor, intensity and pride you take in your work.
If you are challenged in your current small business give me a call and we can discuss your situation. I would be honored to be of service.
John is a 26-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at dr_franchise@consultant.com
Wednesday, May 13, 2009
Um, Really? These Are the Investigation Do's and Don'ts?
I just got through reading a ditty from a self-proclaimed franchise expert on the non-official rules and regs you should use to determine what is the right franchise business for you. Here is the article in its entirety. I did add a few comments in BOLD in the Do NOT section:
Buying a franchise is not a simple process; but, it can be made easier if you follow some basic rules. Here are some things to keep in mind when investigating a franchise opportunity:
DO:
1. Take your time and educate yourself; it can take several months to find the right business. Commit to the process.
2. Know your financial situation (Assets, Liabilities, Net Worth)
3. Consult with a lawyer, accountant and/or franchise consultant
4. Carefully read and understand the FDD and Franchise Agreement
5. Create a Cash Flow statement and a business plan
6. Talk to existing franchisees
7. Compare franchises within the same industry segment
8. Take time to understand all the franchise financing options
9. Negotiate with the franchisor (fees, territory, marketing support, etc.)
10. Go to the Discovery Day
11. Be prepared to make a decision and take charge of you future
Do NOT:
1. Feel like you have to make a rush decision - Yes, you should feel urgency! Read below to know why
2. Load up on loans/debt to buy a business - Duh
3. Ignore the advice of professional advisors - This statement is so general as to be dangerous. Experts one and all, including Uncle Clem, all have an opinion. Have one good expert and an excellent small biz account (see below)
4. Trust everything the franchise sales person tells you - The depths of these statements boggle the mind. Look, if you can't trust the franchise development person then do NOT become a franchisee in the system - PERIOD!
5. Base your decision on the earnings of best performing franchisees Well gee Cosmo...of course you do not base your decision on one component of an entire process. But, let me ask you, isn't it nice to know what the best case scenario is? I mean, you already know intuitively the worst; you could fail and lose your investment (Get drunk, wreck the Maserati, get home and the dog had died and your wife has left you and the kids think you stink).
6. Bypass financial questions during investigation processThis is the best of reasons for a franchise consultant so you know how to craft these questions in order to get answers in an area that the Federal Trade Commission crucifies franchises for saying too much.
7. Cut the due diligence process short
8. Assume that the system will run itself, or that you won't have to be an entrepreneur I think you need to be entrepreneurial (or a FRANtrepreneur) but NOT an entrepreneur. You are not alone out there - besides the franchise company there are other franchisees you will get to know who are right there with you. The amount of time and effort should be understood from discussions with franchisees and a thorough study of their business model.
9. Underestimate the value of a franchise network, support and training The first truly insightful point made - franchises are a family all with the same challenges are opportunity. Don't be lame and sit on the sidelines and pretend you are different. Get in, get involved - get to know your fraternity.
10. Fall into Paralysis by Analysis mode
11. Be disappointed if, in the end, you discover that franchising is not for you.
You will quickly realize that buying a franchise is a deliberate process. If you want to become a business owner, franchising will definitely put some options on your table.
However, stick to the process, gather the information and be prepared to make a decision. In fact, be prepared for anything that can prevent you from making a decision.
Andre Chernih is a franchise expert, editor and manager of the web site http://Franchise-Opportunities-Search.com a collaborative compilation of info, articles, opinions and recommendations created to help aspiring business owners learn about franchising and find the right franchise opportunity.
The article has a certain amount of earthy acuity. Much of it is replicated in 100 books on small business ownership and virtually every word can be discovered in articles about franchising on Entrepreneur Magazine archives over the last three years.
I have my own list. I have limited it to what you should do. Doing less than this and you risk ending up never owning a business (because you never feel comfortable enough to be decisive enough to make the decision) or you end up where you should never have been in the first place, misfit in a poor choice (and most likely not manning up to the fact you are a big 'ol giant screw up for having chosen to sign up!) Here is the Wilson list.
1. Take a professional personal assessment evaluations to determine if you are made of the stuff that successful small business owners possess. The DISC, McQuaig Assessment or Meyers-Briggs Personality Tool...any and all of them will do the trick provided you have someone capable helping you understand them. I can tell you that those with strong leadership skills and high levels of sociability are the best material. Those who have learned they have weaknesses in one of those areas can work to and achieve the needed skills. You can't expect success without one or the other.
2. Having discovered you are a candidate to be a business owner generally, look in the mirror, go through all the iterations as to why this is a good or bad idea and decide you are moving forward; a job is not an option this is your decision.
3. Get every person who, in your moments of greatest clarity and honesty you know, beyond a doubt influences you to recognize you have made this decision.
4. Those that are significant others should be a part of the decision-making process to buy into your decision on the front end. They should do everything you do to prepare for this adventure.
5. Armed with an understanding of your personal make-up, evaluate you and all other stakeholder preferences to determine your personal drivers, those that are primary and those that are secondary in this decision. And no, these success drivers are not the same for everyone. Some people are driven by their passions. Some find security (and even enjoyment) working from their competencies and still others need constant change. Some people are energized by human contact and still others are drained in an environment where they have constant human contact. Will it be the industry that entices you or the earnings potential? Will you be motivated by a new concept that provides huge growth potential or the safety of a tried and true brand? Are you a security freak or an adventurer and what about your partner or wife?
6. Armed with determination, personal knowledge and a set of criteria your right fit business must meet, you must next assess your financial situation. You may be perfect for a whole range of opportunities from a psycho-socio perspective but which ones fit both A) Your Wallet and B) Your level of financial risk?
7. Now find a competent personal franchise consultant. If you do not know one call me, I know the right ones.
8. Once the franchise options are in front of you, it will take you 3-6 weeks to make a decision. If it takes you longer you are not, at present, franchisee material. Period! It may not be your fault but you weren't serious. You are not prepared. I say this because within 3-4 weeks (and sometimes life gets in the way and extends it beyond a week or two) you will know 85% of the decision-making information you should be using in order to make an pseudo-objective (I mean you have to want to do it and that is subjective) decision. The other 15% is fluid information. Hey! Remember, this isn't death and taxes. Risks do exist.
9. At week 2 you will know "the one." Get with an accountant, build a cash flow chart.
10. Consult with 4 or 5 successful franchisees and 2 or 3 failures or those who are struggling. Again, your consultant as well as the first franchisee you talk to, will be able to direct you. Ask them all the same series of questions. Have your consultant help you craft this list. Go back and ask the successful franchisee's their take on those that are challenged. Then look in the mirror again and ask yourself. Can I overcome the challenges of this business? Am I more like the successes or the failures - be honest for crying out loud - this is a big decision.
11. Don't expect to be able to negotiate changes to the franchise agreement. Most stand-up franchises will take a "here I stand" even-handed approach to the business. Territory and perhaps marketing support are two areas where they may be special assistance. This is an area a good consultant can provide you with guidance. Just remember, if you are dealing with the top 1000 franchises in the USA they have too much at stake to have new members of the choir singing off key. Their job was to create the circumstances for your success; these include the terms of your franchise agreement.
12. Go Through the End Process with the final franchise choice (make sure they are as excited about you as you are nervous yet excited about your decision).
Growing A Franchise Network with "Big Dog" Strategy
One of the great struggles for many franchise organizations is determining the best method of rolling out their business model. Many consider Master Licensing or Regional Franchise Development.
What I can tell you is that it is not for everyone. If the statistics are a guide then it’s for a very few. Currently only 3-5% of all franchisors use this method to grow their systems. If that is true then perhaps 15% of all franchises should consider it.
Why might this be true. As much as anything this would be true because a method of business relationship has already been established with the franchisee and other stakeholders in the particular business model. Creating new structures in existing franchises is a lot like changing chassis on a moving car.
If the concept is fresh enough, the significant business partners are available in the general marketplace then the right franchise concept, with strong individual unit economics might possibly be capable of embracing it.
What is Regional Franchise Development or Master Licensing and how is it different than a traditional franchise model? At it's roots there isn't a lot different. However, should the Franchisor share the Franchise Fees, Royalties and sometimes Distribution income with a Strategic Market Development Stakeholder for effort and consideration (sort of sweat equity on steroids) then you have the makings of a potentially rewarding business building opportunity - both for the Franchiser and for the Regional Developer (RD).
Let's start with WHY a Franchiser would decide to develop their brand through RD's and what expectation should they create in terms of growth and operational development.
I want to start out with four reasons for a franchise system to evaluate the RD method as a Growth Strategy. They are:
1) Faster Growth - If properly marketed by the right RD - more sales efforts in each Region.
2) Distributed Cost of Operations Provides a profit motive for franchise company and RD.
3) Strong operational experience in the market at the point of entry. This alleviates a franchisee's concerns about lack of understanding of a specific market.
4) Local support creates the conditions for greater franchisee satisfaction and ergo better performance.
The RD is incented to develop their Region rapidly; this creates urgency on franchise recruiting efforts. Using Business Brokers, Franchise Consultants, Local Networking, Online Portals, Classic Advertising, Social Media (I won’t even get started on THAT here), etc. at the "my territory" level enhances interest, provides a higher level of interaction to better evaluate a candidates qualifications and more rapidly move them through an investigation/buying process. In a Master or Regional Development the RD is required to open a showcase unit. Once this “Pilot Unit” is open regionally, potential candidates (many who are simply customers of the unit) become franchisees themselves after experiencing the concept as a consumer.
I am sure you can imagine the reduced growth curve for the franchisor as the RD's begin to recruit in their local market - face-to-face, filtering out the unqualified and presenting the ones who are properly vetted to the franchisor for approval. Now, I overstep my boundaries here but if I were an RD I would look for "zees" with whom I feel I can work well together, who will be a TEAM PLAYER in the market with the other franchisees, and with franchise members that will be receptive to coaching and mentoring that I provide.
Should the business model have enough margin pad in the product/service purchase you can see in an RD model the Franchisor’s costs be to hire, train, house, and compensate franchise support and sales would be greatly reduced. Franchise organizations that “do the math” understand this advantage. Executed properly it can result in strong, controlled, and calculated growth.
Come on! Who doesn’t want that?
One VERY SUCCESSFUL franchise concept that rolled out exclusively through Regional Development has over 540 units open (800+ awarded) across the USA and is supported by a staff of only 40 at corporate HQ. Those staff members support the RDs and the RDs support the franchisees in their local markets. It’s a tiered distribution of training and support. Remember, the RDs are compensated for this with the sharing of the Royalties paid by the franchisees. They make their living as a management consulting firm.
Having said all of that, Master Licensing still needs to be done correctly. This means having sufficient staff to support initial RD location openings and creating a higher level of sophisticated business training to these management firms.
Incubating units and managing them close to home provides a better process to journal and archive Best Practices. Field research is more accurate and customized to best understand the nuances of the variety of market conditions. Continual improvement is delivered locally and thus the brand, its offerings and differentiators are better articulated. This pays dividends when competition is considered and particularly if you can demonstrate the benefit of local oversight versus national neglect.
You can demonstrate a significant compelling competitive advantage (“selling” feature?) of the franchise by heightening awareness of local support by a very specific hometown champion who has a vested interest in the success of the franchisees in a particular market. With the RD only a short distance away and visits more frequent than head office staffers dispatched quarterly or less frequently by the competition, you can become a service hero.
In franchising branding is built one market place at a time. Therefore branding is better grown and controlled locally or regionally and since the RD is responsible for monitoring the local co-op advertising activities in their market the positive power of the franchise market position can be more accurately communicated.
If you are a Franchiser, particularly one that is 5 years of age or less, the RD model can substantially increase your growth and decrease your failure rate and overhead expenses.
What are we looking for in a Regional Developer? What characteristics should be avoided for an RD? Is it for you? Is this the right time in your life and personal circumstances? Much of this is determined by what you already know about your business. The rest should be determined by a brain trust.
Give me a call and we can discuss your situation. I would be honored to be of service.
John is a 26-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at dr_franchise@consultant.com
What I can tell you is that it is not for everyone. If the statistics are a guide then it’s for a very few. Currently only 3-5% of all franchisors use this method to grow their systems. If that is true then perhaps 15% of all franchises should consider it.
Why might this be true. As much as anything this would be true because a method of business relationship has already been established with the franchisee and other stakeholders in the particular business model. Creating new structures in existing franchises is a lot like changing chassis on a moving car.
If the concept is fresh enough, the significant business partners are available in the general marketplace then the right franchise concept, with strong individual unit economics might possibly be capable of embracing it.
What is Regional Franchise Development or Master Licensing and how is it different than a traditional franchise model? At it's roots there isn't a lot different. However, should the Franchisor share the Franchise Fees, Royalties and sometimes Distribution income with a Strategic Market Development Stakeholder for effort and consideration (sort of sweat equity on steroids) then you have the makings of a potentially rewarding business building opportunity - both for the Franchiser and for the Regional Developer (RD).
Let's start with WHY a Franchiser would decide to develop their brand through RD's and what expectation should they create in terms of growth and operational development.
I want to start out with four reasons for a franchise system to evaluate the RD method as a Growth Strategy. They are:
1) Faster Growth - If properly marketed by the right RD - more sales efforts in each Region.
2) Distributed Cost of Operations Provides a profit motive for franchise company and RD.
3) Strong operational experience in the market at the point of entry. This alleviates a franchisee's concerns about lack of understanding of a specific market.
4) Local support creates the conditions for greater franchisee satisfaction and ergo better performance.
The RD is incented to develop their Region rapidly; this creates urgency on franchise recruiting efforts. Using Business Brokers, Franchise Consultants, Local Networking, Online Portals, Classic Advertising, Social Media (I won’t even get started on THAT here), etc. at the "my territory" level enhances interest, provides a higher level of interaction to better evaluate a candidates qualifications and more rapidly move them through an investigation/buying process. In a Master or Regional Development the RD is required to open a showcase unit. Once this “Pilot Unit” is open regionally, potential candidates (many who are simply customers of the unit) become franchisees themselves after experiencing the concept as a consumer.
I am sure you can imagine the reduced growth curve for the franchisor as the RD's begin to recruit in their local market - face-to-face, filtering out the unqualified and presenting the ones who are properly vetted to the franchisor for approval. Now, I overstep my boundaries here but if I were an RD I would look for "zees" with whom I feel I can work well together, who will be a TEAM PLAYER in the market with the other franchisees, and with franchise members that will be receptive to coaching and mentoring that I provide.
Should the business model have enough margin pad in the product/service purchase you can see in an RD model the Franchisor’s costs be to hire, train, house, and compensate franchise support and sales would be greatly reduced. Franchise organizations that “do the math” understand this advantage. Executed properly it can result in strong, controlled, and calculated growth.
Come on! Who doesn’t want that?
One VERY SUCCESSFUL franchise concept that rolled out exclusively through Regional Development has over 540 units open (800+ awarded) across the USA and is supported by a staff of only 40 at corporate HQ. Those staff members support the RDs and the RDs support the franchisees in their local markets. It’s a tiered distribution of training and support. Remember, the RDs are compensated for this with the sharing of the Royalties paid by the franchisees. They make their living as a management consulting firm.
Having said all of that, Master Licensing still needs to be done correctly. This means having sufficient staff to support initial RD location openings and creating a higher level of sophisticated business training to these management firms.
Incubating units and managing them close to home provides a better process to journal and archive Best Practices. Field research is more accurate and customized to best understand the nuances of the variety of market conditions. Continual improvement is delivered locally and thus the brand, its offerings and differentiators are better articulated. This pays dividends when competition is considered and particularly if you can demonstrate the benefit of local oversight versus national neglect.
You can demonstrate a significant compelling competitive advantage (“selling” feature?) of the franchise by heightening awareness of local support by a very specific hometown champion who has a vested interest in the success of the franchisees in a particular market. With the RD only a short distance away and visits more frequent than head office staffers dispatched quarterly or less frequently by the competition, you can become a service hero.
In franchising branding is built one market place at a time. Therefore branding is better grown and controlled locally or regionally and since the RD is responsible for monitoring the local co-op advertising activities in their market the positive power of the franchise market position can be more accurately communicated.
If you are a Franchiser, particularly one that is 5 years of age or less, the RD model can substantially increase your growth and decrease your failure rate and overhead expenses.
What are we looking for in a Regional Developer? What characteristics should be avoided for an RD? Is it for you? Is this the right time in your life and personal circumstances? Much of this is determined by what you already know about your business. The rest should be determined by a brain trust.
Give me a call and we can discuss your situation. I would be honored to be of service.
John is a 26-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at dr_franchise@consultant.com
Monday, May 11, 2009
10 Small Biz Mistakes that Lead to Failure
When I started to pen this thought piece I did so in considering small business in general. I’m going to keep that theme in part but I am also going to add to each challenge point, 1 through 10, at least a simple reason why franchising can provide some level of solution and security from the aforementioned mistake.
These mistakes are not the top 10, the only 10, the best 10 the researched and validated 10 or anything else of a kind. They represent the ones I have had to deal with most in my life, with my friends whom are mostly small business men and women and my clients who are mostly small business developers called franchisers. They do represent over two thousand business owners and I would guess this is a good top 10 list (I am probably right 7 or 8 out of 10 anyway) but I am not going to “shine you on” by telling you they are the result of my “extensive research.” They do represent what I feel. I’m pretty good at this stuff though but some of you have your favorites. Feel free to add them to the mix.
I hope you find this useful… - John
1. Insufficient Working Capital
The most common reason why new businesses shut down is that the owner get his business up and running but completely misses that he will need some start-up capital (and often this is not a small amount) to fun his business until it becomes self-sufficient and can pay its own way.
Cash flow is critical to a startup business. You could be profitable and still have to close your doors because your customers are taking too long to pay you or, you are generating revenues but your bills are coming in on the front end more quickly than full payment is being generated to you. Liquidity is king in a startup venture. Know what your business needs to survive start-up.
Franchise Solution: Most franchises and certainly the top 500 in the United States, require that you have sufficient start-up capital available when you open your doors for business. You don’t have to wonder. You will have it or you will not be granted a franchise license.
2. Winners Stick-to-it Attitude
Starting a business is all about survival. How do you stay around one more day so that you can learn more about your market and close new customers?
At the beginning stages of a business this may mean doing work that might not be completely what you want to do but it helps pay the bills. You need to do whatever it takes to survive and get through until the business can fully support yourself.
Franchise Solution: A franchise company has gone through these iterations and virtually all of them have operating units that have gone through the myriad of challenges that face a new business. You have both the company and a fraternity of franchisees to rely on to help you stay the course and recognize the next action you need to take to open the door tomorrow.
3. Death of Your Vision
There is a sort of mystic fog that exists to those who make it past the anxiety of changing their work path and become business owners. They make the decision to become entrepreneurs, they start the business, they work and slave and get the permits and licenses and build whatever needs to be built (websites, walls, displays, computer networks, etc.) and even begin to make customer contact. But then something happens. The result is energy level drops, activity levels fall to dangerous levels and if they don’t completely check out they at least do so mentally.
They quit.
Building a business is all about momentum. If you had 24 hours to spend on a business they would be put to far better use by spending one hour a day than for 24 hours straight.
It takes time to develop a new company and for people to react to what you provide. Keep your momentum building. Even if your business is only a part time initiative for you at the moment, make sure that every day you are making progress of some sort to move your company forward.
Franchise Solution: A franchise company helps provide you with a business plan and marketing strategy for your first quarter, 6 months, and year and beyond. You have an activity chart. You can evaluate what you are doing against a very specific set of actions and responses.
Further, operational support is there on a regular basis to ensure you are keeping an eye on key indicators. They let you know what is lacking. Is there an area where additional training or marketing needs to be added? A franchise company has a vested interest in your success and one way they demonstrate this is to let you know you are slipping and need to pick up the pace!
4. I am a Rock – I am an Island
Business ownership is not an exercise in self-sufficiency. It is not you being “bossless” or mentorless. Nobody is perfect or has the skills to do everything themselves. You need to understand what it is that you bring to the table and what you need to surround yourself with. You need to resource against your weaknesses. If, for example, you are very strong at statistical analysis but don’t have strong customer service skills then you need to find a strong frontline employee who enjoys client contact.
I want you to understand you need to learn and be willing to do anything to keep going. However, you won’t create high levels of success by forcing yourself to do things that you don’t enjoy and in which you lack core competencies. Know where you stand and what value you can offer. Take a Meyers-Briggs or DISC evaluation if you never have. When you surround yourself with others that complement your skills, you will have more fun and demonstrate to your stakeholders you recognize what is needed to create a world-class business unit.
Franchise Solution: I won’t draw this one out because if you have studied franchising you’ve seen this in type before: Franchising is about being in business for yourself but not by yourself. People, in part typically become franchisees because they realize their inadequacies (and they want to blame someone else when they fail! – No, just kidding). You get into a franchise system to take advantage of the collective
5. Are You Sure You Want to Hire Uncle Rupert?
Never hire from convenience or nepotism. Focus on tasks the CEO should accomplish. Think of yourself that way. Think what will best serve your customer in the long run. Why are you doing work huddled in the back office when you should be out meeting clients, generating PR buzz, and increasing the reach of your networking efforts?
Franchise Solution: A franchise plan will focus on the varying skill set iterations of their successful franchisees and how they interact with the business in advance of your engaging in the business to determine if you fit that model. This may affect working capital needs as well but they will be able to provide you a more precise human resource needs assessment than you might generate as a lone entrepreneur.
6. It’s About the Big Bucks
There are many who tell you to follow a passion. Many of us to be fair do not have passions affiliated with work. You need to enjoy the work. You need to gain great satisfaction from a job well done. But creating money as a goal or as your driving force is like the tender of an apple orchard who constantly picks apples because they are what he sells in order to create a living but who never tends to the soil or the trees themselves.
Ensure you select a business where you gain personal satisfaction by the process; by servicing the client and their needs and by your ability as “CEO” in developing your people, your team.
Franchise Solution: The great franchises have a process to determine if what they do as a business matches your expectations, personal drivers, abilities and investment capabilities. Your honesty in divulging what it is you hope to accomplish and their honesty in presenting their business case ensures to a very high level, that you get into the business that meets both the companies and your criteria.
7. I think I can…er, maybe not
Goal one, yes job one is for the entrepreneur to make it to the end of their first year. Many of them do not. And, we’ve covered some of this already. Many start a business on an impulse and got excited about a perceived opportunity but didn’t do the proper research. These entrepreneurs become disillusioned. Without a backup strategy or the ability to change course or raise additional capital they fold in a matter of months.
The second year can be just as challenging and the goal is that a business really begins to come into its own and hit the stride through 36 months of continual operations. Think of year one as your freshman year in high school; it was exciting and frightening You’re high on energy and ready to take on the world. In year two, your sophomore season, you have learned the lay of the land but may or may not have had the kind of impact (especially financially) you desire. The startup excitement has faded but you are move even. If not, you are part of the second wave of failures. You’ll need to work your way through the downturn and know that the money is coming if you keep at it.
Franchise Solution: A franchise company will have continued to press you right through years one and two in areas of improvement. You will have gained mentors within the family of franchisees. In many cases you will find a colleague in another unit and you will challenge one another. In addition, ongoing or advanced training, webinar events and perhaps a national convention will be in the cards; all of which will provide you with the momentum to carry forward.
8. And Great Was The Fall…
The best way to make a lot of money quickly is to find a customer who has a problem and is willing to pay you to solve it - and then you go out and build the solution. Entrepreneurs who build a business on a customer or on a sliver market component (i.e. the lunch crowd in an industrial park that is controlled by just one company…oh, say, Motorola!) often find themselves calling the printer and instructing him what to put on the “Business Closing for Good!” signs.
Make sure you have a plan if you plan on being a niche business. But this isn’t the only challenge that fits into this category.
The companies with the highest failure rates are restaurants because they are usually built around an owner’s personal tastes. Meanwhile, the entrepreneurs with the lowest failure rates are medical professionals, lawyers and accountants because they are based around a service that we all need (whether we like it or not!) Talk to potential customers, see what they are interested in, identify who has money and what their pains are and then create your product/service.
Franchise Solution: A franchise business model, virtually by definition is replicable in significant marketplaces. They focus on a series of capabilities that fit into a general category that the general populous or the whole of a niche has need of what they provide. It’s simple enough to investigate to determine the components that lead to their success and what it is you would want to avoid. As a matter of course the franchise company will understand the pitfalls and provide navigation around the slippery slopes. That is, provided you are teachable. The key to disaster avoidance is sensitivity to those who’ve traveled the path previously.
Franchising is nothing if it does not help you pilot past the shoals and the reefs of disaster.
9. I’ll Just Read About it…
The Internet has created a generation of nimrods. Pseudo-geeks who believe that if they can just Google it they can learn the entire story; the ins and the outs, the ups and downs and all the juicy insider tidbits.
A great way to get a business going is to find out what other people have done to achieve success and implement those strategies into your own company. This has to be more than just reading about it. We all need to find mentors who have knowledge of our industry and who will give you time out of their day to provide instruction and guidance.
You could set up a formal board of advisers and compensate people for their time but if you’re a startup you can play on the fact that most entrepreneurs are willing to help out a fellow business owner as a way to give back. If you show genuine appreciation and approach the right people, the advice you get will help make or break your company.
Franchise Solution: Uh…this is self-evident. However, let me just say it. A franchise company IS a mentor. They provide the organized development of your business. They start at what you need to do on day one and take you through what you will do when you elect to exit the business. You will receive training, a business system, a marketing strategy, a back end or back office administrative system to analyze data, create reports and evaluate progress and in all sincerity that is usually just the beginning.
10. What the World Needs Now…(er…Come Together…Um, I am NOT a Rock nor an Island?)
My experience is that the person who will not seek out help will also not seek out how to create other important relationships. As it relates to your stakeholders this would mean your involvement in the community that embraces your customers and potential customers.
Connecting with other young entrepreneurs and finding out what they are up to (and how you can help generate countless opportunities) is a great tie-in to your community. Discovering and involving yourself in the areas of service that your clients have interest and passion should truly be a no-brainer. You will get new business opportunities, partners, investment, media attention, ideas for productive tools to use, advice for your company, and many other resources that otherwise would take you years of trial and error to figure out (if you ever do at all).
Franchise Solution: Most every significant franchise I have ever had the pleasure of serving (roughly most the top 200 and another 100 or so in the top 1000) has a strategy these days that recognizes the value of the community the franchisee serves as an integral part of their marketing. Even in franchises where the franchisee works on the business and not in it or is involved part-time, they are taught to focus their efforts on visibility within their service market.
These mistakes are not the top 10, the only 10, the best 10 the researched and validated 10 or anything else of a kind. They represent the ones I have had to deal with most in my life, with my friends whom are mostly small business men and women and my clients who are mostly small business developers called franchisers. They do represent over two thousand business owners and I would guess this is a good top 10 list (I am probably right 7 or 8 out of 10 anyway) but I am not going to “shine you on” by telling you they are the result of my “extensive research.” They do represent what I feel. I’m pretty good at this stuff though but some of you have your favorites. Feel free to add them to the mix.
I hope you find this useful… - John
1. Insufficient Working Capital
The most common reason why new businesses shut down is that the owner get his business up and running but completely misses that he will need some start-up capital (and often this is not a small amount) to fun his business until it becomes self-sufficient and can pay its own way.
Cash flow is critical to a startup business. You could be profitable and still have to close your doors because your customers are taking too long to pay you or, you are generating revenues but your bills are coming in on the front end more quickly than full payment is being generated to you. Liquidity is king in a startup venture. Know what your business needs to survive start-up.
Franchise Solution: Most franchises and certainly the top 500 in the United States, require that you have sufficient start-up capital available when you open your doors for business. You don’t have to wonder. You will have it or you will not be granted a franchise license.
2. Winners Stick-to-it Attitude
Starting a business is all about survival. How do you stay around one more day so that you can learn more about your market and close new customers?
At the beginning stages of a business this may mean doing work that might not be completely what you want to do but it helps pay the bills. You need to do whatever it takes to survive and get through until the business can fully support yourself.
Franchise Solution: A franchise company has gone through these iterations and virtually all of them have operating units that have gone through the myriad of challenges that face a new business. You have both the company and a fraternity of franchisees to rely on to help you stay the course and recognize the next action you need to take to open the door tomorrow.
3. Death of Your Vision
There is a sort of mystic fog that exists to those who make it past the anxiety of changing their work path and become business owners. They make the decision to become entrepreneurs, they start the business, they work and slave and get the permits and licenses and build whatever needs to be built (websites, walls, displays, computer networks, etc.) and even begin to make customer contact. But then something happens. The result is energy level drops, activity levels fall to dangerous levels and if they don’t completely check out they at least do so mentally.
They quit.
Building a business is all about momentum. If you had 24 hours to spend on a business they would be put to far better use by spending one hour a day than for 24 hours straight.
It takes time to develop a new company and for people to react to what you provide. Keep your momentum building. Even if your business is only a part time initiative for you at the moment, make sure that every day you are making progress of some sort to move your company forward.
Franchise Solution: A franchise company helps provide you with a business plan and marketing strategy for your first quarter, 6 months, and year and beyond. You have an activity chart. You can evaluate what you are doing against a very specific set of actions and responses.
Further, operational support is there on a regular basis to ensure you are keeping an eye on key indicators. They let you know what is lacking. Is there an area where additional training or marketing needs to be added? A franchise company has a vested interest in your success and one way they demonstrate this is to let you know you are slipping and need to pick up the pace!
4. I am a Rock – I am an Island
Business ownership is not an exercise in self-sufficiency. It is not you being “bossless” or mentorless. Nobody is perfect or has the skills to do everything themselves. You need to understand what it is that you bring to the table and what you need to surround yourself with. You need to resource against your weaknesses. If, for example, you are very strong at statistical analysis but don’t have strong customer service skills then you need to find a strong frontline employee who enjoys client contact.
I want you to understand you need to learn and be willing to do anything to keep going. However, you won’t create high levels of success by forcing yourself to do things that you don’t enjoy and in which you lack core competencies. Know where you stand and what value you can offer. Take a Meyers-Briggs or DISC evaluation if you never have. When you surround yourself with others that complement your skills, you will have more fun and demonstrate to your stakeholders you recognize what is needed to create a world-class business unit.
Franchise Solution: I won’t draw this one out because if you have studied franchising you’ve seen this in type before: Franchising is about being in business for yourself but not by yourself. People, in part typically become franchisees because they realize their inadequacies (and they want to blame someone else when they fail! – No, just kidding). You get into a franchise system to take advantage of the collective
5. Are You Sure You Want to Hire Uncle Rupert?
Never hire from convenience or nepotism. Focus on tasks the CEO should accomplish. Think of yourself that way. Think what will best serve your customer in the long run. Why are you doing work huddled in the back office when you should be out meeting clients, generating PR buzz, and increasing the reach of your networking efforts?
Franchise Solution: A franchise plan will focus on the varying skill set iterations of their successful franchisees and how they interact with the business in advance of your engaging in the business to determine if you fit that model. This may affect working capital needs as well but they will be able to provide you a more precise human resource needs assessment than you might generate as a lone entrepreneur.
6. It’s About the Big Bucks
There are many who tell you to follow a passion. Many of us to be fair do not have passions affiliated with work. You need to enjoy the work. You need to gain great satisfaction from a job well done. But creating money as a goal or as your driving force is like the tender of an apple orchard who constantly picks apples because they are what he sells in order to create a living but who never tends to the soil or the trees themselves.
Ensure you select a business where you gain personal satisfaction by the process; by servicing the client and their needs and by your ability as “CEO” in developing your people, your team.
Franchise Solution: The great franchises have a process to determine if what they do as a business matches your expectations, personal drivers, abilities and investment capabilities. Your honesty in divulging what it is you hope to accomplish and their honesty in presenting their business case ensures to a very high level, that you get into the business that meets both the companies and your criteria.
7. I think I can…er, maybe not
Goal one, yes job one is for the entrepreneur to make it to the end of their first year. Many of them do not. And, we’ve covered some of this already. Many start a business on an impulse and got excited about a perceived opportunity but didn’t do the proper research. These entrepreneurs become disillusioned. Without a backup strategy or the ability to change course or raise additional capital they fold in a matter of months.
The second year can be just as challenging and the goal is that a business really begins to come into its own and hit the stride through 36 months of continual operations. Think of year one as your freshman year in high school; it was exciting and frightening You’re high on energy and ready to take on the world. In year two, your sophomore season, you have learned the lay of the land but may or may not have had the kind of impact (especially financially) you desire. The startup excitement has faded but you are move even. If not, you are part of the second wave of failures. You’ll need to work your way through the downturn and know that the money is coming if you keep at it.
Franchise Solution: A franchise company will have continued to press you right through years one and two in areas of improvement. You will have gained mentors within the family of franchisees. In many cases you will find a colleague in another unit and you will challenge one another. In addition, ongoing or advanced training, webinar events and perhaps a national convention will be in the cards; all of which will provide you with the momentum to carry forward.
8. And Great Was The Fall…
The best way to make a lot of money quickly is to find a customer who has a problem and is willing to pay you to solve it - and then you go out and build the solution. Entrepreneurs who build a business on a customer or on a sliver market component (i.e. the lunch crowd in an industrial park that is controlled by just one company…oh, say, Motorola!) often find themselves calling the printer and instructing him what to put on the “Business Closing for Good!” signs.
Make sure you have a plan if you plan on being a niche business. But this isn’t the only challenge that fits into this category.
The companies with the highest failure rates are restaurants because they are usually built around an owner’s personal tastes. Meanwhile, the entrepreneurs with the lowest failure rates are medical professionals, lawyers and accountants because they are based around a service that we all need (whether we like it or not!) Talk to potential customers, see what they are interested in, identify who has money and what their pains are and then create your product/service.
Franchise Solution: A franchise business model, virtually by definition is replicable in significant marketplaces. They focus on a series of capabilities that fit into a general category that the general populous or the whole of a niche has need of what they provide. It’s simple enough to investigate to determine the components that lead to their success and what it is you would want to avoid. As a matter of course the franchise company will understand the pitfalls and provide navigation around the slippery slopes. That is, provided you are teachable. The key to disaster avoidance is sensitivity to those who’ve traveled the path previously.
Franchising is nothing if it does not help you pilot past the shoals and the reefs of disaster.
9. I’ll Just Read About it…
The Internet has created a generation of nimrods. Pseudo-geeks who believe that if they can just Google it they can learn the entire story; the ins and the outs, the ups and downs and all the juicy insider tidbits.
A great way to get a business going is to find out what other people have done to achieve success and implement those strategies into your own company. This has to be more than just reading about it. We all need to find mentors who have knowledge of our industry and who will give you time out of their day to provide instruction and guidance.
You could set up a formal board of advisers and compensate people for their time but if you’re a startup you can play on the fact that most entrepreneurs are willing to help out a fellow business owner as a way to give back. If you show genuine appreciation and approach the right people, the advice you get will help make or break your company.
Franchise Solution: Uh…this is self-evident. However, let me just say it. A franchise company IS a mentor. They provide the organized development of your business. They start at what you need to do on day one and take you through what you will do when you elect to exit the business. You will receive training, a business system, a marketing strategy, a back end or back office administrative system to analyze data, create reports and evaluate progress and in all sincerity that is usually just the beginning.
10. What the World Needs Now…(er…Come Together…Um, I am NOT a Rock nor an Island?)
My experience is that the person who will not seek out help will also not seek out how to create other important relationships. As it relates to your stakeholders this would mean your involvement in the community that embraces your customers and potential customers.
Connecting with other young entrepreneurs and finding out what they are up to (and how you can help generate countless opportunities) is a great tie-in to your community. Discovering and involving yourself in the areas of service that your clients have interest and passion should truly be a no-brainer. You will get new business opportunities, partners, investment, media attention, ideas for productive tools to use, advice for your company, and many other resources that otherwise would take you years of trial and error to figure out (if you ever do at all).
Franchise Solution: Most every significant franchise I have ever had the pleasure of serving (roughly most the top 200 and another 100 or so in the top 1000) has a strategy these days that recognizes the value of the community the franchisee serves as an integral part of their marketing. Even in franchises where the franchisee works on the business and not in it or is involved part-time, they are taught to focus their efforts on visibility within their service market.
Saturday, May 9, 2009
Does Big Name Create Big Earnings and Security?
Most people equate franchising with those Top-of-the-Mind mega systems. We think of names like McDonald's, Burger King, Taco Bell, Subway and perhaps Dominoes Pizza. Hotel chains like Wyndham, Hampton Inns, Hilton and even Marriott have large numbers and international reach. Other business-format franchises like H&R Block, Thrifty Car Rental Curves or ServiceMaster are just big.
But what is the advantage of this and are there disadvantages?
I am sure you've guessed the answer already haven't you?
First-time franchise buyers are typically hoping to receive at least two benefits from their decision. They hope the franchise has a valuable brand and they expect it to have a proven operating system. The primary advantage of big franchise companies is that both of these are basically set in place. You can easily research consumer awareness and attitudes about the brand just by asking around. A well planned visit to operational outlets will provide you with some local subjective information about their customer service and operational execution.
There are other advantages of course. Safety and security are assumed. The risk of failure when aligning yourself with a larger franchise system should be lower. Most of these are more mature systems that have worked all the chinks out of the armor which is their business system. Success isn't guaranteed but you will feel more secure..
Is Bigger Always Better?
Of course you know the answer is no. The major downside issues are:
• Cost of entry (the value proposition) will be greater per unit
• Reduced Opportunity because of limited territory availability
• More maturity – more applications = Greater Experience Expected on the part of the franchiser
• The tendency of these systems to favor seasoned operators with current holdings
• There is less wiggle room for entrepreneurial spirit
• The older and larger the system the greater the expected compliance
The bottom line is that any large system has developed enough territory and build-out significant units that approval to open a new unit as a new franchisee can be a long drawn out process.
It is more likely a new franchisees will enter a large franchise organization by purchasing an existing franchise. While this can actually be an advantage to you, since it allows you to review the operational and financial performance of the unit or units before you decide to buy (And make sure that you do!). Buying an existing business with profitable operations has massive challenges, primarily related to relational issues with clients, employees and a fully developed culture. What appears a benefit, in terms of the record, is not nearly as good as over 50% of all re-sale franchises fail within the first 24 months. I never recommend resales unless I first and individually investigate them personally.
My Bottom Line
While I understand the mindset surrounding the issue of branding the fact of the matter is that there are 1000's of national franchise companies all of whom have highly successful business models and profitable franchisees. You and I can only name a few in comparison to the size of the market in franchising. What about the rest? Where is their branding? The truth is you and I may only remember them if our memory is jarred (Snap Fitness, Massage Envy, J. D. Byriders, Friendly's, Disaster Kleenup International and 1000's more. By the way, the ones I named are even in the top 100 in terms of operating units!) but the people who matter, their client and prospect base knows who they are...intimately.
What's the point?
The point is that virtually every franchise business that is successful in North America and Europe simply needs the right franchisee that matches their profile in order to succeed. Branding and market positioning is created at the local level; the level at which the franchise unit exists. Find the franchise that matches your goals, skillset, interests...YOUR priorities for business ownership and you will find a beautiful thing be it large or start up.
Every franchise is seeking franchisees with the talent and capital to make their business a success. Big or small, most franchise companies care deeply about the success of all their franchisees. You can find just as much heart in a small company as in a larger one; frankly usually more and more passion and more communication. My recommendation is hook up with a consumer franchise consultant. Call me if you need a recommendation. With their assistance you can take the time to look into a number of alternatives when you're contemplating franchise opportunities--big company or small--and with their expertise and previous investigation into the various systems you'll find the right one to maximize your chance for success.
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
But what is the advantage of this and are there disadvantages?
I am sure you've guessed the answer already haven't you?
First-time franchise buyers are typically hoping to receive at least two benefits from their decision. They hope the franchise has a valuable brand and they expect it to have a proven operating system. The primary advantage of big franchise companies is that both of these are basically set in place. You can easily research consumer awareness and attitudes about the brand just by asking around. A well planned visit to operational outlets will provide you with some local subjective information about their customer service and operational execution.
There are other advantages of course. Safety and security are assumed. The risk of failure when aligning yourself with a larger franchise system should be lower. Most of these are more mature systems that have worked all the chinks out of the armor which is their business system. Success isn't guaranteed but you will feel more secure..
Is Bigger Always Better?
Of course you know the answer is no. The major downside issues are:
• Cost of entry (the value proposition) will be greater per unit
• Reduced Opportunity because of limited territory availability
• More maturity – more applications = Greater Experience Expected on the part of the franchiser
• The tendency of these systems to favor seasoned operators with current holdings
• There is less wiggle room for entrepreneurial spirit
• The older and larger the system the greater the expected compliance
The bottom line is that any large system has developed enough territory and build-out significant units that approval to open a new unit as a new franchisee can be a long drawn out process.
It is more likely a new franchisees will enter a large franchise organization by purchasing an existing franchise. While this can actually be an advantage to you, since it allows you to review the operational and financial performance of the unit or units before you decide to buy (And make sure that you do!). Buying an existing business with profitable operations has massive challenges, primarily related to relational issues with clients, employees and a fully developed culture. What appears a benefit, in terms of the record, is not nearly as good as over 50% of all re-sale franchises fail within the first 24 months. I never recommend resales unless I first and individually investigate them personally.
My Bottom Line
While I understand the mindset surrounding the issue of branding the fact of the matter is that there are 1000's of national franchise companies all of whom have highly successful business models and profitable franchisees. You and I can only name a few in comparison to the size of the market in franchising. What about the rest? Where is their branding? The truth is you and I may only remember them if our memory is jarred (Snap Fitness, Massage Envy, J. D. Byriders, Friendly's, Disaster Kleenup International and 1000's more. By the way, the ones I named are even in the top 100 in terms of operating units!) but the people who matter, their client and prospect base knows who they are...intimately.
What's the point?
The point is that virtually every franchise business that is successful in North America and Europe simply needs the right franchisee that matches their profile in order to succeed. Branding and market positioning is created at the local level; the level at which the franchise unit exists. Find the franchise that matches your goals, skillset, interests...YOUR priorities for business ownership and you will find a beautiful thing be it large or start up.
Every franchise is seeking franchisees with the talent and capital to make their business a success. Big or small, most franchise companies care deeply about the success of all their franchisees. You can find just as much heart in a small company as in a larger one; frankly usually more and more passion and more communication. My recommendation is hook up with a consumer franchise consultant. Call me if you need a recommendation. With their assistance you can take the time to look into a number of alternatives when you're contemplating franchise opportunities--big company or small--and with their expertise and previous investigation into the various systems you'll find the right one to maximize your chance for success.
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
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
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
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