Brian Schnell,
Faegre & Benson:
612.766.7000
bschnell@faegre.com
Alison McElroy,
Faegre & Benson:
612.766.7000
amcelroy@faegre.com
www.faegre.com
Five habits
to franchise
like an ace
EACH YEAR hundreds of bright-eyed new franchisors emerge on the market, their sights set on rapid expansion and a continuous stream of incoming revenue.
And within a few years, a number of those new franchisors will fall far below expectations. Many will not surpass more than 10 franchisees or will fail completely and discontinue their franchise efforts.
What separates the highly successful franchisors from the rest? As with any endeavor, establishing good habits early on, and making them part of your daily practice going forward, is a major key to success.
This article highlights five habits that can help launch your franchise system in the right direction and carry that momentum to continued success.
1. Maintain an undying devotion to the brand.
Always remember: The brand is your most important tool for communicating to customers. Your brand is less about what you want your marketing to communicate and much more about customers’ answers to the question, “Can I trust this organization?”
At its core, your brand is your promise to deliver desired results, and if you and your franchisees do not deliver on that promise, customer relationships are more likely to be short-term and will contribute little to brand-building.
With the importance of keeping promises to customers, the concept of inside-out branding, associating brand development with the intellectual capital of the organization, rather than just the development of marketing, is central to the development of systemwide brand value.
Brand promise
In most franchise businesses, franchisors and franchisees are faced with the challenge that the brand, its images and customer relationships are formed by the interaction between franchisees and employees with customers.
The franchisor’s focus then must be instilling in franchisees and employees the undying commitment to deliver on the brand promise with every customer touch. This approach requires the wholehearted commitment of management to lead by example.
2. Balance the interests of the franchisor, franchisees and the system as a whole.
Be keenly aware of the competing interests of the franchisor, franchisee and the system as a whole, and balance them appropriately. Successful franchise systems are built on a relationship of interdependence and trust, but you should never lose sight of the differing and sometimes adverse roles of the franchisor and franchisees.
The key is to establish a culture of voluntary compliance with system standards, but vigorously enforce compliance by errant franchisees. Your tool for enforcing compliance with system standards is the franchise agreement, the document that ultimately governs the franchise relationship. Therefore, you should draft the franchise agreement to help you establish the direction of the franchise system without interference from courts.
Among other things, it should protect your rights as a franchisor to evolve the system to respond to competition and changes in consumer demands and limit the ability of a few franchisees to place the entire system at risk through class actions.
Although you should strive for consensus and accord with your franchisees, compromises that risk your control will not work in the end. In other words, at times, the best approach is “No more Mr. or Ms. Nice Guy.”
Sometimes the solution is to remove the bad apples. But removing a franchisee does not have to be punitive, often the most effective approach is to work out a franchisee’s exit from the system through a mutual termination agreement that allows a franchisee to sell its franchise to a third party.
Separate business
3. Stack the deck with ‘ace’ franchisees.
Committing to the recruitment of only quality franchisees early on likely will pay huge dividends in the long run.
Remember that recruiting franchisees and selling franchises is a separate business from the operations aspects of the franchise. To make your franchise recruitment campaign more successful, hire a franchisee recruiter who has great listening skills, masterful interview techniques and high integrity; who can follow a franchise sales system; and who is focused more on building relationships with candidates than on saying whatever needs to be said to get the deal done.
The franchisee recruiter should be paid a salary plus commission, essentially, you are paying him or her to say no to marginal candidates.
Instead of focusing on quantity, by engaging in a strong and focused franchisee recruiting process, you will be able to identify those franchisees who can make the franchise a success in the long term and help build the brand along the way.
4. Obsess over the franchisee’s bottom line.
It is crucial to understand that your success as a franchisor is largely dependent on the success of your franchisees. The key is, after identifying your ace franchisees, provide them with regular, ongoing field support to help develop, grow and sustain business and customer relationships. This will ensure system compliance, assist locations with improved performance, maintain a sense of unity and belonging among franchisees, and demonstrate concern regarding franchisee operations. Utilizing qualified and experienced field consultants can help you accomplish this efficiently and effectively.
Remember that profitable franchisees are happy franchisees. Too many franchisors spend too much time dealing with problem franchisees, rather than proactively looking for ways to increase franchisee profitability for those that want to play by the rules and grow their business.
5. Empower the franchisees.
At first glance, this habit might seem frightening, but don’t confuse power with control. Empowering franchisees means giving them the power to get things done and the tools to be effective.
There are a plethora of traditional ways to empower franchisees, including franchise advisory councils, regional advertising cooperatives, franchisee representation on product development and other committees, and franchisee buy-in to significant system changes.
Most franchisors look at franchisees who are not successful and say they are not implementing the system, but they fail to ask the ‘why not?’ questions. Franchisees do not just wake up one morning saying, “I’m not going to follow the system today.”
To be successful, it is important to create a trust-based franchise system with frank and open communication where franchisees feel they are empowered to participate actively in the present and future direction of the franchise system.
