Navigating The Road To Franchise Success

Navigating The Road To Franchise Success

There are many reasons an entrepreneur chooses to engage in business with a franchise as opposed to going out on their own. Just like personal relationships, most franchisees are drawn to a franchise because they like how the brand looks and feels. Maybe it was the brand marketing that caught their eye. Maybe it was an experience they had with the company. Maybe it was a product or service that blew them away. No matter what it was that attracted them to the franchise, it was something they believed others would find equally appealing.

In most cases, the attraction to a franchise comes through a product or service experience. Humans are fairly consistent when it comes to identifying differences in experiences. For example, most people can quickly describe the differences between K-Mart, Walmart and Target. There is no doubt that product pricing will come up in the conversation. However, if product pricing were the only deciding factor when it comes to business success Target wouldn’t exist today. There is much more to business than price. People are willing to pay more if a company can make a case for the added cost. For example, corporate culture, brand image, established systems and processes, customer experience and etc…all contribute to the overall experience and either draw the consumer in or pushes them away.

Those factors and many more are reasons an entrepreneur may be drawn to a franchise. The idea of owning a “turn key” operation with a proven business model is extremely attractive. Knowing that someone has not only figured out what makes for a sellable product, but they’ve also figured out the branding, marketing and systems that are necessary to support that product can be worth every bit of the royalty fee a franchisee will be asked to pay. After all, the percentage of sales a franchisor will demand for having done all that work to develop a successful business model may pale in comparison to the work, financial investment, and risk one might have to take on if they were to do the same on their own.

That said, not all franchises are created equal. Therefore, a prospective franchisee must be vigilant in their assessment of not only the franchising opportunities that are out there, but also with their understanding of what it will take to succeed. While much of a franchisee’s success lies with a quality franchisor, a franchisor can only do so much. Even the most successful franchisors have some dogs in their portfolio. In most cases, the dogs are not because the brand is weak or the product stinks. It’s usually because the franchisee failed to hold up their end of the bargain. Some franchisees just don’t do what needs to be done to succeed. I would venture to guess that had the dogs in many franchisor portfolios gone it on their own and not engaged with a franchise they would have died the same death, only quicker.

No franchisee that I know wants to fail. However, just like franchises, not every franchisee is created equal. Not every franchisee is built for business.  We’ve all seen examples of a business failing under one person, only to succeed under another. Some people are naturally built for business and some are not.  However, this does not mean that someone who is not a natural cannot learn to be a successful business owner. The difference is in behaviors. The great thing about behaviors is that they can be taught and learned. Therefore, there are certain behaviors that every franchisee can learn from those who are successful. Once learned they can greatly increase their odds for success. However, the identification of the behaviors alone will not lead to success. Its the execution of those behaviors that garners results. Anyone can create a plan, but not everyone can execute the plan.

Below are some behaviors that I have found to be present in successful franchisees. I consider them to be the differences between those franchisees who DO succeed and those who DON’T.

What Successful Franchisees DO:

  • They read and understand the Franchise Disclosure Document (FDD) and Franchise Agreement (FA), ask questions about both and seek legal opinion before contractually engaging with the franchisor. A good franchisee knows the rules of the game before playing. There should be no surprises after you’ve signed the agreement. A franchisee must know all the financial obligations, as well as all of the limitations and expectations being set forth by the franchisor before they sign on the dotted line.
  • They confirm in writing any oral representations that are made. A good franchisor will not make any claims that cannot be backed up in the FDD. If claims are being made that you have not read in the FDD or FA, hold the franchisor accountable for putting it in writing. If they won’t then that will tell you all you need to know about the character of the organization’s leadership.
  • They interview current franchisees. Don’t just rely on the list of franchisees that the franchisor may have given them as possible contacts. They look in the FDD and call a few that are not on the list. Then they ask some very pointed questions about the franchisor and their experiences. One very telling question to ask is this, “Knowing what you know today, would you engage in business with this franchisor again?”
  • They seek to understand how many multi-unit owners there are. Multi-unit owners telegraph satisfaction. If there are many one unit owners it could be for a reason, which may be dissatisfaction. After all, you don’t typically invest in more units unless you are a satisfied franchisee.
  • They seek to understand why franchises have failed. Every franchisor has some number of failed franchises. This is part of doing business. Some people who get into business had no reason for doing so in the first place. Many franchises fail because the franchisee did a poor job of running the business. That’s not totally the fault of the franchisor and in many cases shouldn’t be held against them. However, a franchisee should try to figure out the cause of the failure. Even if failures were the fault of the franchisor, it is worth understanding why they failed. I wouldn’t throw the baby out with the bath water because some franchises have failed. Maybe you’ll learn it wasn’t the franchisee. Maybe you’ll learn that early on the franchisor had some poorly designed systems that contributed to some of the failures. Maybe you’ll also discover that the franchisor learned from those early mistakes and rectified those errors. Almost every company makes execution mistakes. Companies like GM, Ford, Toyota, and Apple have all screwed up in their history. It doesn’t mean they are bad investments today.
  • They know how much capital it will truly take to succeed. Every business, franchise or not, must withstand the test of time. In my analysis, the most successful units are those that have been given time to become established. There are few overnight successes. Even some of the most iconic franchise brands needed time to establish themselves. Having enough capital on hand to carry the franchise through that growth stage is critical. Cash-flow is king in small business. However, it may take a few years to get to a point where enough cash is flowing for the business to support itself on its own.
  • They interview the corporate personnel before agreeing to become a business partner. A franchisee must get to know those who are making decisions about his/her future. If there is not a feeling of trust and confidence in the ability of those at the top to take the organization where it needs to go, then it is a marriage that is doomed to fail. You need to know and understand the strategic vision of the organization. You also need to know where their passion lies. If it’s not with the brand, then it will come through in their leadership. Passionate and smart people at the top should work as hard as you when it comes to making the business work.
  • They analyze their market in advance. A franchisor may help with site selection, demographic analysis, and real estate acquisition. However, it is the responsibility of the franchisee to decide whether or not a particular location is the right location. Know the competition, market receptiveness for your product or service, and how much advertising and marketing will be necessary to break through. Not all markets are the same and some will be easier than others to succeed in. Knowing this up front can be the difference between success and failure.

What Franchisees DON’T Do:

  •  They don’t only work in the business, but work on the business (E-Myth Revisited)
  • They don’t operate without a strategic growth plan that also incorporates actionable items to be completed within a specified timeframe
  • They don’t let the established systems and processes to become bastardized
  • They don’t let things slide. They know that accountability and execution are critical to business success.
  • They don’t ignore the numbers. Due diligence in financial management is as critical to success as execution. Knowing that the product, employee and rent costs are within specified limits is key to keeping them there.
  • They don’t stop marketing. Marketing can be expensive and it can feel as if it is not worth the investment. However, they also know that when you are out of sight you are also out of mind. There is a reason McDonald’s, Taco Bell and Apple continually market the way they do.
  • They don’t ever forget who the customer is and that if it wasn’t for the customer they wouldn’t be in business.
  • They don’t underestimate the value of hiring the right people and training them accordingly. They know that the right people can be a differentiator.
  • They don’t ignore culture. They know that a culture exists in every organization. They also know that they must develop that culture or someone else will. The right culture can bring out the best in people and lead to a highly disciplined and motivated team.
  • They don’t shy away from the tough decisions. Successful franchisees do what needs to be done, whether they like doing it or not. Accountability, adherence to systems, and spending what needs to be spent to survive are not always fun or easy. However, the successful franchisee knows that success hinges on the “how” of business. Execution is key to operational excellence and operational excellence is key to success.

Owning a business isn’t easy. But then again, neither is working for someone else. If you have a desire to be your own boss then franchising may be your ticket to professional, personal and financial freedom. To achieve those goals, you need to be clear about the fact that it will require a lot of hard work. However, the rewards of business ownership can greatly outweigh the risks.  The question is most likely not whether you can do it or not. The question is most likely whether you truly want to do what it will take to succeed. That, my friend, is a question only you can answer.