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Culture of Execution: The Winning Franchise Formula

When it comes to creating the winning franchise formula most small business owners think they know the ingredients. If they didn’t, they most certainly wouldn’t venture out on their own. However, according to the Bureau of Labor Statistics’ Business Employment Dynamics, about 80% of businesses will survive their first year in business. About 66% will survive their second year. Only about 50% will survive their fifth year. And, about 30% will make it to their tenth anniversary. As you can see, if everyone had the winning formula more than 30% of businesses would still be around 10 years later.

 The Franchise Concept

Because of numbers like these, more and more entrepreneurs are turning to franchising. Franchising offers a template for success. The things that business owners didn’t think about when they were formulating their plan, such as: floor plan layout and its impact on operations, documentation of all systems and processes for consistent training and operations, and the impact of a well thought marketing plan on business and brand development are a handful of the things that make a franchise relationship so valuable. A strong franchise brand will have already tested and refined all aspects of the business model, saving the entrepreneur the headaches of doing it themselves. Not to forget saving the entrepreneur from making many potentially costly mistakes.

 The Issue

Ideally, all the entrepreneur must do after engaging in a franchise relationship is effectively implement the standards.  However, that is many times easier said than done. Success in franchising only goes as far as the franchisee’s willingness to adhere to the established systems and standards. There is a reason why some franchise owners in similar markets with similar demographics succeed and others fail. If we did an autopsy of failed franchise businesses I am quite confident that we’d find that the cause of death was rooted in executing the formula.

 The Failed Business Autopsy Report

  • Time: Typically, at the start of the relationship every new franchisee is all in with the franchisor’s systems and procedures. They begin their new endeavor with enthusiasm and great optimism. They implement their training like they were taught. However, as time passes many begin to loosely apply their learning and become relaxed with implementation of the brand standards. Then, shortcuts creep in, knowing a better way rears its ugly head and before you know it, the proven methods begin to be replaced by “a better way”. Unfortunately for many, the better way isn’t better at all. What lured them to franchising in the first place is replaced by loosely structured systems and poor execution. Inevitably, this leads to lost sales, never reaching full potential and lost earnings.
  • Consistency and Accountability: For any business to be successful everyone must be held accountable for results, including the franchisee. Failing to consistently hold everyone accountable to the standards of operation is the first step toward failure. When a franchisee starts to relax on the marketing routine, operational standards and financial fundamentals, the system begins to take on a new standard. That standard usually involves less than great service, average product, below average cost containment, and a less than stellar brand image. The typical result is a decline in sales, which directly effects revenue.
  • Execution: Business is about getting things done and doing them the way they were meant to be done. Failing to get things done leads to stagnation and stagnation leads to status quo. Status quo leads to becoming average at best. No one in today’s world, which is full of many great alternatives, is going to pay for average. Once you become average you become a memory. When there are many options to choose from you must stay top of mind. Those that are top of mind are the highest performers. The highest performers execute.

Commit to the System

Most entrepreneurs invest in a franchise because the franchise has a record of success, a strong brand, a refined training program, ongoing operational support, marketing assistance, real estate site selection assistance, purchasing power, and established systems in place that help lower risk. Therefore, it would appear to be in the best interest of the franchisee to implement the tried and true systems of the franchisor.

If you are considering a franchise as your business template, do yourself a favor and implement their systems, procedures and brand standards consistently and correctly. The franchisor made it to where they are because they’ve successfully done it over and over again. Therefore, their way is the proven way. You’re paying for their knowledge, expertise, and experience. Do yourself a favor and run the business the way they say it should be run. Develop a culture of execution and insist on consistently doing things the way they are supposed to be done. Do this and the odds of your business becoming one of the 30% that make it to the 10 year mark goes up significanlty. Then, you’ll be positioned to renew that franchise agreement so you can do it all over again.

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Randy Stepp is a business and franchise development professional who’s purpose is to help business owners realize their dreams of independence and freedom.

Follow or Connect with Randy on Linked In at https://www.linkedin.com/in/randystepp

The Franchise Partnership Puzzle: Avoiding Disillusion

The modern franchising model can be traced back to Isaac Singer, founder of the I.M. Singer and Company, manufacturer of sewing machines.  Singer and his business partners sold rights to businesspeople who were interested in selling his sewing machines within specific geographical areas. This system served as a win-win for both the company and the businesspeople that chose to invest. The company generated revenue to fund its business endeavors and the businesspeople had a business of their own, selling a product much in demand.

Because of Singer’s modern day franchising model many business people have found a great opportunity to not only bring an idea to life through franchise and licensing agreements, but also give entrepreneurs like themselves an opportunity to own a piece of the pie. While franchising is a great opportunity for an entrepreneur to own their own business, not all franchise opportunities are the same. A potential franchisee would be wise to evaluate franchise opportunities against the following components that serve to makeup those things that will be key in determining whether a strong business relationship develops.

Key Components

  • Vetting – From inquiry to ownership a franchisee should experience a rigorous vetting process. It is through this process that a strong relationship begins to develop. It is also through this process that the franchisor and the franchisee should learn a lot about each other. While it may be the desire of the franchisee to fly through the process, a thorough process is better in the long run for everyone. After all, it is better to know up front if the fit is right then to find out after thousands of dollars and hundreds of hours have been invested. A weak vetting process can be an indication of the strength of other processes. A strong franchisor is after a strong long-term relationship. A weak franchisor is after the franchisee’s money.
  • Training – Many times a franchisee’s success can be attributed to their level of preparedness from the start. Part of that preparation takes place long before the doors open for business. Strong training on operational systems and processes is critical to the implementation of the franchisor’s business model. The same holds true for strong business practices. A franchisor worth its weight will make sure a franchisee has all the tools necessary for success. The franchisor’s primary goal should be setting up the franchisee for long-term growth and an even lengthier relationship.
  • Multi-Unit Offering – The ability to engage in multi-units is beneficial for both the franchisee and the franchisor. The franchisee has the option to compound wealth growth, while the franchisor can engage with fewer franchisees as they work to reach their unit goals. A franchisor who adds many one unit franchisors may be after the money more than the shared interest of exponential business growth.
  • Territorial Protection – A franchise agreement should clearly describe the territory covered by the agreement. Vague and uncertain language does not help the franchisee. A strong franchisor wants clarity and understanding in all business dealings. Vague language in a Franchise Disclosure Document (FDD) or Franchise Agreement (FA) should be considered intentional and a red flag.
  • Rebate Sharing – Almost every franchisor has some form of a rebate deal with distributors and suppliers. A strong franchisor will not only disclose these, but many will share a portion of those rebates as franchisees acquire multiple units. Again, a strong franchisor has a shared success and wealth building mindset.
  • Renewal Terms – Clear and fair renewal terms protect both the franchisor and the franchisee. 180-day notification of intent to renew is the ideal. Stated increases in royalty fees upon renewal of the agreement are not an ideal situation for the franchisee. While it sounds great to know what your increase will be, there is usually no value added with the increase. An increase in royalty fee at renewal typically puts more money in the franchisor’s pocket and less in the franchisees. In most cases the increase will not result in an increase in service. A strong franchisor will grow revenue through their support of the franchisee.
  • Franchise Agreement Renewal – The franchise agreement should state whether the franchisee has the option of rolling over the current agreement or state that the current agreement will be replaced by a new agreement. Either way, the franchisee needs to know which it is going to be.
  • Alternate Channels of Distribution – While territories may be mapped out and clearly stated, it is important to know whether the franchisor has the right to enter alternative channels of distribution within your territory. Alternative channels could be concert venues, amusement parks, shopping malls, air ports, etc. While these venues may not directly impact your target market, they could take away opportunities for expansion within your existing territory. A strong franchisor will make sure that this is clearly known up front.
  • Gift Cards – While gift cards don’t seem like a big deal, they can be a revenue boost or drain. Gift cards purchased in one location and redeemed in another can be a boon for one location and a drain for another. Clarifying the redemption system upfront may help to avoid future issues. Outside of the gross revenue they generate, a franchisor should not be taking a cut from the sale of gift cards.
  • Advertising Fund – Almost all franchisors require the franchisee to contribute to an advertising fund. This fund is different than the local advertising requirements placed upon the franchisee. The advertising fund is used by the franchisor to fund marketing related activities for the franchise group. This may mean that some markets see more advertising than others, as the marketing tends to follow market penetration. A strong franchisee will provide audited financials of the advertising fund for the franchisees to review.
  • Curable Versus Non-Curable Events – Every franchisee needs to understand what makes up a curable and non-curable franchise violations. Curable violations are usually minor and immediately fixable. Non-Curable offenses need to be clearly stated. A strong franchisor is not franchise agreement termination happy. Again, strong franchisors are interested in franchisee success. They will work to rectify situations and not allow situations to ruin the relationship. However, they will terminate franchise agreements for failures that jeopardize the brand and put the franchisor and other franchisees at risk. This level of leadership is important. Doing business with a franchisor that actively protects the brand is crucial to the long term success of the franchisor and their franchisee partners.
  • Accountability – Accountability is something many franchisees struggle with. A strong franchisor will hold franchisees accountable for operating their business within the established standards. A franchisor that does not hold franchisees accountable is not concerned about brand and product integrity. That is a major red flag. The best franchisors are sticklers for adherence to the systems and processes they have developed. They know what it takes to succeed. They also know that franchisee failure is usually connected to the franchisee’s failure to operate their business within the brand standards. While a franchisee may not like accountability, they need it. It is neither good nor acceptable to have failing franchisees. Bad and failing franchisees harm the brand and place all franchisees at risk.

Avoid Dissolution

Selecting the right franchisor is not an easy task for the potential franchisee. However, it’s also not an easy task for the franchisor. If it is easy for either party, then neither is doing their due diligence. A franchisee and franchisor relationship is a long-term commitment. It should be treated in much the same way as selecting a partner for life. There are some behaviors that can be tolerated and lived with. However, there are others that cannot. It is the responsibility of each party to identify behaviors and determine which are acceptable and which are not. Like a marriage, franchisees and franchisors that don’t go through the due diligence process usually end up divorced from one another. That situation is neither good nor healthy for anyone.