Slowing growth and vitality eventually engulf many franchised businesses. How can this be avoided?
Tony Bowman, Founder and CEO of Franchise Problem Solutions, identifies the problem and provides a blueprint for maintaining growth.
Many people choose to become franchisees to achieve a better work-life balance. In fact, franchisors frequently offer this in their advertising. For many, this is where the problem starts because what the phrase actually means is often overlooked. Also, the ‘balance’ for a franchisor and a franchisee are usually entirely different.
Few people share the insatiable hunger for growth that is shown by the founders of large, franchised businesses. If those businesses are bought out or became public companies that doesn’t change. Instead, the return for shareholders becomes the driving factor. Managers are required to meet growth targets. Everything is measured in terms of continued improvement. For franchisors, growth is always important.
For a franchisee, who was sold on the promise of an improved work-life balance, continued growth isn’t everything. Why would a successful franchisee, who was already happy with the financial rewards of their efforts, want to take on the extra responsibility of extra staff, invest in more vans or open more restaurants? Even less so when it would mean giving up Friday afternoons on the golf course or being at home with their family. Obviously, for a franchisor who cannot satisfy growing customer demand, that is unsatisfactory. But simply complaining to the franchisee isn’t going to solve the problem.
The concept of reducing the territory of an under-performing franchisee might appear to be a solution but it is beset with so many problems that it is not an option. If a suitable franchisee could be found for the part-territory it would be incumbent on the franchisor to disclose the situation. That person would want to talk to the underperforming franchisee and, human nature being what it is, a glowing recommendation would be unlikely. Even if it was, a reduced territory could not be expected to produce sufficient business.
So, how can the comfort zone be avoided?
Firstly, the financial aspects of the drive for growth need to be checked to ensure that from the franchisee’s perspective, the extra investment and effort needed will definitely produce a larger, more profitable and sustainable business. If additional staff are going to be needed, they will need to be managed. How long will it take for the increased capacity to work through into extra income to pay the larger wage bill? Will additional funding be needed? If so, will that cause headaches? Initially the management of extra staff will be the personal responsibility of the franchisee. Later, as growth takes off, the additional profitability can be used to fund a branch management structure and that work can be delegated. But how long will that take? How long will it be before sustainable growth and extra profitability can be established and growth is self-sustaining?
Will the enlarged business really generate enough extra money to make the exercise worthwhile? How long will it take for an even better work life balance to be achieved; at a higher level? If all these questions can be satisfactorily answered there should be a big enough incentive for the franchisees, and they will probably be motivated to step out of their comfort zones. However, this alone won’t be sufficient. It requires the right type of franchisee to be chosen and then the creation of an environment where they can achieve continual growth.
Franchisee selection is vitally important. Many people aspire to run their own business but there is a big different between those who want to be their own boss and those who don’t want a boss. Most of the first group will make good franchisees who will want to keep growing their businesses. Many of those in the latter group will be quickly engulfed in the comfort zone.
A franchisor who is hungry for growth can be easily tempted to accept a prospective franchisee who appears be perfectly satisfactory in all other areas but will soon be content with a business that is comfortably ticking over and providing a comfortable work life balance. This type of franchisee is much easier to manage than a high-flyer, but the result will eventually be stagnation and flatlining management fees.
The franchise agreement should contain minimum performance provisions that are linked to the right to renew. And, harsh as it may appear to be, these need to be applied. This requires the franchisor to firmly but fairly remove underperforming franchisees. Ideally this can be done by encouraging them to sell and bring in someone who will grow the business. If that is not possible the franchisor may have to temporally run the branch as a company owned outlet. What should not happen is to agree a renewal to a franchisee who is steadily cruising along but not growing.
The drive for continual growth should be embedded in the company culture and in the initial franchisee training. To achieve this, the operations manual should be permeated with references to growth and how to achieve it. It is vital to empower the franchisees by providing them with the tools that they need to keep growing their businesses.
The systems that the franchisees’ use should be designed to assist growth. If the business is van based, trackers and vehicle monitoring is essential to assist the franchisor to keep control of a bigger business. As a restaurant or food service business expands the supplier prices need to reduce to reflect the larger volume.
If the franchisor earns a supplier rebate that could also be lowered in recognition of the increase in service fees that the larger sales turnover produces. If the business is involved in distribution, customer returns are likely to increase, so they need to be as easy to process as possible. Every effort must be made to make sure that the franchisee can run the enlarged business. Embracing new technology can often assist with this. It is essential that there is tangible evidence to show that the growing business will become increasingly easier to manage, more profitable and more valuable.
A company culture needs to be established in which continuous growth is regarded as the norm rather than the exception. Healthy peer pressure and competitiveness between franchise owners should be encouraged with league tables and awards for achieving growth. These should be categorised so that new starters and well-established franchised branches can be ranked against their direct peer group.
Mentoring by a successful established franchisee is a powerful tool that a franchisor can deploy. Mentoring can be highly motivating for both the mentor and the recipient and the provision of this should be financially rewarded. The same applies to the training of new franchisees. This is best done, at least in part, by an established franchisee in an operational, rather than a theoretical environment. Always with the underlying expectation and demonstration of continual growth.
Ultimately franchisees who do continue to grow need to be able to cash in and sell their businesses. This will produce examples of rich rewards for those who make the effort to keep growing.
It takes much longer to build a franchise network that is future-proofed to avoid the comfort zone, but in the long term it will produce far richer rewards for both the franchisor and the franchisees.