It’s not a marriage
- What is the main challenge facing any new franchisee?
- Is it the rental of a business space?
- Is it managing the daily running costs?
- Is it finding the right staff members?
- Or perhaps the difficulty of dealing with established competitors?
No, it’s none of these. Sure, these are all important issues that need to be addressed, but there is an even bigger challenge: Managing the relationship with one’s franchisor, according to the 2014 Franchise Association of South Africa (FASA) Franchisee Survey.
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Of all the franchisees questioned during the survey, 28% cited the relationship with the franchisor as being the main challenge.
This makes it, by quite some margin, the biggest issue facing new franchisees (second place is a tie at 13% between managing staff and paying franchise fees).
The main problem is that franchisees (and even many franchisors) define the nature of the relationship incorrectly.
Far too often, it is described as a marriage, but it isn’t that at all. It is actually more of a parental relationship than anything else.
Why it’s not a marriage
We’ve often heard people compare the franchisor-franchisee relationship to that of a marriage.
They will talk about the ‘honeymoon’ period and how the franchisor and franchisee are in ‘partnership’ together for a common purpose. And while this analogy may have some merit, a marriage is exactly what the franchise relationship should not be.
When we think of marriage, we think of a joint-venture relationship. In a joint venture, there are partners. Because of the relatively equal footing of the ‘partners’, the typical joint venture starts out with a negotiation – and is often a series of ongoing negotiations.
Like a marriage, there are the ‘who does the dishes’ issues, and then there are the more serious issues, such as money. Because each joint venture is unique, every one of these issues is usually subject to negotiation.
Because a joint-venture partner is usually compensated based on how much money goes to the bottom line, one concern that most ‘marriages’ have is how the accounting gets done.
On a one-off basis, this is fairly easy to monitor. But on a massive scale, it is almost impossible. And when your joint venture spouse cheats on you, it can become a battle among equals in divorce court.
In fact, that is one of the big differences we find between franchising and joint ventures.
Unlike partnerships, franchising is much more like a parent-child relationship. The franchisee, like the child, will go through a variety of growth phases.
When children first come on the scene, they are very dependent on their parents, relying on them for the education and training that will allow them to survive in this world. And as they grow older, they become less dependent, and parents begin to allow them some latitude.
As they get older still, they will begin to test the boundaries of their relationship, pushing a little around the edges, trying to change or influence the system that parents have set for them, and perhaps breaking some of the rules.
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But the child is still a dependent. It is simply a question of how forcefully the parent chooses to put their foot down.
The good parent
The franchisor needs to start by establishing the boundaries of the relationship. It is important for the franchisee to understand that the franchisor’s first role as ‘guardian’ is to guard the system and the brand so all franchisees can thrive.
Thus, one of the most important roles of the franchisor is that of disciplinarian. To do that, it needs to clearly communicate the rules and the intention to enforce them right from the start.
At the same time, it is important for the franchisor to understand that discipline can no longer be meted out exactly as it was before franchising took place. If franchisors try to give a franchisee the ‘it’s my way or the highway’ speech that worked so well before, they’ll quickly find themselves with alienated franchisees — the first step on the road to real trouble.
Franchisees are business owners, and as such, require franchisors to communicate with them in a professional manner. Being firm with franchisees, as opposed to managers, also means providing them with an explanation for various ‘requests’.
Most franchisees have a key desire for their opinions to be heard. A franchisor should thus avoid making decisions in a vacuum and providing direction to franchisees without a clear explanation of why the direction is being given.
Communication is key
The secret to a good relationship between franchisor and franchisee starts with communication. And that means more than the occasional newsletter and a visit from the field representative.
In today’s technology-centred society, it is all too tempting to rely on the Internet for all communication. But in a franchise context, that would be a big mistake. All too often, we have seen well-intentioned emails ignite a firestorm when they are misinterpreted.
Relationships are built through dialogue, so it’s important that dialogue be encouraged in every aspect of the relationship. Good franchisors are careful to create multiple venues where constructive dialogue can occur.
Annual conventions, regional meetings and advertising councils all provide opportunities for two-way communication.
The accessibility of senior staff is also vital. There are senior executives of some fast-growing franchisors who would not go home for the night until they had personally returned every franchisee’s call.
To be effective, the communication needs to be more than frequent. It needs to be honest. While there are some things franchisors may choose not to share with their franchisees, the key to a long-term sustained relationship is trust. And trust starts with openness and honesty. Get caught in a lie once, and you have destroyed that trust forever.
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Lastly, to be effective, franchisors have to genuinely care about the success of their franchisees. Good franchisee relationships start with a franchisor that is, first and foremost, committed to franchisee success.
That commitment, more than anything else, needs to permeate the franchisor organisation at every level.
If franchisees do not sense true commitment from franchisors, a relationship could quickly become adversarial. If, on the other hand, franchisees see franchisors breaking their backs to help them achieve their success, there is almost nothing they won’t do to assist.
5 S-Words Make Your Store Site Pay For Itself
Richard Mukheibir, CEO of Cash Converters recently addressed delegates at the FASA (Franchise Association of SA) conference on the topic of choosing the best location for their business. He spoke about the 5-S technique to assist business owners with deciding which premises is best suited for their business.
The combination of continuing trading uncertainty in South Africa and the new financial year for many businesses can add up to carefully reviewing costs – including leases on premises. Choosing a site to set up or relocate your business can be just as stressful as deciding where to buy a house – and just as fundamental to its health, finances and sustainability, says Richard Mukheibir, CEO of Cash Converters.
This is not the time to snap up the property with the cheapest rental as that might turn out to be something you regret in the long run. Nor is it the time to be dazzled by the swankiest premises you can find. The potential for bragging rights could turn out to be poor value for money.
“This is a time for your head to rule your heart regardless of the industry you trade in.” he says.
The real-estate mantra of “location, location, location” works just as effectively in commercial as it does in private property but you will often be looking for rather different factors. Mukheibir shares his 5-S technique to help you begin narrowing down the areas where you will consider locating your business – first at the macro level, focus in further to the meso level, then look more closely at the micro level before you start weighing up specific sites.
Remind yourself of the medium and long-term strategies you have developed for your business. Keep your understanding of your business’s customers, purpose and growth prospects top of mind when you are selecting the areas where you will start looking for sites.
Within those areas, redline any sections where you feel the competition from other businesses will detract from your potential to grow your market. Greenline areas where there are good synergies between the people who live or work there and the demographic that you have identified as your target market.
Make sure there is clearly a good pool of potential customers for you – size definitely matters when it comes to ensuring that there are plenty of customers available to you. Look specifically for facilities that cater for the kind of customers you want to attract. Sports stores benefit from being close to schools and tertiary colleges, for example.
Although many businesses now have an online element, most still benefit from attracting customers to walk through the door. For your premises to be a good fit for your business, you should be located in plain sight and ensure that your ability to market yourself locally through signage and lamp-post posters is not restricted by local bylaws.
You will attract and retain good customers and staff if they feel they’re secure in the area. This perception includes factors such as easy, safe parking and a welcoming environment.
“Making a success of your business is not just about the product or your branding,” says Mukheibir. “It can be as fundamental as finding a site that ends up paying for itself. To do this, it must offer you a well-calculated gap in the market where the strong demand for the product or service that your business offers ensures sales and profit. If you have considered all these steps carefully, you will never worry about making rent and wages payment again.”
6 Things You Need To Know About Profit And Cashflow
Why your business needs both and how to check.
In the heat of the action as you build your business or launch a new line, it’s easy to hope some aspects will take care of themselves. It’s especially tempting to fall into that trap with your accounts if you don’t like dealing with figures.
Despite having a B. Comm degree, I’m happy to admit that I don’t really like accounts. I much prefer strategies, management and business development. Fortunately, my co-founder and our Chief Financial Officer Peter Forshaw tirelessly keeps us on track financially – and his message to our franchisees is always that in your own business, you must understand enough of the financial basics to know whether your business is swimming or sinking…
It’s so important that we include this as part of our franchisee training. To get you started, here’s what Engela van Loggerenberg, our Group Financial Manager, tells new franchisees:
- Cashflow and profit aren’t the same: You can’t track one and assume the other shows the same pattern. There is no natural correlation between the two – your cashflow can be positive and you can be making a loss or your cashflow can be negative but you’re making a profit.
- Cash keeps you going: It’s vital to have money available in your business so you need to be generating enough cash to pay operating expenses. Otherwise you could be making a profit but not be able to pay staff wages. If so, you will either have to put in some of your own money or take a loan to keep your cash flowing and your business afloat.
- Time for a checkup: Both cashflow and profit are important to a business – but you can’t do anything without cash which is why you have to manage your cashflow carefully. Check your profit monthly but your cashflow daily. This will alert you to problems in the making so you can head them off. You will see if your clients are overdue in paying their accounts with you, for example. If they fall behind, this could in turn squeeze your ability to pay your operating expenses, which is why cashflow monitoring is such an important tool to keep your business afloat.
- Different perspectives: Remember when you look at your figures that profit figures are a result of what has already happened and are usually reported with a time lag of a month. Cashflow is a snapshot of what is happening in your business now and will have an impact on profit figures in the months to come.
- Know what you’re looking for: What you need to know are your net, not gross, figures. For net cashflow that is your incoming cash less your outgoing cash for the period. So if you are receiving more than you are spending, you will be left with money in the bank to meet future expenses. Similarly, your total sales less direct costs make up your gross profit. Deduct all your operating expenses from the gross profit to calculate whether your business is making a net profit.
- Make the most of your cash: Take pressure off yourself by keeping spare cash for future expenses such as VAT and taxes in a good interest-bearing account such as a money market, call or investment account. Then set up reminders ahead of time to arrange to withdraw the sum required.
Remember that any system is only as good as the person operating it. So if like me, figures aren’t your thing, make sure that you have someone at your side who can manage them for you.
3 Ways To Ensure Your Loyalty Programme is Working Hard For You
Plastic cards are making way for app-based loyalty programmes. Is your franchise keeping up with the digitally savvy consumer?
The average consumer today is a member of at least five of the 100-plus loyalty programmes in South Africa, according to a 2017 study by Nielsen. As the loyalty playing field becomes more cluttered and competitive, what are you doing to ensure each one of your franchisees are catering to customer needs when it comes to loyalty?
Mobility. It’s not the newest buzzword, but it is useful for attracting customers who don’t want to lose loyalty points because their card is lost or not with them. Ailsa Wingfield, Nielsen’s Head of Emerging Markets: Thought Leadership, says that as adoption of non-traditional payment methods increases, loyalty programmes also need to introduce payment type flexibility.
“Mobile payment platforms will increasingly deliver an opportunity for loyalty-programme engagement with consumers, providing a convenient and personalised way for programme members and retailers to engage with one another all along the path to purchase.” – Ailsa Wingfield Nielsen Head of Emerging Markets Thought Leadership.
Have you considered what role tech could play in your current loyalty programme? Here are three ways to apply digital enhancements that appeal to present and potential customers:
1. Offer differentiation through more options
Research has concluded that the loyalty programmes devised by retailers and franchises are not innovative enough to capture the attention of the youth – Millennials and Gen Z. it’s time to diversify your rewards offering. But how?
If your customer base is predominantly younger, being omni-present is key, according to the Truth Loyalty Whitepaper: “An omni-channel approach will not only meet the demands of the younger customer, it will also allow your business to combine intelligence on shopping, search and web behaviour history to assist you in identifying when to offer an in-store promotion, extend a seasonal offer or make a product recommendation through the appropriate channels.”
Implementing a digital loyalty campaign is also a smart way to reduce costs. Coffee shop franchise Mugg & Bean’s Generous Rewards App and partnership with Vitality Active Rewards, means members can earn cash-back rewards to spend on their favourites. Just downloading the app earns you a R25 voucher.
2. Use your tools to engage more
A crucial mistake most franchisors make is not communicating consistently with their loyalty programme members once they’ve signed up and increased numbers. They spend a lot of time recruiting customers to join, but expect them to prompt cashiers for points’ balances and produce their cards independently in their various locations.
“You have gained permission to talk to your customers and created the opportunity to collect enormous amounts of valuable data. Use this to your advantage by creating meaningful and relevant engagement initiatives and communications across your customers’ lifecycle,” advises Truth, a boutique consultancy business specialising in customer centricity and loyalty programme strategy and design.
When enhancing your engagement strategy, Accenture advises that you keep the following in mind:
- 54% of South African consumers are loyal to brands that actively engage them to help design or co-create products or services.
- 57% are loyal to organisations that present them with new experiences, products or services.
- 47% are loyal to brands that engage them in ‘multi-sensory’ experiences, using new technologies such as virtual reality or augmented reality.
3. Keep the experience simple
Review your loyalty programme. Honestly. Then ask yourself if you’ve made your programme too complicated for the layman. If your answer is ‘no’ or even ‘maybe’, how can your target consumer ever reap the full rewards of this programme if they don’t understand the rewards on offer and how to redeem them?
Changing rules too often is the first complication to go. No matter which one of your stores they choose to shop at, the redemption and earning process should be simple enough to keep members interested and engaged in the programme. Make sure you keep your programme simple and transparent.
“Clicks made a simple but fundamental change to its redemption process – paper-vouchers were replaced with virtual points that can be redeemed as cash-back when you swipe your card at the till. While Clicks and Dis-Chem are among only a handful of brands that do this, it’s a sure-fire mechanism for increasing redemption,” said Amanda Cromhout, founder and CEO of Truth.
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