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Why Do Some Franchisees Fail?

Franchising is widely seen as a blueprint for business success, yet on rare occasions franchisee failures do occur.

Mark Rose

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DangerZone

Reasons for franchisee failure

Over the years I have come across several instances of franchisees failing. In none of them was the concept of franchising to blame, rather its flawed implementation. Cold comfort for those affected, especially because, with some foresight, most of these failures could have been prevented. To help future generations of franchisees and their franchisors to minimise the risk of franchisee failure I have isolated the main reasons for things going pear-shaped and list them below.

  • A gene is missing
    The question whether franchisees are in fact entrepreneurs has been the topic of many debates. Consensus exists that franchisees are individuals who seek ‘sheltered entrepreneurship’; that’s OK, as long as they do not expect the franchisor to operate the business for them. The entrepreneurial gene must be there!
  • Unrealistic expectations
    Some individuals approach an opportunity with rose-tinted glasses. They only see what they want to see and believe that investing in a franchise guarantees success. This is an oversimplification – a franchise is a blueprint for business success, but it is up to the franchisee to make the business successful.
  • Sloppy evaluation
    Prospective franchisees need to investigate not only the business sector they want to enter and the network they want to join, but also their own suitability for the role of franchisee. Speaking to existing franchisees, as well as consulting with professionals, in several disciplines is key but all too often overlooked.
  • Lack of commitment
    Some individuals join a network without having any intention of playing by its rules. They don’t like the prevailing culture but believe that, once they have gained access, they can do their own thing. Granted, the franchisor’s selection process should be thorough enough to filter them out, but some prospects can be highly convincing. They willingly agree to contract terms they have no intention of abiding by and even lie about their skills and available resources, just to secure the opportunity. This is a clear case of ‘shooting yourself in the foot’ because, when the wheels come off, it is not only the brand that suffers, but the franchisee also stands to lose everything.

How can you protect yourself?

Prospective franchisees need to examine their skills, preferences and resources, and then seek out franchise opportunities that match their profile as closely as possible. Moreover, it is useful to invest in a recognised brand and set up shop in an area where the franchisee has roots because this facilitates networking.

After careful evaluation of several opportunities, the prospective franchisee needs to make a decision and then stay the course. Since the beginning of April 2011, he/she has a useful ally in the form of the Consumer Protection Act (CPA), which regulates franchising. Among other things, it compels the franchisor to provide a comprehensive disclosure document and grant two separate cooling-off periods before the franchise agreement becomes effective.

At this point, and given that in most instances a prospective franchisee will invest his/her life savings into the venture and take on substantial debt, it makes perfect sense to have the opportunity of choice checked out by competent advisers before the franchise agreement is signed.

Once the franchise agreement becomes effective, the franchisee must be willing to adopt the brand’s culture and conform to the network’s systems and procedures 100%. This means, among many other things, enthusiastic participation in marketing drives and other activities arranged by the franchisor, including initial and ongoing training. Financial prudence and a willingness to be a hands-on operator are other essential requirements.

A good relationship with the network’s field service consultant is another requirement. He/She is not a head office spy, but can be a useful ally who can act as a mentor and provide valuable guidance. Hiding business problems from him/her is about as clever as a patient hiding symptoms of a dread disease from the doctor.

As we said in the beginning, success in business can never be guaranteed but adherence to these simple pointers will set a franchisee on the right course. Beyond that, dedication and sheer hard work must do the rest.

Franchisors, on the other hand, will be well advised to work within the parameters of ethical franchising, which are now enshrined in the CPA. Of special importance is a tightening up of franchisee selection procedures because granting a franchise to the wrong person will create significant problems for the network; it can even destroy the brand.

“Written by Eric Parker (Franchising Plus) in association with Mark Rose, Nedbank”

Mark Rose is the Head of New Business Development at Nedbank Business Banking. He holds a Masters in Business Administration (MBA) from the Oxford Brooks University, as well as various business qualifications from the Gordon Institute of Business Science (GIBS), the University of Stellenbosch Graduate School of Business, and the University of South Africa Graduate School of Business. Nedbank’s New Business Development unit develops customised industry specialised offerings to the medium sized business market, including Franchising, Agriculture, Professional – including Financial and Legal Practices, and the Medical Fraternity. This unit has also developed a unique Enterprise Development proposition. For specialist advice and more information on the Nedbank Franchising proposition visit the website or send an email to franchising@nedbank.co.za

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Franchisee Advice

Develop Digital Marketing Competency In 3 Simple Steps

Conquering the digital revolution needn’t be daunting. Polish up your tech skills and watch your digital marketing prowess increase throughout your franchise.

Diana Albertyn

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As a franchisor, digital marketing may be proving to be a challenge due to the unique structuring of the business.

“The very nature of franchises is ‘structured’, however, when it comes to marketing, that structure often lacks,” says Marcela De Vivo, Founder and CEO of Gryffin Media.

Franchisors and franchisees often struggle to reach common ground when looking to achieve different marketing goals. While the franchisor needs to control the brand in its entirety, the franchisee wants to market their business using particular strategies suited to their location.

Research has found that smartphones are the biggest influencers of 82% of users when they make their in-store purchase decisions while. It’s for this reason that the importance of digital marketing for franchises has increased.

Here’s how to harness its power of influence, amplify foot traffic and solidify brand loyalty:

1. Recruit digital natives and early adopters

As much as you’re the leader of your franchise network, there are franchisees in your chain you could learn from. The global increase in millennial franchise owners means it is highly likely that you’ll be able to identify early digital adopters within your franchise network.

“The best people to learn from are those who have been in your shoes before,” says Matt Forman of the Franchise Centre at Griffith University.

“Encourage and support their efforts and use them as case studies to demonstrate to the rest of your franchisees the value of digital marketing, and how to do it right.”

2. Invest in training your team

“Each digital competency level requires more education and resources in order to integrate digital marketing with your physical stores,” says Forman. For this reason, regularly investing in continuous training for your team so as to ensure they keep abreast of any new and emerging trends.

Proactivity and adapting to the constantly evolving digital landscape led KFC to open a LinkedIn account for its founder and mascot Colonel Sanders. KFC’s out of the box tactic is a fresh approach to what has long been considered a B2B platform, under-utilised as a B2C platform.

3. Apply custom targeting techniques

The discovery of new and small businesses is being fuelled by Google searches, social media and online reviews, making these platforms a goldmine of invaluable tools.

Leveraging certain custom targeting techniques like easily searchable keywords and exposure on other reputable and high-traffic websites, gives your franchise’s digital marketing efforts a boost. This results in an effective campaign, favourable reviews and meaningful and lasting interactions with consumers “whether it’s a reply to a Facebook comment or a retweet,” says Entrepreneur’s Emily Conklin.

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Franchisee Advice

How To Hire Skilled Workers For Your Franchise

Your staff run your business – you just have to show them how. This is why employing the best people for the job is essential.

Diana Albertyn

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According to the Franchise Association of South Africa (FASA) 2017 Franchisor Survey, one of the main challenges facing franchisees is finding the right staff.

“Staffing your franchise can be one of the most challenging parts of running a successful business. Without a great team of employees, you cannot run your business effectively,” says Saxon Marsden-Huggins, founder of WebRover.

These three tips could help you find the best employees for your franchise outlet:

1. Don’t hire in haste

While you may be rearing to go and keen to fill gaps to speed up profitability, research your candidates thoroughly.

Related: Insights On Recruitment That Could Affect Franchise Performance

As the job applications keep flowing into your inbox, keep in mind that not all of them qualify for the positions available – it may even be a small percent who are actually viable candidates. This is why your hiring process should include:

  • Taking the time to thoroughly screen CVs to develop a short list
  • Creating a carefully crafted list of interview questions
  • Setting aside adequate time for thorough interviews
  • Getting to know the candidates through a second round of interviews to confirm your choice.

Giving the hiring process dedication and attention will ensure you get the cream of the crop, contributing to the long-term success of your franchise.

2. Demonstrate support in the workplace

While you can instil the necessary skills into new recruits, it’s difficult to train for culture. This is why choosing the right employees from the beginning will make the rest of your franchise management system will run more smoothly.

“The manner by which you run the franchise will influence employee perceptions of the brand as well,” says Hireology’s Erin Borgerson. “Your staff must become ambassadors of your franchise system to attract the target consumer market.”

The best way to do this is encouraging staff to give you their honest feedback. Your commitment to creating and upholding a positive culture will result in increased loyalty from your current staff and a superior pool of applicants.

Related: 3 Things You Should Consider Before Buying Your First Franchise

3. Offer appealing incentives

When advancement opportunities are clearly communicated, staff is keen to hear how they can get there, as they have career goals of their own. Encouraging this ambition will draw good employees to your franchise.

“Helping employees understand the steps to advancement helps them to view their current job as an important part of a career with an upward path, not just a pay cheque for this week,” say financial reporting technology experts at Qvinci.

Performance bonuses and employee benefits incentivise staff’s efforts, therefore increasing their income alongside the profit of the business. “This serves to make employees a part of the business and not merely people ‘who work there’,” they explain.

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Franchisee Advice

3 Ways Communication Helps You Run Your Franchise Better

Managing your business as an independent owner may have been challenging at the beginning, but – as you’ve come to realise – the successful operation of a franchise network requires an extended set of skills.

Diana Albertyn

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“When it comes to a multi-location business such as a franchise, effective communication is vital,” says Dani Peleva, Managing Director at online marketing agency Local Fame. “So what happens when you’re struggling to connect with the franchise network you have in place?”

It may be time to upgrade your franchise management skills, because the success of your franchise network has a direct correlation to how you integrate feedback systems into your management processes.

Have a clear comprehension of the challenges your franchise encounters, keep an open chain of communication between yourself, franchisees and managers, and maintain regular interactions between everyone in the network. These are some of the most crucial aspects of successful franchise management:

1. Understand the challenges you face

A thorough understanding of your business requires dedication to regular and consistent groundwork for first-hand experience on how the day-to-day operations of the business are conducted.

Related: 3 Core Strategies For Building Successful Franchise Organisations

“Seeing and talking to the people that make your business will help you understand the challenges that franchisees face and the systems they need to drive higher profitability and growth,” says Rosie Niblock, Marketing and Communications Manager at Proactive Marketing.

“That way you can work more effectively to make improvements to franchise management systems logically and within the financial grasp of all franchisees.”

2. Get personal through regular visits

You never want your franchises to feel neglected. It’ll demoralise them and possibly drop sales, profits and their ability to keep the business running as you intended. Maintaining regular contact and sharing as much information as possible – when you can – fosters strong relations with your franchisees.

Empowerment through information and communication makes a difference in the business and helps franchisees make decisions in favour of the business and to make sure that they all pull in the same direction in terms of customer satisfaction, says Alan van der Westhuizen, executive manager of new business sales at Fournews, a 20-year-old franchise holding company for News Café, Krispy Kreme, Moyo, Brooklyn Brothers, Smooch, Cafe Fino and Go! outlets.

Ensure your response to these concerns is swift. “If not discussed they could fester ad create undesirable rumours,” says Niblock.

Related: How To Write An Operations Manual For Your Franchise

3. Create events for network collaboration

One of the most important aspects of managing your franchise is meeting with all your franchisees, at least annually. “Franchise conventions are almost certainly the biggest tool when it comes to building profitable engagement,” says Peleva. “They’re one of the most important things to focus on when you’re considering how to lead your franchise network.” According to her, a successfully attended and executed convention will let you:

  • Boost your network-wide productivity
  • Hugely increase your profitability
  • Drive passion for your brand

Communicating with your franchisees is the best way to identify problems, work towards solving them, and building a pleasant and fruitful relationship with your owners.

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