Connect with us

Franchisors

A Bad Economy May Benefit Franchises

Learn what drives franchise sales, even in a slowing economy.

Mark Siebert

Published

on

103

With all the negativity making headlines these days, it’s difficult sometimes to maintain perspective.

Reading Dickens’ – “it was the best of times, it was the worst of times” – the period was so like the present, it seems that perhaps he only got it half right. But for franchisors, truer words were never spoken. Yes, there are some short-term difficulties that will take time to flush through the system. At the same time, however, there are a number of reasons to anticipate that the best of times are right around the corner. Perhaps the best place to gain this perspective is by understanding what drives franchise sales.

Driving Sales

There are, of course, thousands of factors that drive franchise sales at the micro level. A bad day at the office. An overbearing boss. A neighbour’s franchise success story – and perhaps his new Mercedes. A cancelled flight that leads to the missed soccer game.

But at a macro level, there are three predictable factors that can lead to a surge in franchise sales activity – and many of them are pointing to a franchise boom on the horizon.
The first and foremost factor affecting franchise sales is a rising unemployment rate and the fear of losing one’s job. The fluctuating unemployment rate is terrible for the economy, but, while it sounds callous to even mention it, what this means for franchisors is a larger pool of franchise candidates.

Silver Lining

Every increase in the unemployment rate adds a significant number of prospective franchise buyers to the marketplace. As these newly unemployed hit the market, many will dutifully send out resumés and try to network their way into a position.

But for many, the sad truth is that they will never be able to replace their past level of income by working for someone else. After a few months of futility, many of these formerly employed will realise that the only way that they can hope to match their past salary will be to start a business of their own. And often, they will want the proven systems and support that franchising provides. Consider mass retrenchments. These come from the country’s biggest companies, and it’s precisely these companies that are most likely to provide their employees with some type of severance package that could fund their initial venture into business ownership.

And it’s Catchy

Even those employees who are left behind are more likely to jump ship – or plan for it in the near future. As these ‘near retrenchments’ see their friends and relatives heading for the unemployment lines, they become increasingly concerned about their own job security. And in the process, many will recognise that the only way to be in control of their own destiny is through business ownership.

Bad News is Good News

The second major factor affecting franchise sales is the stock market. Again, bad news for the economy can mean good news for franchisors. During the days of the Internet bubble, franchise sales people often found it difficult to pry people’s money out of the market. And with good reason – many investors, seeing spectacular (if speculative) returns in the market, figured in a what-goes-up-must-keep-going-up-forever mentality that all they had to do was hold on to their shares of Amazon, and they could retire millionaires in a few months. When the bubble burst, money flew out of the market – and, in many instances, into franchises.

Today’s market has seen similar flights to cash. Many investors have already fled the market, and there may be more to come. Those sitting on the sidelines will soon realise they need to put their capital to work. But given the wild gyrations of the stock market and the fear that has driven many away, it seems unlikely that many investors will be jumping back into stocks anytime soon. Again, franchises and small business ownership offer a potentially high return alternative.

Credit Crunch

The third driver of franchise sales is credit availability. This is where the current news isn’t very positive. The combination of reduced home values, reduced equity and decreased credit availability has forced some buyers to consider less expensive franchises and driven some out of the market entirely.

But even this bad news is not disastrous – at least for most franchisors. Franchise prospects that once looked at million-rand investments are still looking for franchises – only they are now looking at investments in the R500 000 range. And while franchisors with investments in the million-rand-plus range are feeling the pinch, this ‘push down’ effect is helping to offset the credit crunch for franchisors with smaller investments.
Moreover, even franchisors with large investments are still making franchise sales – and almost all of these new franchise sales are financed.

Yes, credit is tighter. But deals are still getting done. Today’s lenders are looking for a better quality borrower. Today’s lenders are also looking for at least 30% equity participation in franchise purchases. Again, several years ago, franchisees could purchase franchises with as little as 10% of the equity needed. Banks are also looking more closely at things like non-business collateral, the experience of the prospective franchisee and whether the household will have a secondary income during the business start-up.

The Upside

Even this bad news has a silver lining. First, it means that franchisees qualifying for credit today are less likely to be at risk if their business performs below expectations as it builds a customer base. Second, credit crunches are typically short-term events. Most knowledgeable observers will agree that it is not a question of if but rather how soon credit will start to ease substantially for people looking to invest in small businesses.

Perhaps equally relevant, the tide is likely to turn much more quickly relative to credit than it will for either employment or for renewed confidence in the stock market. Add a dash of pent up demand, and when this happens, the economy will be poised for a franchise explosion. When this might happen is impossible to say, but savvy franchisors are planning now to capitalise on it.

As a franchise consultant since 1985, Mark Siebert founded the iFranchise Group, a franchise consulting firm, in 1999. During his career, Mark has personally assisted more than 30 Fortune 1000 companies and over 200 startup franchisors. He regularly conducts workshops and seminars on franchising around the world. For more than a decade, Mark also has been actively involved in assisting U.S. franchisors in expanding abroad. In 2001, he co-founded Franchise Investors Inc., an investment firm specializing in franchise companies. He's on the board of directors of the American Association of Franchisees and Dealers and the board of advisors to Connections for Community Ownership, which encourages minority business and job development through franchising.

Advertisement
Comments

Franchisors

The Secret Sauce To Great Franchise Leadership

The upside down pyramid puts the franchisee at the center of everyone’s effort. Success follows.

Published

on

great-franchise-leadership

I am often asked to share the secrets of franchise success with my clients and audiences of franchise executives as I travel the country spreading the Franchise Bible strategies.

1507589537_upside_down_pyramid_copy

The most critical of the three core strategies is what I call the upside down pyramid strategy. This is more than a catch phrase or slogan. It must become a true belief in order for this strategy to affect a franchise organization for the better. Lets start with some basic facts to clarify.

What it is                              

The upside down pyramid is a servant leadership model that makes sure that franchise owners always come first. This must be genuine for all members of your team.

Related: 3 Challenges To Establishing A Franchise System And How To Overcome Them

Franchising is different than any other business model in this way. A franchise organisation simply cannot thrive unless the entire corporate team is on board with this commitment. If it’s not, it would be like a medical team where some members simply did not care about healing the patient. It is a non-negotiable.

What it is not

This strategy is not a hand-holding philosophy that rewards lazy or non-compliant franchisees. One of the exciting outcomes from this system is seeing the franchise owners step up and go above and beyond the call of duty when they feel truly appreciated, valued and respected by the franchisor. I have seen amazing things happen from franchise communities that felt connected and part of the bigger picture.

The challenge

Many franchise organisation executives have a lot of experience as traditional employers so they tend to try to “manage” their franchise owners as though they are employees. In most cases this is the beginning of the most common problem that I call the traditional pyramid model with the boss on top.

The key to remember at this point is the reality that the franchise owners are not employees of the company. In fact, the exact opposite is actually the case. The franchisees invested their hard earned money into the franchise company and pay an ongoing royalty as well. This means that they are the customers of the franchisor and the franchisor should value them as such.

How do you implement this strategy?

I have seen the good, the bad and the ugly in the franchise world. I can usually sense the company culture pretty quickly when I am among the franchise executive and support team. It is no surprise that the most successful franchise brands have a pretty solid grasp on this strategy. Here are some tips to get you started:

  • Train: Introduce this strategy to your executive and support team and give them the opportunity to ask questions and learn. Remember that this may be a bit of a paradigm shift for some, so they may need time to get it down.
  • Reinforce: Use ongoing reminders during your meetings, training sessions and conferences to keep the ball rolling. Your system must be based on things that you and your team will do consistently for a long period of time. A short burst of change followed by a return to the former status quo doesn’t work, so make sure you can commit and stick with it.
  • Insist on buy-in: Everyone on your executive, training and support teams must buy in to this commitment for it to work. You have heard that one bad apple spoils the whole bunch. This is very true within a franchise organisation. You may have to replace team members if they refuse to genuinely commit.

Related: Col’ Cacchio: A Passion For Pizza

Leadership tip

You have also heard the saying that the fish starts to rot at the head. The common denominator that I see in failing franchise organisations is almost always due to poor leadership. I often say that a decent business model with great leadership will usually thrive and a great business model with lousy leadership will usually fail.

Don’t feel bad if you are not the best leader for your business. I have seen business founders step aside and hire in leadership experts to run with their creation. Knowing that someone else is a better leader than you for your franchise organisation is a sign of great discernment and wisdom. If you are not sure just ask your franchise owners to give you a grade as the leader. I asked a franchise CEO recently if he would get an A from his franchisees and he said, “Probably not.” I advised him to get back to work and make sure that he can earn that A.

This article was originally posted here on Entrepreneur.com.

Continue Reading

Franchisors

Get Your Franchise Running Smoothly – Even When You’re Not There

Does the thought of taking time off from your franchise outlet make you nervous? Then you have to learn to run your business instead of letting it run you.

Diana Albertyn

Published

on

franchise-support

“A sign of a successful business is one that can operate without your physical presence 24/7,” says Brad Sugars, start-up expert, author and founder of ActionCOACH. While your franchise systems and operations are designed to run smoothly and consistently, is your staff trained to be productive in your absence?

“Franchises are already by nature systematised operations, so it boils down to how you as a business owner hire and train people to get the necessary jobs done,” says Sugars.

If you know a sick day will cause havoc in your store, an assessment of how you’re running your business is needed. Are you really running a successful franchise if things fall about without your supervision? Take a step back and consider the following steps to manage your franchise without it controlling your life. Pretty soon you could book that vacation.

Determine your role in the franchise

Are you managing the franchise, taking orders, doing admin and handling every other aspect of the business? Then you’re not hiring the right people, because those roles should be filled by people who can be left to carry them out unsupervised.

Related: How To Write An Operations Manual For Your Franchise

“And if you don’t have the right people for the job then it might be time to start hiring, so you can free up your franchise’s most valuable resource – you,” says Pieter Scholtz, co-Master Licensee for ActionCOACH in Southern Africa.

“You need to get an idea of how you can hire people to take repetitive or administrative tasks away from you. Ask yourself: ‘Do I really need to be doing this?’” says Sugars. Your business cannot run optimally if you’re the single most-knowledgeable and capable person there.

Lead with clarity

You have long-term goals for your business, perhaps even acquiring more locations and running multiple units. While growth is good, you need to share the load and ensure everyone employed in your business is working towards the same goals, otherwise, it’ll be difficult to get there. Sugars suggests asking yourself the following:

  • How will you make your vision a reality?
  • What makes you different from other franchisees and business owners?
  • What kind of team do you want to recruit and create?
  • How does all of this deliver value to your customer?

Conveying your vision can help ensure employees know how to get to the end-goal faster and more efficiently.

Related: 3 Steps To Ensure Your Franchisees Flourish Your Support System

Plan for long-term cash flow

Loyal customers ensure a constant flow of cash through the franchise and this requires exceptional service and the building of strong relationships. “Target your top-spending customers and establish a good relationship with them for long-term cash flow,” Sugars suggests.

Although the broader campaigns are covered by the marketing fee you’re paying to your franchisor, it’s wise to focus on your local’s tastes and suggestions when looking to deliver an experience worth returning for.

Continue Reading

Franchisors

Are Your Employees On Board With Your Franchise’s Brand Promise?

You cannot run a successful franchise if your staff isn’t aligned to the brand’s values.

Diana Albertyn

Published

on

franchisee-brand-management

Are the people who work in your franchise outlet familiar with the franchise’s brand promise? As a franchisee, you’re required to deliver a uniform experience, so any customer who walks through your door feels like they’re at the same store the franchisor has across multiple locations. If your employees aren’t able to embody the franchise’s brand promise at every interaction, you have a challenge on hand.

“If your company’s brand promise is a warm and friendly atmosphere, you can’t deliver that if your employees aren’t warm and friendly,” says Robin William, Senior Practice Consultant at Gallup.

“Selecting the right employees is essential to providing the right brand service. Hiring people who can’t behave the way the brand wants them to will doom a service initiative.”

Related: How To Write An Operations Manual For Your Franchise

When employees know what’s expected of them, they’re able to keep the promise the franchise makes to customers – leading to higher customer and employee engagement, trust, and revenue.

More than a mission statement

Even if you’ve ensured every one of your staff members know the brand’s mission statement, how can you be sure they’re able to exemplify it in their behaviour every day? William suggests that you do the following:

  • Create structures and mechanisms to consistently instil brand values in the franchise’s culture.
  • Discuss brand behaviours daily.
  • Demonstrate brand behaviours yourself every day.
  • Praise the efforts of individuals who demonstrate brand behaviours.
  • Hold employees accountable for not exhibiting brand behaviours.

Once you’ve clearly defined the right brand behaviours, it’ll be easier to have staff on board who deliver your franchisor’s brand promise.

Internalise the culture

Here’s a conundrum. Do your staff know what to do in a situation where a customer’s request might not be aligned with the brand promise, but the brand promise is always to deliver on customers’ requests? It’s a tricky situation, but if you’ve clearly articulated the promise, your staff will know how to “Behave the brand”, says William.

“Do whatever it takes to deliver on its brand promise. Whether it’s focusing quality, fast service, customer care, or low prices,” he says.

“Employees must execute brand and service behaviours consistently, and frequent reminders can help employees understand and internalise these behaviours.”

Related: 3 Challenges To Establishing A Franchise System And How To Overcome Them

Empower your staff

Investing in your staff is the best way to encourage them to act in line with your brand’s promise. Once they understand why it’s important to act along the lines of your brand, they will feel empowered and motivated to do so.

Starbucks trains employees to memorise customers’ names and preferences in line with their promise of making everyone who visits their stores feel at home. Apple’s strategy of hiring nice, smart people who are passionate about service and the product aligns with the company’s belief that knowledge can be improved, but personality cannot.

Continue Reading

Trending

FREE E-BOOK: How to Build an Entrepreneurial Mindset

Sign up now for Entrepreneur's Daily Newsletters to Download​​