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Franchisors

A Bad Economy May Benefit Franchises

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

Mark Siebert

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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.

Franchisors

3 Employment Best Practices To Apply In Your Franchise

Brand new to franchising? As a first-time franchisee, you may need some guidance on managing your recruitment processes within your business.

Diana Albertyn

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You’ve just hired your first few employees. Congratulations. As an owner-operator who is also new to business ownership, navigating the human resources aspect of your franchise may be daunting, especially when growth is imminent. Your franchisor offers support, but may not want to play a huge role in recruiting and managing your staff.

“Employee management and HR compliance is a tricky topic, especially with the relationship between franchisors and franchisees. Depending on what HR support the franchisor can and cannot provide, the franchisee may be on their own in this all-important area.” – Dean Haller, President and founder of HRSentry

This, however, doesn’t mean you’ll have to blindly search your way through human resources practices, hoping you’ll eventually get it right. Invest a little time into learning the basics, and you’ll make the best decisions until you can afford to hire an HR specialist – and pick up some expertise along the way.

1. Equip newcomers with the tools for success

Consider the type of information, tools and training your new recruits may need to function productively in their new work environment – and ensure they get it. “Studies indicate that most new employees decide whether to stay or leave a company within the first six months, so be sure to be welcoming early on to help them feel part of your team,” advises Haller.

Related: Why Your Franchise Brand Should Be Culturally Relevant

“If you’re thoughtful of your employees’ new experience, they will become more productive and engaged, and thus, more likely to stay.”

Remember the first time you went through the manuals while familiarising yourself with the franchise concept? A new employees’ experience is similar as they have to take in a lot of new information while acquainting themselves with their new workspace, colleagues and systems. Make the on-boarding easier, by reasonably introducing each aspect during orientation and training.

2. Remain stern on performance standards

Once both parties are satisfied with the training and support offered, new staff should be made aware of expectations and receive continuous and constructive feedback on their performance based on these.

Should employees fail to meet their KPIs, it’s important you’re able to identify if your best efforts have failed and whether termination is an option. “Don’t procrastinate. Make sure all performance-related reasons are documented clearly,” says Haller. “Treat the person with dignity and respect –not only because it’s the right thing to do, but because it’s good business practice and can help you avoid any potential legal action against your business in the future.”

You can avoid this situation early on by hiring employees whose CVs not only meet your business’ operational needs, your company culture too.

Related: As Consumers’ Tastes Change Can Your Franchise Keep Up?

3. Acknowledge and reward hard work

During key periods of business growth, it’s easy to overlook good performance. And even when you acknowledge your best employees, sometimes money in the bank isn’t as meaningful as creative tokens of appreciation.

“Get creative,” says Haller. “Provide flexible work schedules, interesting assignments, or a gift certificate to a great restaurant or spa. Be mindful that it’s costly to replace a good employee, so reward your employees with some kind of benefits if you can,” he adds.

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Franchisors

Why Your Franchise Brand Should Be Culturally Relevant

Are you going to wait for consumer pressure to redirect your marketing efforts, or is your franchise going to make customers believe you care about what they care about?

Diana Albertyn

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Do you understand how consumers feel about the ads you broadcast on the many media platforms they use every day? Research by Nielsen shows that all the marketing you’re paying so much for is least trusted by the buyers you’re aiming to hook. Why? Because how can you sell to a customer whose ideals you don’t identify with?

“Conversations are such a subtle but powerful tool. They can make or break reputations, brands and policies.” – Serge Vaezi, strategy and creative officer at Ogilvy

As an established franchisor with a loyal customer base, you want to ensure your marketing strategy isn’t talking at clients, but to them. Here’s how you can stop spending money in the wrong place and start measuring the right elements of your campaign:

Customers expect you to be ‘woke’

Whether you realise it or not, your brand is operating within its audience’s cultural context. Consumers are increasingly demanding that brands acknowledge and contribute to this cultural context.

“We are failing to measure the things that matter most for our client,” says Vaezi. “We spend most of the time measuring the things we create, while our colleagues in advertising spend their time measuring the impact of the things they create on consumers.”

Related: Are You On Your Team’s Wavelength?

Rather shift your focus to adapting your offering and message to your customers’ needs, desires and interests.

Watch and learn from your audience

“Listen to your audience, watch what they’re doing, listen to their behaviours, and understand what’s interesting and motivating for them,” advises Vaezi.

The insights gleaned from this exercise can be used as the basis for developing a brief aimed at becoming a part of their world, he says. Remember that the message you’ll be putting out will change as your customers change.

Sorbet, for example, launched a make-up range in early 2018 to complement its existing salon services arm and its skincare and nail products. The franchise partnered with Clicks to launch The Skin Tone Project aimed providing consumers with the most extensive foundation ranges in South Africa.

Your product doesn’t always come first

In the age of experience trumping actual products, you ought to consider developing a value proposition that shifts the focus from your product’s features and benefits, and “instead develop a narrative and positioning that acknowledges and contributes to the culture, or perhaps even resolves specific cultural tensions,” says Vaezi. “In other words, stand up for something that people consider meaningful and which is also aligned to the brand’s essence.”

Related: What To Know About Franchising Your Business

This is the secret sauce to producing creative, culturally relevant campaigns that connect with influencers and leaders, while leveraging cultural values and ideologies.

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Franchisors

Are You On Your Team’s Wavelength?

Success means being a team player as well as a team leader.

Richard Mukheibir

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Remember that old interview question, “Are you a team player?” When you run your own business you are the team leader – the captain and the coach rolled into one usually. But on top of that, you also need to be a team player.

That means more than squeezing into your bulging To Do list automated, one-size-fits-all birthday messages or the occasionally staff party. Yes, staff lunch out, a braai at the office or a few drinks after work are good ways to put the work stresses aside and get to know your staff better.

Those basic bonding exercises are taken for granted now. In reality, any wow factor was fleeting in the first place. The days since the automatic birthday greeting impressed any employee are at least one generation back and Victorian industrialists had extensive staff entertainment programmes.

What never goes out of fashion, though, is proving to staff that you are an active part of the team, not just a figurehead. I have now been with Cash Converters for almost 25 years and nearly every day, I say a thank you for the fact that I learned the business from the ground floor up by launching our first pilot franchise.

Related: 11 SA Entrepreneurs on What They’ve Learnt About Managing Staff

That quarter-century of experience has shown me that leading a team proactively means you need to be:

Present

This is more than rushing through the shop floor late for your next meeting and focused far away from the employees you are passing by. It is more than just being spotted in the hallway between your office and the carpark or even waving or nodding a greeting to an employee.

In the know

Taking the easy route here is initiating a conversation about the latest sports scores. More personalised is to ask how a staff member’s house move has gone or a child is settling into a new school. It is good for you to be reminded why your employee works for you and for your employee to know that you are aware of him or her having a life beyond a work role.

Human

humanising-conceptsThe time-and-motion pioneers who emerged after the Second World War to translate regimented army mentalities into greater industrial efficiency and productivity have long since been discredited. It rapidly became obvious that workers object to being treated like different parts of a machine.

Related: How To Know If You’re Mismanaging Your Staff

Respectful

Staff want to be treated like the human beings they are by someone who has the courage to show their own human side. In your conversations with staff, this also means showing how you are aware of the work they are doing and what they are contributing to your business.

Learning

Staff respect a boss who gives the team motivational talk and then rolls up his or her sleeves to spend some time helping accelerate the push to a new goal. As team leader, ideally you should understand and be able to carry out any job within the team. Some of the tasks might not be your speciality but keeping up to date with new techniques, materials or needs in each area means that you can make better strategic decisions.

Invested

This is about more than the capital, skills and time you have invested in growing the business. It is about sharing key goals as well as daily tasks so that your staff feel they are investing their working lives in a shared project – and so share the insights and inspirations that could be the next important key that makes your business run more smoothly and productively.

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