A frequently asked question, especially from my more entrepreneurial clients, is, ‘Why would anyone ever buy this franchise?’ This question is usually followed by a series of observations: “Anyone could do it.” “There’s nothing to this business.” “I don’t think this business can be franchised.”
And of course, the underlying question, “Why wouldn’t someone simply do this themselves?”
Their concerns are valid ones. Some concepts are simply not well differentiated. Moreover, some of them have low barriers to entry.
So can a business that is not unique still franchise successfully? And if so, how?
The Mindset of the Entrepreneur
Whenever I hear these questions, my first response is to point to some of the undifferentiated concepts that have achieved high levels of success in the marketplace. “What about janitorial services – why have they been so successful?” Then I go through the list. Maid services. Lawn care. Carpet cleaning. Temporary and permanent placement firms. And the list goes on.
The fact of the matter is, a significant number of franchise companies are in industries in which their products or services are not readily differentiated.
What these questioning entrepreneurs fail to understand is that, as entrepreneurs, they are the one group on earth that is perhaps the least suited to understand the mindset of the prospective franchisee.
The typical entrepreneur is, at least by my definition, someone who never saw a rule he or she did not want to break. And, in many respects, the entrepreneur is often the last person you would want to be a franchisee. The best franchisees are not the rule-breakers. And, in fact, the truly entrepreneurial are often the least inclined to buy a franchise.
The best franchisees are motivated adopters – people willing to accept some level of risk, but people who, nonetheless, are willing to follow the rules established by their franchisor.
But if the franchisee isn’t buying your ‘secret recipe,’ what exactly are they buying?
Ultimately, what the franchise prospect is buying is the combination of two things: a strong value proposition and a unique market position.
Developing the Value Proposition
If you are thinking about franchising a business that you feel isn’t particularly sexy or unique, chances are you have already watched a number of your competitors come and go. Why did they fail, while you survived with a similar product or service? The answer is the system.
The system is the embodiment of all those things that make the ultimate difference between success or failure. Site selection. Lease negotiation. Advertising. Customer service. Branding. Positioning. Purchasing. Pricing. Merchandising. Hiring. Training. Managing. Quality control. Financial management. It can be found in everything from the products you buy to the way your people answer the phones.
When someone buys a McDonald’s franchise, they aren’t doing it because they want the recipe for the ‘special sauce’ on the Big Mac, or because they believe that McDonald’s serves the world’s finest hamburgers. It’s for their systems, which are among the best in the world.
The best companies have developed their system to ensure consistency at the consumer level. And that is what your franchisees want to buy – a consistent consumer experience that has been proven in the marketplace.
Your job, as the franchisor of an undifferentiated concept, is to show the franchisee how to replicate your success. Through a combination of services and support, you need to teach your franchisee how to achieve what you have.
That means developing training programmes, operations manuals, site selection criteria, advertising guidelines and other elements of ‘the system’, as well as the benefits of your labour and relationships, that will allow your franchisees to take advantage of the intellectual property you have developed. Combined, these elements constitute the value proposition that your franchisee will pay you for. But the value proposition alone is not enough.
Positioning your Concept
Even the most mundane concept can work as a franchise if it can be replicated. But if your system does not have that special ‘sizzle’, you may have to work hard to sell it.
For those few concepts that are fortunate enough to be ‘first movers’, their first position in the market can be enough – assuming, of course, that they grow fast enough to maintain brand dominance. But for the rest, a value proposition alone will not be enough. The concept will need to be differentiated from others if it hopes to achieve any significant level of success.
Let’s take another look at McDonald’s. In the early years, it was a simple concept – basically, hamburgers and fries with drinks. And for years after they started franchising, dozens of franchised competitors came and went. All, that is, except for a select few.
Burger King realised McDonald’s had staked out the ‘fast burger’ segment in the market and knew if it were to compete with McDonald’s, it had to differentiate itself in the eyes of the consumer. So it adopted a position that McDonald’s could not attack: ‘Have it your way, at Burger King.’
The genius of this position was that Burger King had staked out a position to which McDonald’s could not competitively respond. Burger King’s operating system differentiated it from McDonald’s, and McDonald’s was not in a position to revamp its operating system to respond to this new threat. And Burger King prospered.
Over the years, more competitors came and went. More than a decade later, Wendy’s cracked the ‘Big Two’ with a different form of differentiation: marketing. At that time, McDonald’s and Burger King were promoting to children.
Wendy’s succeeded where others had failed by offering, ‘old-fashioned’, made-to-order hamburgers, and promoting to an older audience, using an octogenarian spokesperson asking, “Where’s the Beef?”
To succeed in franchising, especially if you are in a commodity-type market, you have to differentiate your concept from those of your established franchised competitors. That differentiation can come at the operational level (as in the case of Burger King), in the form of marketing (Wendy’s) or in a number of other forms.
Some concepts differentiate themselves in the eyes of their franchisees by offering a lower investment franchise package (a double-drive thru hamburger operation is less expensive to build and operate than a Burger King).
Others differentiate based on services, both high and low: Some franchisors tout their high levels of service. Some janitorial service franchisors, for example, will actually procure their franchisee’s customer, so all the franchisee has to do is to service the account.
Others have taken the opposite approach. Some carpet cleaning and postal service franchises got their start by promoting themselves as ‘the un-franchise’, touting minimal fees and minimal intrusion into day-to-day operations.
Contractually, franchisors can differentiate themselves through a more liberal contract, reduced fees or royalties, a bigger territory, or different support services.
3 Core Strategies For Building Successful Franchise Organisations
How to attract potential franchisees to invest in your business.
The most common questions I hear from franchisors are usually related to growth strategy. In other words, what are the core strategies that differentiate the successful from the mediocre?
Strong leadership determines the overall success of the organisation, but how can this be defined or broken down to actionable strategies? People often ask me how we created a franchise growth strategy that enabled us to grow to 150 units in less than three years. This is the secret sauce! When I coach my franchise executive clients, we begin with three core strategies.
As I described in my book, Franchise Bible 8th Edition, The Upside Down Pyramid strategy sets the pace for everything since it is a core belief. This will get the company moving in the right direction and keep the focus strong as franchise owners are added to the community. The Three Decision Lens Philosophy then kicks in to make sure the company stays on track and makes good solid decisions that will benefit the franchisees and the overall growth of the organisation. Lastly, the Franchise Glue creates a strategy for long-term maintenance that inspires aggressive growth and peak performance.
The following are the core leadership strategies that I identified in Entrepreneur Magazine’s Franchise Bible 8th Edition.
The Upside Down Pyramid
This strategy is a paradigm shift from the common corporate organizational structure. Typically, you see the leader at the top of the pyramid governing over the team members, which trickles down to the employees and eventually the customers.
Franchising is a very unique business model and is very different from a traditional corporation. The primary difference is that the franchise owners are independent business operators, not employees. The Upside Down Pyramid strategy flips that model on its head by placing the leader(s) at the bottom, bearing the weight of the company infrastructure on their shoulders. Franchise owners then are viewed more like the customer and supported accordingly.
The Three Decision Lens
Every decision a franchisor makes has Legal, Practical and Political implications, so these three factors have to be considered whenever a decision is made. Making good decisions is mission critical to the successful growth of a franchise organisation. Many franchisors have stumbled or even failed because of poor decisions that negatively impacted their franchisees.
The Three Decision Lens Philosophy is tool that enables a franchisor to consider the total impact of their choices before the decision is made.
The Franchise Glue
Franchise Glue is everything a franchisor does that sticks the franchisees to them. Ongoing support and training, buying power, technology tools, innovation, events and other programmes and systems that endear the franchise owners to the brand. These are the reasons that franchise owners stay with the brand and have no problem paying ongoing royalties.
Once these three strategies are implemented and the leadership spoke is in place, we can build the remaining spokes which are marketing, operations, finance and technology to head for the “hockey stick” growth of 100 units and beyond.
Like any other business strategy, the most important factor is your willingness to buy in and execute. The best game plan in the world is useless if it is not put in to action. Building a healthy and thriving franchise organisation is much like exercise. Long term and consistent exercise programmes generally lead to a healthy person.
I will be posting a series of articles that will break these three strategies down in more detail including real world examples and tips for implementation. This will allow you and your team to focus on one strategy at a time and work on implementation steps. Stay tuned over the next several weeks and try working these strategies in to your franchise business model and see how it impacts your franchise community.
This article was originally posted here on Entrepreneur.com.
The Secret Sauce To Great Franchise Leadership
The upside down pyramid puts the franchisee at the center of everyone’s effort. Success follows.
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.
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.
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.
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
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.
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.
“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.
“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.
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.
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