Five Attributes of Great Franchise Systems
In our previous article we discussed how to become a franchisor, all that’s required is a Franchise Disclosure Document and someone willing to invest in your opportunity. That is not a high or difficult hurdle. This article, second in this series, examines the five attributes of great franchise systems. For many years we’ve advised and observed the world’s leading franchise brands, and without these qualities, in our considerable experience, even the best business concept will not achieve greatness as a franchise system, and will often fail.
Culture; Consistency; Sustainability; Replication; Communication
- Culture. A brand’s culture is the consumer-facing set of values and attitudes that set the tone for the brand’s expectations, both at the retail level and the franchise system level. In great franchise systems the written standards and process steps become secondary, because retail and franchisee support culture is properly understood and internalized. When something falls outside your brand’s promise it is immediately noticeable – because it simply feels wrong. A strong culture helps ensure customer satisfaction throughout the entire system.
- Consistency. Brand standards exist in a franchise system to ensure that image, quality, products, and customer service consistently meet a company’s brand promise. Consistency does not, however, mean identical. Offering exactly the same products and services, in the same way, regardless of the market and the local population, is illogical and counterproductive. Consistency includes the responsibility to manage a brand by allowing for necessary and often subtle local changes the consumer requires. As a side benefit, great franchisors also gain respect from their franchisees simply by earnestly listening to and considering their viewpoints.
- Sustainability. The biggest enemy of sustainability in franchising is the belief that franchise fees should be the same or lower than the brand’s direct retail competitors. While the annual Entrepreneur 500 offers an interesting take on where brands rank by industry, it’s woefully inadequate as a guide to setting franchise fees.When setting fees, franchisors should evaluate who they are competing with for franchisees (hint: this is not limited to retail competitors), how they want to position their brand, and most importantly – the return on investment for both franchisee and franchisor. If a franchisee recruitment team relies on offering lower fees, and their recruitment material can’t justify the higher fees they actually require, the franchisor needs a new recruitment message, a new strategy for their brand’s growth, or new recruiters.Franchise system fees should reflect a system’s economic realities at both the unit level, and the franchisor level. If fees and other revenue required at the franchisor level results in an inadequate return on investment for the franchisee, then the company should not franchise. Franchising is one method of growth and downstream distribution – if the franchise model doesn’t fit a company’s economic realities, there are other growth methods to consider.
- Replication: One major benefit often emphasized to prospective franchisees, is that the franchisor will reduce their operating and other costs because of system scale. In great franchise systems, this happens. However, while replication benefits are important, franchisees should not expect that supply chain efficiencies should simply be a pass-through for their benefit, as that is unrealistic and generally counterproductive.When franchising fees are set, all potential and sustainable sources of revenue for the franchisor are examined, including revenue from the supply chain. Since managing the supply chain is really an ancillary activity that can be accomplished by a third party, the franchisor in fact should earn supply chain revenue where they provide value. Quality, reliability, consistency, and efficiency are the value elements a franchisee should expect, not simply the lowest possible cost.
- Communication: Communication creates trust, which is essential in managing a great franchise system. I marvel at the ease of stage presence and motivational capabilities of some franchise executives at conferences, conventions, and on social media. However, despite the excitement and esprit de corps they generate, these are simply messaging tools because they are only one directional. All communication is – crucially – a two way street. It’s also ineffective to rely on emails, text messages, direct messaging, and voicemails. While convenient, study after study shows that most of the time those methods cause fractured communication, misunderstandings, and can lead to conflict. (While AI may prove a useful addition, it’s too early to determine whether it will be just another efficiency tool, and whether it will be trusted.) Well-crafted letters from a franchisor’s lawyers, while important, show that communications likely have already failed.In great franchise systems, communication is direct and personal, through face-to-face meetings (preferred),phone calls, and video meetings, and flows effectively and effortlessly throughout the organization. It includes active listening, openness to new ideas, willingness to be challenged, and follow-through on commitments.
Culture; Consistency; Sustainability; Replication; and Communication. Each attribute is essential, and rich with opportunities for greatness – when executed in tandem and with integrity.
In the next article in this series, we will address how to determine whether a company is ready to franchise.
By Michael Seid, Managing Director, MSA Worldwide
MSA Worldwide’s franchise consultants are the leading tactical advisory group in franchising. Learn more here.