Article One: Looking at the System Again

By Michael H. Seid, CFE, Managing Director, MSA Worldwide

Over the years, some of the business ideas that have stayed with me longest have not been the complicated ones. They have been observations that changed the way I looked at something I thought I already understood.

Notice the Smalls

Tom Peters and Robert Waterman used what has come to be known as the “coffee stain” principle in In Search of Excellence. An airline passenger lowering a tray table and finding it dirty may reasonably wonder about how well the airline maintains its engines and aircraft. After all, if the airline cannot get the tray table right, the passenger is right to consider the things they cannot see. Customers in every business use the small, visible details as evidence about the quality of the things they cannot see. The small, in the consumer’s mind, becomes evidence of the large.

I have thought about this often in franchising. Success and failure are frequently driven by the smalls — the things that never make the strategic plan, the details management stops noticing because they have become familiar, the signals that customers and franchisees see even when management does not. The smalls shape perception, perception shapes trust, and trust shapes brand loyalty and continuity.

Challenge Accepted Facts

At the end of John Ford’s western The Man Who Shot Liberty Valance, newspaper editor Maxwell Scott says to Senator Ransom Stoddard, “This is the West, sir. When the legend becomes fact, print the legend.” Ford is telling us that once a story has become embedded in the public consciousness, the perceived story can become more consequential than the facts. This is a truism in business because perception itself has real consequences and, despite what management may be able to prove are the facts — the perceptions are the only fact that really matters.

I remember vividly recalling that Liberty Valance dialogue when I first read Michael Porter’s groundbreaking article “The Competitive Advantage of the Inner City.” The conventional discussion about inner-city America had focused largely on its disadvantages. Porter instead asked what advantages were being overlooked: location, infrastructure, density, access to traditional markets, labor, and unmet local demand. The reality he taught was that an area can possess real economic advantages and we will fail to capture their value if the prevailing perception is dominated by claims and assumptions that may be inaccurate but are nevertheless widely accepted.

I met Professor Porter at Harvard when we were first exploring social franchising and working together to introduce franchising and other retailers into inner-city markets, starting with the area around the Apollo Theater in Harlem. What became important in those discussions was the discipline of asking whether an accepted fact is still — or ever was — true. Whether one agrees with every conclusion matters less than being willing to ask the difficult and often unpopular questions. That philosophy may make me seem a contrarian to some of my colleagues, but it has served me well because business evolution requires us to raise challenges even when the questions are uncomfortable or unpopular. Experience has taught me that opportunity often becomes visible only after we stop looking at an issue the way everyone else has taught us to.

Benjamin Franklin, the first franchisor in North America, provides another useful lens. Nearly three centuries ago, when he structured his printing relationship with Thomas Whitmarsh in Charleston, he was not following a franchise template. He was designing a commercial relationship: allocating responsibilities, defining economics, and creating a structure through which an independent operator could use an established business method while protecting the reputation attached to Franklin. His later relationships and beliefs also reflected something broader about him: a willingness to look beyond the conventional assumptions of his time about who could participate in commerce and public life, including his printing relationship with Elizabeth Timothy and his later presidency of the Pennsylvania Abolition Society.

Peters reminds us to notice the smalls. Porter reminds us to challenge what has been accepted. Franklin reminds us that a business relationship should be deliberately designed for what it is expected to accomplish. These are useful places to begin a series about rethinking the landscape of franchising.

Why This Series

Franchising has accumulated a great many assumptions. We assume certain things about franchise agreements because that is how franchise agreements have traditionally been written. We assume how field support should work because that is how field support has traditionally been organized. We assume what franchisees need to learn, how manuals should be constructed, how development should be staffed, how franchisees should participate in the system, how international expansion should be structured, and even what successful growth looks like. Most of these assumptions were not originally wrong, and some have been extraordinarily successful. That is precisely what makes them difficult to question — and why the discussion needs to start there.

Successful organizations naturally preserve the practices that produced their success. People are promoted because they understand those practices, new executives are taught to adopt rather than challenge the accepted culture, and boards become comfortable with familiar measures. Agreements, manuals, training programs, technology, and organizational structures accumulate around what has worked before. Eventually, “how we do it here” can become the answer rather than the beginning of the question needed to evolve the offering.

Clayton Christensen’s work on disruptive innovation described a related and uncomfortable phenomenon: successful companies can make entirely rational decisions based on their best customers, their established economics, and the business model that made them successful—and still make themselves vulnerable when the basis of competition changes. The point is not that management is stupid, complacent or unwilling to innovate. Often the opposite is true. The organization can be exceptionally good at doing what it was designed to do and continue doing exactly what made it successful, even after the market has begun rewarding something different. It may also help explain why internal appointments so often struggle to solve the issues necessary for a brand to evolve and why, in some circumstances, outside leadership becomes the better choice.

A few familiar examples make this problem easier to see:

• The Postal Service, FedEx, and UPS all move things from one place to another, but FedEx and UPS captured important portions of package and express delivery with systems built around different missions, economics and customer expectations; the architecture matters.
• Waterman spent decades refining the fountain pen, while BIC entered the market by redefining the everyday writing instrument around simplicity, affordability and disposability.
• Sears once mastered remote retail through the catalog and built extraordinary customer relationships and distribution capabilities in tools, hard goods and appliances; yet it closed the catalog in 1993 just as online retail was beginning to emerge and later struggled against big-box and e-commerce competitors including Best Buy, Home Depot and Amazon.

These are very different stories, but they share a lesson: an organization can be remarkably good at yesterday’s model while the market is quietly redefining what customers value.

That is what I mean by incumbent inertia. Yesterday’s success can make it harder to recognize when the design itself needs to change. Management continues to refine the familiar model, invest in the familiar capabilities, and listen closely to the customers who made the existing business successful. Each decision can be rational but collectively, they can narrow the organization’s field of vision.

Think Contextual Practices, not “Best Practices”

The greatest danger of best practices is not that they are necessarily wrong. It is that they can become today’s barrier to innovation.

I have been known to question some of the messages delivered by speakers at franchise conferences because they often talk about “best practices,” and I have never been particularly comfortable with that phrase in franchising. Franchising is not one industry. It is a method of expansion, licensing and downstream distribution used across remarkably different businesses. A practice that is effective for a quick-service restaurant may be inappropriate for a home-services system, a hotel, a healthcare business, a professional-services firm, or a retailer. Even two franchise systems in the same market segment can have different cultures, economics, franchisee populations, capital requirements, and strategic objectives.

I have always thought instead in terms of contextual practices: practices that make sense for a particular company, at a particular stage of development, with a particular culture, franchisee population, competitive environment, and set of objectives. That distinction matters because rather than prescribing a new set of universal answers, this series intends to challenge familiar assumptions and encourage franchisors and franchisees to ask better questions about their own systems.

Every franchise system is perfectly designed to produce the results it is currently producing.

I do not make this observation intending to be clever. If the results are good, something in the design is helping produce them. If unit economics are weak, franchisees are leaving, development is expensive, support is not valued, communication is poor or the organization cannot adapt, those results are also being produced by the system as it currently exists. The useful question is not simply, “What is wrong?” It is:

What in the way we have designed, managed and measured the system is producing this result—and what would we design differently if we were starting today?

And then come the harder boardroom questions. If you know what should change, why have you not done it? Is there something in the franchise relationship, the agreements, regulation, culture or economics that is actually preventing the change? Or has the obstacle become a convenient explanation for preserving what is familiar? Conference presentations about “best practices” can unintentionally reinforce commonality where management should be looking for context and alternatives. I grow increasingly unsettled today with business executives who are comfortable lecturing us about their achievements instead of reminding us of what the upstarts are doing to make things interesting for them.

Sameness is not simply boring. It can be dangerous.

The Franchisee Has Changed

One reason the difference between best practices and contextual practices matters today is that the identity of the franchisee — the core of how we go to market with our brands — has changed. I also recognize that, while there have been changes around the edges, for the most part little has adjusted to the bigger changes ahead of us.

For much of modern franchising, the defining image was the working owner: someone who invested personal savings, attended initial training, opened a location, hired employees and often worked alongside family members. The franchisor generally possessed more operating knowledge than the franchisee, and the franchisee expected to be taught. Agreements, manuals, training, field support and development practices were largely built around that singular relationship. That mom-and-pop single unit franchisee still exists and remains essential to many systems — but it is no longer the only franchisee in the market.

I make the distinction between a franchisee and a franchise organization because today the other side signing the franchise agreement may be an emerging multi-unit operator, a regional organization with its own management infrastructure, a multi-brand enterprise, a private-equity-backed operator, a conversion franchisee, an acquirer of existing units, or an investor using a management company to operate the business. Some sophisticated franchise organizations now possess finance, human resources, real estate, training, technology, procurement and analytical capabilities that rival — and in some functions may exceed — those of the franchisor, including some large legacy-brand franchisors.

Today’s franchise organizations do not enter the system for the same reasons, require the same support, evaluate opportunities the same way, make decisions at the same speed, measure success in the same terms, or place the same value on the same franchisor services as the traditional owner-operator. That change reaches far beyond franchise development and affects economics, rights and obligations, support, technology, communication, succession, transfers, governance, culture and growth.

If the franchisee has changed, it is reasonable to ask whether the franchise system — and eventually the franchisor organization itself — has changed enough with it to remain viable into the future.

Consistency and sameness are not synonyms.

The consumer should receive a reliable brand experience, and brand standards most assuredly matter. The trademarks and reputation of the system must be protected, and nothing about a more sophisticated franchisee population makes those principles less important.

But consistency in the customer experience does not necessarily require sameness in every aspect of the franchise relationship. Federal disclosure rules — and laws in some states — already recognize that franchise relationships can differ in important respects. Different franchise organizations may bring different capabilities, assume different responsibilities, and require different support. If the obligations and value exchanged are different, we should at least be willing to examine whether agreements, economics, training, and support should always remain identical. That is one of the questions we will take up as this series develops.

Franchising Is an Integrated System

Another reason change is difficult is that franchise systems are integrated. Agreements affect economics, and economics influence the quality and type of franchisee a system can attract. Recruitment affects onboarding; onboarding affects training; and training affects field support. Technology changes what support can be delivered from headquarters and what still needs to be done in the field, while franchisee sophistication affects governance and communication. International expansion introduces different management, capital and cultural demands, and the days when master franchising was assumed to be the best way to grow overseas are already in the rear-view mirror in many markets. Change one element without understanding the others, and the result may be an unintended problem somewhere else.

That is why boilerplate business and legal solutions make me uncomfortable. Lawyers are essential to franchising, and good franchise counsel is essential to protecting systems from risks management may not see. But a legal document cannot substitute for strategy. A form developed for another system, or for an earlier version of the same system — no matter how long it has been in use or how well written it may be — should not determine the business model simply because it is familiar. The business relationship and the planning for the system must drive the agreement, not the other way around.

The same is true of consultants, technology vendors, third-party franchise sellers, and other specialists. Specialists matter. I spent the early part of my career as the chief operating officer of one of the major British fine-art auction houses, and one of the lessons I carried from that world is the value of the generalist. The specialist may know more about a particular object or discipline than anyone else in the room; but the generalist knows enough across disciplines to recognize which questions matter and, importantly, when a specialist is actually needed. Modern franchise systems increasingly require that kind of strategic generalist perspective. The challenge is not finding an expert with an answer; it is understanding the whole system well enough to know whether the answer fits — and what questions first need to be asked.

What We Will Examine

The articles that follow will examine parts of the franchise relationship that I believe deserve another look. We will look at what we celebrate as growth, and whether unit count can distract from sustainability and unit economics. We will examine the changing classes of franchisees and whether different capabilities and responsibilities should produce different agreements, fees, training, and support.

We will look at the franchisor itself: management experience, field and headquarters support, the capabilities required from people serving increasingly sophisticated franchise organizations, and whether long tenure inside a single organization can sometimes create its own cocoon of incumbent inertia. We will examine how artificial intelligence and technology may change recruiting, support, training, manuals, communication, and the traditional distinction between headquarters and the field.

We will look at training and onboarding, including whether everyone should receive the same training and how asymmetric training can preserve standards while recognizing different experience and capabilities. We will look at culture and communications, succession and Next Gen, and whether the traditional franchise advisory council and franchisee association are still the only — or even the best — ways to incorporate franchisee perspective without confusing participation with management or collective bargaining.

We will look at franchise development and the increasingly questionable overuse of third-party sellers, particularly as AI, data and technology make sophisticated candidates easier to identify directly and as multi-unit and multi-brand franchise organizations increasingly grow through relationships rather than broker-generated leads or franchise sales organization management.

And we will look internationally. International expansion remains an important growth opportunity, but it requires different management and expansion skills. Going abroad will not repair domestic weaknesses; it often magnifies them. We should also be willing to ask whether master franchising, long treated as the default international structure, is always the right answer when technology and modern management capabilities make direct franchising practical in circumstances where it once was not.

These subjects are connected. That is the point. We are not examining isolated tactics. We are examining the architecture of the franchise system.

Growth Is a Good Place to Begin

If there is one measure franchising has learned to celebrate exceptionally well, it is growth. New agreements, new units, new markets and larger development commitments are visible. They make good headlines, improve rankings, and fill conference programs. Growth matters — because without growth many franchise systems cannot create the scale, relevance, or economics they need. But growth and health are not the same thing.

Franchising has seen this movie before. Chicken Delight was once so culturally visible that “Don’t cook tonight, call Chicken Delight” became part of the language of an era. Quiznos later became one of the most celebrated growth stories in franchising, before contracting dramatically. More recent systems — including Xponential Fitness — raise a different, contemporary set of questions about what rapid growth, franchisee economics, disclosure, and regulatory scrutiny tell us about system health. These are not equivalent stories, and the next article will not pretend that they are. That is precisely why they are useful.

We have seen franchise systems celebrated for extraordinary development only to discover later that unit economics, franchisee capitalization, support capability, market selection, or the pace of expansion could not sustain what had been sold. That does not make growth the villain — but it does mean that unit count only tells us part of the story.

A franchise system can grow while weakening. It can also become stronger while deliberately slowing development, improving franchisee selection, closing weak units, investing in existing operators, or refusing transactions that would increase unit count but damage the system.

The smalls matter here too. The quality of a franchisee selected today, the economics of a single location, the capability of a field consultant, the usefulness of a training program, the cleanliness of the metaphorical tray table — those details accumulate. Eventually they become the system everyone sees.

Unit growth is evidence of expansion. It is not necessarily evidence of health.

This is where the next article will begin. Not with a litany of failed brands, and not with the argument that growth is bad. We will look instead at why franchising has become so good at celebrating what is easy to count, what the rise and contraction of once-celebrated systems can teach us, and whether sustainability, unit economics, and the willingness of successful franchisees to invest again may tell us more about the health of a franchise system than the number of agreements signed this quarter.

Before we decide how a franchise system should grow, we should understand what kind of growth is worth having.

If we were designing the franchise system today, what would we do differently?

That is the question this series will keep asking.

If this series raises questions about your own system — or if you’d like a candid conversation about what it would take to strengthen it — we’d welcome that discussion. MSA Worldwide has been helping franchisors build systems that are genuinely worth owning, worth operating, and worth growing for nearly four decades.

Michael Seid is Managing Director of MSA Worldwide. You can reach him at mseid@msaworldwide.com or 860-523-4257.