| By Nicholas A. Bibby
Copyright, all rights reserved
New franchisors rise or fall based on the amount of expertise and foresight held by themselves and their staff to avoid the inevitable pitfalls. These pitfalls can spell the difference between franchise success and franchise failure. Although critical to negotiating three stages of starting a franchise (franchise feasibility, formation and management) franchise expertise and foresight are not normally among the new franchisor's skills. During the feasibility and formation stages of development, most franchisors have the good sense to enlist the help of professional resources such as a competent franchise consultant and franchise attorney, but it is in the management stage that new franchisors often attempt to go it alone. That’s a mistake.
Franchisors have two primary functions: 1) groom their offering, 2) attract, train and support quality franchisees. Unfortunately, they cannot accomplish these tasks if they do not understand and do not have the skills for developing programs to affect them. Having well designed growth plans, training and support programs and quality franchisees only results from properly shaping the franchise from the beginning and then moving it forward. That monumental task is nearly impossible to achieve without a thorough franchise education and an experienced franchise mentor for support.
The following is a description of the early stages of starting a franchise and some common strategic errors that can lead to franchisor failure.
“Franchise feasibility analysis is the best predictor of franchise success or failure.” |
Stage 1. Starting a Franchise demands objective analysis of the business concept relative to systems, marketplace and people. Commonly referred to as a "feasibility study", this phase is often given little more than a cursory glance because negative findings would impact two critical parties. Those critical parties are:
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1. The prospective franchisor that usually has mentally placed himself in the role of franchisor and doesn’t want to disturb that image, and
2. The franchise consultant who earns a living establishing franchises and finds it difficult to turn away business.
Together they may give short shrift to fact-finding and interpretation in order to realize their mutual goal of starting a franchise. The most common rationale for racing past a quality analysis of the situation is the assumption that any profitable business can be franchised. While this is true, and indeed, any business (whether profitable or not) can be franchised, it doesn’t mean that a given business “should be franchised”.
It is ...probably criminal that some consultants will inflate the prospective franchisor's ego by telling them they ... will be "very successful in franchising" when they have not even learned about, or indeed, even "seen" the business in question |
Franchise feasibility analysis is the most important element in the franchise equation because it truly defines the honesty, integrity, reliability, and motivation of the entrepreneur and/or the consultant involved. If the elements required to franchise a business are not present, the entrepreneur should not be starting a franchise. Of course, the franchise consultant, if incompetent, will not have the ability to properly evaluate the situation. Or worse yet, if morally corrupt, the consultant may see a problem but not disclose it. It is tragic, and probably criminal, to know that some franchise consultants will inflate the prospective franchisor's ego by telling him he "has a great franchise concept" or he will be"very successful in franchising"when he has not even learned about, or indeed, even "seen" the business in question. Incompetence and dishonesty are rampant in franchising; scores of failed franchisors and failed franchises are grim testimony to this truth. |
The FTC may regulate franchising activities, but there are no licenses required for franchise consultants.
Stage 2. Establishing the franchise company is typically the focal point of initial activity. Although expertise is required to correctly complete this work, many emerging franchisors unfortunately want to believe that franchising is a "do-it-your-self" project. The popularity of "franchise kits" is evidence of the widespread notion that franchising is nothing more than a "fill in the blanks" process that can be handled without the most basic understanding of franchising, or the use of competent consultants and knowledgeable franchise attorneys. The road to successful franchising is littered with the bleached bones of entrepreneurs too inexperienced to enlist professional help in undertaking the rigorous tasks of compliance with disclosure laws and the drawing up of contracts when starting a franchise.
Engaging a franchise attorney is premature at the beginning of Stage 2. Franchise attorneys can prepare legally correct paperwork filled with strategic errors, and that is the franchisor's responsibility to avoid, not the franchise attorney's. Hence, the franchisor should “own their franchise plan” before they memorialize it. Racing to complete franchise legal documents is a fool’s game. Many new franchisors buy into this “franchise box of rocks” mentality that it is almost laughable if it were not for the bad endings. You can have quality legal work that means nothing. If this confuses you, then talk to me about it.
“In cases where neither quality concept nor preparation is present, no amount of franchise expertise will overcome inevitable franchise failure.”
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Stage 3. Franchise management (staffing for success) assumes that the offering is a quality concept worthy of growth, as determined by the feasibility study. In cases where neither a quality concept nor preparation is present, no amount of franchise expertise will overcome the inevitable franchise failure. Franchise expertise and management is a double-edged sword rarely analyzed during the planning process. It may be present in the beginning, in the form of quality consulting, but it is often dismissed upon starting a franchise. This is a mistake. |
Management problems begin with the franchisor's ill-conceived perceptions of their skills. First-time franchisors are usually successful entrepreneurs who have selected the franchise path over other means of expansion, but unfortunately, they have a natural tendency to think that because they were able to successfully run the business being franchised, they can also run a franchise company. They may view completion of the UFOC as a "diploma in franchise management" - this is a grave error in most cases. The title "franchisor" does not necessarily mean quality franchising or able franchising; it simply indicates a "license" to franchise.
After some painful and costly lessons, the first-time franchisor realizes that franchising is not an extension of the core business, but a highly complex and competitive industry in which special skills are essential for winning. Past success with the business being franchised has little to do with the demands of franchising. Ultimately, the new franchisor will come to recognize that two businesses are being straddled - the business being franchised and the franchise business. Don’t go it alone.
Emerging franchisors usually begin with a lean staff (an understatement in that most begin with themselves as the franchising entity). Personnel who support the entrepreneur's core business are usually not equipped to handle the demands of franchising. In addition, solo staffing rarely is adequate to meet growth projections.
When new franchisors finally realize that knowledge, experience and depth are required to run the franchise company, they generally are cut by the other side of the management sword, meaning they can neither find nor afford the professional staff needed. Operational, legal and marketing personnel are basic to competing in franchising, but that talent is generally not available without great cost. In essence, the new franchisor has entered the major leagues without even the benefit of minor league experience, and that completes the story about how NOT to franchise a business.
The good news is that starting a franchise presents tremendous opportunities for personal and professional growth. When handled correctly, when thought through, the role of franchisor can be as exciting and rewarding as any business venture conceived. Obviously many have done well financially as franchisors, and that is important, but helping emerging entrepreneurs (meaning your franchisees) find their own freedom in business should be equally rewarding. Mentorship is the name of the game. It should flow into the franchisor in the form of quality franchise consulting and out to franchisees. For my money, franchising is the best game in town. Just learn how to play before you pay.
Here are some tips for succeeding in starting a franchise:
1. Maintain a healthy respect for your business accomplishments, but don’t translate them into franchise expertise.
2. Complete an honest, fair assessment of the situation and do not give in to crafty “Franchise Sirens” (a valuable article to read).
3. Pay very close attention to feasibility.
“Franchisors will succeed with expert planning and quality execution.” |
4. Hire the best help you can as you move through all phases of the franchise process.
5. Do not fall prey to an unscrupulous franchise broker who is only looking to “bring in franchisees for a commission”. (Just as there are good and bad brokers, there are good and bad reasons for using them.) |
6. Expect to “grow your franchise legs” slowly as with any other maturation process, and have a nurturing, competent teacher to help you grow.
Find a great mentor, listen, make good decisions at each stage, and bend to the light. Franchisors then become great mentors themselves. Is that such a novel concept? No, it’s the truth about franchising and it’s a fundamental truth of life in general. Starting a franchise can be a success or a failure for the same reasons time and again. It's a matter of choice.
Copyright Nicholas A. Bibby, all rights reserved. |
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