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Driving the Growth of an Emerging Franchise

Many books, articles and publications have been written about franchising and most provide only theoretical descriptions. Early in my franchise career, I found the need for more nuts-and-bolts information on what franchising is all about, a practical model, if you will.

In the experience of growing my franchise from $0 to $100 million system-wide sales and from one to 250 open stores in less than 48 months, I have witnessed the following practical model.

A franchise company, just like any other company, has customers. A customer is a customer, whether it is a client at a law firm, a shopper at a supermarket or a franchisee, and to be successful a company must give the customer what he wants.

Giving the Custom What He Wants

What does every customer want? The most basic desire of every customer is the solution for a need. The way customers feel about the solution can be broken down into two basic elements: the quality of the solution and how it is offered (customer service). There are variations to the process such as service, warranty or ongoing support, yet fundamentally, customers have these two needs and wants.

In franchising, the unique addition to this process is that we serve the needs of two customers. First is the franchisee, who needs to earn a return on his or her investment. Second is the consumer, or the end user, whose needs are met at the store level. The pattern holds true, however, in that both of these customers’ needs must be met in terms of the quality of the solutions and the methods by which they are offered.

If we consider these two needs when we ask the question, “Why do most franchise companies fail and the few succeed?” we realize that to succeed, we need to know what quality of solution and method of delivery franchisees need.

Franchisees’ needs are basic and unilateral. The “quality” need of a franchisee is met when he earns an “appropriate” return on investment. The method of delivery is met when the franchisee experiences a “good time” while earning it. Most franchise companies overlook one of these two components. Some focus on the monetary, and some focus on experiencing the “good time.” It is vital for a franchisor to meet both of these basic needs.

Monetary Need

The monetary need has simple rules and guidelines that a franchisee can use to benchmark success, yet most franchise companies report that franchisees, even those among the highest performing, are not happy with their earnings. If these franchisees’ earnings are good, why are they not happy? Because the interpretation of “appropriate” return is subjective and too broad. Franchisors must meet the “quality” need by helping franchisees to understand that an appropriate return is a simple calculation of a sustainable, consistent return on investment that correlates and responds to standard formulas in their specific category.

In the food world, in which my franchise system operates, as long as the franchisee has a three to five year return on investment, he should interpret that as success, period. That is how the food world functions. History shows that if your model has a variance from this, either higher or lower, your numbers are not sustainable or your franchise will not grow. In a healthy food business, average unit volume, gross sales, multiplied by 1.5 should equal the entire cost of opening the unit, and the return on investment should take three to five years. These are model metrics, and when franchisees understand them and are able to meet them, your franchise will satisfy their need for “quality.”

“Good Time” Factors

As to the second need, having a “good time” while earning that return, it is safe to say that again the interpretation is too broad in the industry as well. To define it simply, the franchisee longs to experience a “good time” from the minute he wakes up to when his day ends. This includes the time spent with the franchisor, guests, the suppliers, team members and everywhere in between. To achieve this, there are several key elements which must be met: quality processes, a good relationship between the franchisee and franchisor, a clear understanding of the model’s unique selling proposition and, most importantly, the model must have a clear purpose.

First, there must be a crystal clear understanding of the standards of the franchise model, and processes must be in place to make them happen. For example, in some service franchise models, the typical team, or employees, of that brand are not easy to manage, so the franchise model must find a way to address this. If not, the “good time” concept will be compromised and your franchise system will fail. It is your obligation as a franchisor to provide answers and solutions to every possible pressure point that may compromise franchisees’ enjoyment of the business; if they don’t love and enjoy what they do, they will fail.

If you want to grow your franchise, develop a unique selling proposition and a competitive edge. 

A classic mistake is a franchisor missing the boat by not understanding the do’s and don’ts in the relationship with the franchisee. Franchisees become entrepreneurs because they want to be their own boss and have more control over their destiny. A franchisor must understand that and treat that relationship as a partnership rather than a subordinate one. The most effective tool to avoid this classic mistake is having a strong team that develops a healthy relationship and flow of information with the franchisees. In my system, we call that team “Franchise Relations Associates,” and the franchisees in my system appreciate this team greatly.

A prominent, yet unfortunate, phenomenon I see in franchising as a whole is the failure to provide franchisees with a unique selling proposition. This leads to frustrated franchisees who feel that their business model lacks differentiation from their competition. They may still earn an “appropriate” return on investment, yet feel negative about their business because they have nothing special to offer or a substantial competitive edge. If you want to grow your franchise, develop a unique selling proposition and a competitive edge.

Last in this list of “good time” factors, is the purpose of the franchise. I challenge every emerging franchise system to take a hard look at the purpose of its value proposition, and ensure that it is more than just supplying the end user with a product. The purpose needs to be more than just making money, because at the end of the day the franchisee must feel that the time spent in his business has more meaning than just monetary. We all deserve to be fulfilling a higher purpose than just earnings, and that purpose needs to be defined and communicated to your franchisees. At Menchie’s Frozen Yogurt, our vision, mission and values provide that purpose and bring fulfillment beyond just supplying a product to the end user. Our mission, “We make you smile,” provides a compelling “good time” factor. Our franchisees know that the purpose of our business is to make people smile, and that providing our product to the end user simply is how we achieve that purpose.

At the end of day, franchisees want to “earn” and “enjoy it,” so if an emerging franchise clearly defines the “quality” and “good time” needs of their franchisees in advance and refines the methodology which they provide them, those franchisees will in turn offer the same to their guests, and your franchise system will find itself growing and at a fast pace.

Remember, growth is not an objective; growth is a result of doing the right thing, at the right time, to the right person. ⎯

Amit Y. Kleinberger is CEO of Menchie’s Frozen Yogurt.  He can be reached 818-708-0316 or ceo@menchies.com. 

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