Piecing it all together

• Piecing it all together.pdf

Piecing it all together.pdf

Just about every franchisor will boast of the support provided within the system to franchisees but what does franchisee support really mean? John Di Natale outlines some points to consider when researching a franchise opportunity.

Whether you’re close to making a decision to invest in a particular franchise or are still at the early comparison stage, a focus on the level of support provided by the franchisor should be an important part of you due diligence process.

Not surprisingly, franchisees and franchisors often have different views of what constitutes a good level of support. Franchisees sometimes find that the support promised is not delivered, does not add value to their businesses or does not meet their expectations. A real or perceived lack of support is one of the greatest drivers of franchisee dissatisfaction. While franchisors may have good intentions, they often underestimate the amount and cost of support required by franchisees.

As a franchisee, it’s worth taking a few minutes to think about the word ‘support’ and what that means to you.

Does it mean someone working closely with you through each stage of the business’s development, or does it mean someone handing you a manual and checklist and letting you go? Does it mean a local field support person who is easily accessible or are you willing to accept less frequent visits from head office field staff, potentially located interstate?

If you have a clear understanding of your expectations, you can better assess each opportunity and make a more informed decision.

The DC Strategy Franchise CEO Survey 2010, which measures the views and sentiment of leading chief executives in Australian franchising, indicates there is a growing level of concern surrounding the tight supply of good franchisee candidates. Many franchisors are therefore looking to their existing network for growth, predominantly through a multi-unit strategy. This places further demands on the level and sophistication of support mechanisms required by franchisees.

There are some obvious forms of support provided by a franchisor – initial training for instance, and others that are a little less obvious or even more difficult to classify as support – enforcing compliance for example. Let’s look at some of the key elements:

Real estate and site selection

The old real estate maxim of location, location, location… applies to franchise businesses as well. A good franchisor will have a well defined process for assessing the suitability of sites and/or territories for the particular business. Factors taken into account may include passing traffic, surrounding competitive or complementary businesses and rent costs, to name a few.

Determine how involved the franchisor gets in establishing your location. Does the franchisor assist with site selection, shopping centre negotiations, permits, construction plans and contractor management? Balancing the level of support with your level of confidence in managing these things will directly affect your ease of entry into the business.

Training systems

Look closely at the structure and content of the training programs on offer and find out what initial training is provided and over what time frame. Evaluate what you will have learned and what competencies you should have developed by the end of this training.

When your franchise opens for business, find out if someone is available to work alongside you to ensure you get off to a strong start. How long do they stay? How long have they been with the company and what is their level of experience?

What training is provided on an ongoing basis that will assist you to grow and maximise the asset value of your business? Is there ongoing coaching and support in areas such as recruitment, finances, marketing and customer support? Are there regular knowledge sharing opportunities for you to learn from other, more experienced franchisees? Is online learning being utilised to facilitate ongoing, easily accessible training and information?

In the better franchise systems, training is an ongoing activity for franchisees and their teams to ensure operating and customer service standards are being maintained. And of course, ongoing training to improve franchisee performance creates benefits for the franchisee and franchisor.

Business operations

How often can franchisees expect a visit from the franchisor field staff and what happens when they come? What assistance is provided by back office support staff?

The best franchise systems are focused on helping their franchisees become better business people through education rather than policing. We all know that every light globe should be working but if field staff spend too much time on trivia, or develop a culture of blame, they miss the opportunity to really add value. Consider what mechanisms are in place to enable field staff to help you succeed. What information or reports are reviewed on each visit and what is the process for making the necessary changes and improvements?

Find out how franchisee ideas are assessed and implemented in individual operations and throughout the network. In this area, your objective should be to understand how you will extract the maximum value from the field and operations teams to help you grow a better and more valuable business.

Advertising and marketing

Does the franchise system portray a clear, consistent brand image? Consider how you will be supported in tapping into that image and leveraging it for your own business. Is there a marketing levy and how will you benefit from the advertising and marketing campaigns conducted by the franchisor? How will you measure your return on investment? Given that most franchise systems include a marketing levy of some description, it is in your best interests to be familiar with the workings of the process.

Check what specific support will be provided in terms of local area marketing and wether this is detailed in your franchise agreement. Will the franchisor assist you to develop a marketing and advertising plan for your location or territory? Can you customise materials to promote a particular service offer relevant in your local market, and if so, how long does that take and how much will it cost?

Nothing builds a business like a commitment to advertising and marketing. Some well considered questions in this area will be vital to your decision making.

Measurement of KPIs, benchmarking and financial reporting

Alfred P. Sloan, the head of General Motors in the 1950s, said “the purpose of an enterprise is to make a profit”. Franchisors offer a range of excuses for not collecting and analysing the monthly profit and loss statements of all franchised operations. But how can any executive build, run and maximise the performance of an enterprise if they do not have access to the key metrics?

Franchise systems that flourish have highly developed point-of-sale systems linked to management reporting processes that measure and benchmark key performance indicators across the network. The better franchisors publish the entire network’s store by store profit and loss figures and educate their franchisees on how to analyse this data and their performance relative to others in the group.

Understand what information the franchisor supplies you with and at what intervals. How are you assisted in understanding, analysing and applying this data to growing your own business?

Enforcement of standards (support in the form of compliance)

Interestingly, the biggest complaint some of the better franchisees have is that their franchisor is not tough enough in enforcing the operating standards and presentation of the network upon every franchisee. A tolerance for mediocre performance and turning a blind eye to non-compliance reflects badly on their franchise and ultimately its value.

So, in assessing your particular franchise ask, how clearly standards are communicated. Are they documented and talked about regularly? Is there a clear, objective system for measuring compliance to standards and how often are they checked? Once a franchisee is found to be in non-compliance, what action does the franchisor take, and how quickly? Do they leave room for innovation within acceptable guidelines?

Bear in mind of course, that the same requirements should be applied to you in your franchise operation – and this is a good thing if you are to maximise the value of your business.

This is certainly not a comprehensive list of all the support elements found in the best franchise systems, but should help you to begin your investigations. Asking questions and working your way through the checklist will provide you with a basis for making a decision or identifying areas that need a little more probing.

Make a note as you go of the areas of support you consider as being the most important. Check the franchisor’s performance on each of them and that they are adequately covered in the franchise agreement. Seek expert advice from a franchise specialist if you are unsure.

 

DCS Consulting is your business growth specialist. For more information in relation to franchising, please contact:

John Di Natale
Senior Consultant
john.dinatale@dcstrategy.com
03 8615 7208