The “DNA” of Successful Franchise Systems

The DNA of Successful Franchise Systems

Successful entrepreneurs are self-starters, problem solvers, know the importance of strong teams (staff, professionals, suppliers, consultants, mentors, etc.), are self-aware, committed to continuous learning, leverage data, and follow their intuition. Successful franchisors enable entrepreneurs to build profitable businesses, honing a proven business model by pressure-testing every element (brand, systems, tools, training, resources, etc.). Best-in-class franchisors are accessible, highly responsive, seek franchisee feedback, committed to continuous improvement, and carefully selecting like-minded franchisees to join the “family”.

Based on decades of real-world franchise experience, I’ve mapped the DNA of successful franchise systems. My journey has enabled me to serve in nearly every function, for multiple brands and industries, as a franchisor as well as a franchisee. If you’re exploring franchise ownership, the following criteria will help you effectively, efficiently investigate potential franchises and prepare you to make informed “go/no-go” decisions.

 

People

Culture:

IMO, the single most important factor in the long-term success of any business. Quality talent are drawn to (and stays with) companies that have great culture because it inspires, attracts, strengthens ties to customers & suppliers. Before you sign-on with a franchise system, carefully examine and assess whether you align with their culture.

Core Values:

Clearly defined, evident to you in every interaction, consistently demonstrated in-person, on the phone, online, and when speaking with franchisees, with whom you should validate everything.

Leadership:

Franchisors have leaders and team members you respect, whose actions & words align. Each senior leader should inspire confidence that they’re genuinely committed to your success.

Quality Franchisees:

Franchisee selection should be appropriately rigorous – you’ll experience this firsthand. If it’s as simple as “sign here”, run for the hills! Speak with a cross-section of franchisees (both those suggested by the franchisor as well as your own selections from the master list in the FDD). Ideally, you’ll find franchisees to be successful, authentically living the core values, and willing to share ways they hope to see the franchise system improve. Remember, none of us are perfect and everyone has room for improvement, including the franchise system.

 

Unit Economics

Realistic ROI:

“Unit Economics” are strong and proven to be sustainable. Performance must be validated when interacting with existing franchisees

Performance Metrics:

Well-defined KPIs (finance, ops, Mktg, cx); reports furnished regularly, accessible online. Validated use of franchisor-cited KPIs with franchisees and understand how the KPIs are used to evaluate/improve unit performance.

 

Operational Excellence

Brand Consistency:

Robust QA programs are imperative to help “police” the product; the franchisor must be clear about if and how franchisees may “localize” their business

Training:

The franchisor should also offer ongoing training post-opening on relevant topics. Inquire with existing franchisees for insight on training value and effectiveness.

Standards:

Ensure that they are thorough, clearly written, ask how frequently they’re updated, who ensures franchisee compliance, and if you can access them online. Look for absolute requirements (versus recommendations) and ask questions if you’re unclear.

On-Boarding | Training:

Well-defined curriculum, logical schedule, hybrid delivery (classroom, online, practical/OJT). The effectiveness of the onboarding process training and all pre-opening activity will substantially affect the growth trajectory of your business. Look for documented processes, with timing and key activity milestones, and dedicated pre-opening resources. Validate the effectiveness of on-boarding program/resources by speaking to newer franchisees.

On-going Support:

Once open for business, the support provided by the franchise system will change. Seek to understand and assess the resources that will be available to “coach” you to success. Inquire as to what expert resources (on-site, online, phone) will be provided, and on what frequency you can expect on-site support from the franchisor.

 

Sales | Marketing | Advertising:

Marketing Effectiveness:

Franchise systems offer template calendars for local marketing expenditures – review them carefully to understand required versus optional programs. For optional programs, inquire about system-wide participation rates. For required programs, request data on their performance/effectiveness in driving new business. You should carefully examine the franchise system’s lead generation programs, and ask what training is provided to help franchisees convert leads to customers. As the franchisor is the steward of the brand, inquire as to what advertising, PR will be done in your market to raise brand awareness. Validate marketing effectiveness by speaking with owners open <1 year, as well as those open >24 months.

Customer Experience:

A primary driver of your business’ performance will be the outcome of every customer interaction – future success will be impacted by referrals from existing customers. Franchisors should have defined standards, resources, and methods for addressing customer complaints. Best-in-class franchisors actively engage in gathering/sharing customer feedback, monitoring complaint resolution, providing data on actual customer experience using tools such as NPS or similar. No one is perfect, so franchisors should provide coaching, share best practices in order to help franchisees improve customer experience. Be sure to inquire about how a franchisor integrates customer experience into their assessment of franchisee performance.

Reputation:

Any system you consider joining should have a strong, positive reputation. This should be evident online, in social media. Because problems are inevitable, the franchisor should have a crisis management plan, and share the elements, resources.

 

Technology & Supplied Products

Technology:

Often specified, and frequently mandated. All technology should simplify/streamline the administrative requirements of operating the business. Ideally, the technology will represent a clear competitive advantage, if not directly in the eyes of customers, then by enabling you to spend more time with the customer vs. doing paperwork. Seek to understand and validate the benefits, reliability, cost-effectiveness, and ease of use of all required systems. The best insights will be gained by inquiring with existing franchisees. Keep in mind that Technology changes, so inquire with franchisors as to any major upgrade initiatives and their potential impact on franchisees.

Suppliers:

Invariably franchisors will prescribe “required” products/services and often make no exceptions. Generic components may be available via “approved” suppliers, and/or you will be given very detailed specs. If you’re a consumer-facing retail business, please understand that consumers crave consistency – they want the same product/service at all locations. For this reason, don’t expect the franchisor to be flexible regarding core products (or anything carrying their logo). In speaking with franchisees, seek validation that suppliers are highly responsive, products are effective, quality consistent and pricing is competitive. For franchise systems that are highly dependent upon the supply chain (i.e. food outlets), be sure to inquire about what contingencies exist should the supplier be unable to perform for any reason.

 

Grounded in Reality

Skin-in-the-Game:

When a franchisor operates company unit(s) they’re better grounded in reality, can test and assess the impact of changes on staff, customers, owners, etc.

Franchise Advisory Council (FAC):

Mature franchise systems should have a FAC. Membership should be diverse (i.e. recent additions, veterans, single unit, multi-unit, varying markets), who are committed to serving in this capacity. Be sure to speak to FAC members, and ask what important issues they’ve addressed at FAC meetings.

 

About the Author:
Phil Harvey, franchise consultant and founder of Prosperity Services, is an accomplished franchise industry veteran and trusted franchise advisor. He consults with first-time and serial entrepreneurs alike, helping them find, evaluate and select the right franchise to achieve their goals.

To learn more about Prosperity Services or Phil, visit his LinkedIn profile.

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