Is Franchising the New “F Word”?

The Franchise Community Should Work to Ensure that Franchising Remains a Reputable Expansion Method

In nearly 12 years of developing new franchise systems, I have begun noticing an interesting, albeit, disturbing new trend that should bring cause for concern to franchise investors. An increasing percentage of clients interested in franchising their business are asking the question: “Do we have to call our franchise offering, a “franchise”?

When I first heard a client ask this very question two years ago, I chalked it up to the clients’ customers and potential franchisees; people that wouldn’t be caught dead in a chain store (Target and Whole Foods withstanding), never mind entertaining the thought of owning a franchise.

However, when I heard the same question again and again over the following months, I took notice and thought there must be more to the story. In spite of the many good reasons for franchising one’s business (local control, local motivation, access to expansion capital), when questioned further, these potential franchisors admit having unsettling concerns due to one or more of the following four general factors:

• The Sleaziness Factor – As many clients conducted research on using franchising as an expansion method, they inevitably came across business opportunity magazines or websites featuring marginal, tired or potentially fraudulent concepts. These entrepreneurs fear that franchising their business concept might destroy years of positive brand equity by associating with these types of franchise systems.
• The Bad-Personal-Experience-with-Franchise-Systems Factor – Clients often site poor personal experiences at chain businesses as reason enough not to franchise. In our local market, bad examples run rampant. We have the renowned coffee and donut chain offering service epitomized by employees deploying their classic up-sell question: “youze wanna try a combo?” Most towns contain a plethora of casual dining restaurant chains sharing the same “faux antiques on the wall” build-out strategy, indistinguishable menu items and artificially friendly service. And last but not least, the overpriced home cleaning franchise with its cackle of maids cruising around town in old station wagons leaves quite an impression.
• The Franchise Failure Factor – While most potential franchisors lack accurate data on franchise system success rates, many have a sneaking suspicion that they fall far short of industry claims based on personal experience. In addition to observing the open and closing of chain locations in their marketplace, most site a close business associate or friend that purchased a franchise and ended up working long hours to take a modest wage, or worse, closed their franchise and lost a significant chunk of their retirement savings.
• The Chainification Factor – Many recently developed cities are populated almost exclusively by chain locations making finding an independent restaurant an arduous chore. Whether these potential franchisors live in these newer cities or not, many fear losing the unique characteristics that made them so special in the minds of their current clientele.

My own personal experiences give me reason to share the same concerns. Nearly every time I attend a franchise conference, I rarely hear a critical word spoken about franchising. Worse are the over-the-top hype and relentless promotion of hot new concepts (that are subsequently never heard from the next year or are suddenly in litigation). The reality is that franchising can be an excellent expansion method, but no matter the growth path, it takes work. Whether you fall under the franchisor or franchisee camp, consider the following when evaluating franchise systems:

• Think ROI & T (for the franchisee). Two of the most successful franchise systems I have been blessed to work with do not advertise their franchise concept in the marketplace. The reason is simple; they don’t have to. Their respective concepts offer superior profitability on invested time and capital. Yet, many systems place too much emphasis on selling marginally profitable opportunities while exerting little effort to improve unit efficiency and profitability. Is there any wonder why so many franchise systems offer marginal opportunities or outright fail?
• Think Differentiation. Does the concept possess a thought out differentiating strategy in a crowded marketplace? Many newer franchise systems with limited expansion capital, a commitment to cohesive brand and product development is critical. For established and mature system, the company must constantly reevaluate existing product lines and branding to ensure the concept does not become stale. Even an old stalwart such as McDonald’s has benefited from renewed product differentiation and branding efforts. Not only have same store sales where existing stores were replaced with their new upscale look have increased 40%, but their stock price has quadrupled over the past 5 years.
• Think Continuous Improvement. Mediocrity is not a best practice. If you are evaluating a franchise system, it should go without saying that you should shop multiple locations to see what kind of service you receive. If it is a service business, what is the disposition of the franchisee? Attentive, desperate, friendly, indifferent? As a franchisor or franchisee, view your concept from the eyes of their customers by shopping locations where employees don’t know you (and if they do, invest in a secret shopping service). Ask customers for one suggestion to improve their experience with the company. Or even better yet, ask competitors’ customers why they don’t do business with your company. You may find some surprising answers.
• Think Strong Marriage. Not unlike a good marriage, strong, open communication is paramount to the success of a franchise system between the franchisee and franchisor. There must be a good cultural fit between the system and franchisees. It takes constant effort to produce outstanding, long term results. If you’re the

So is franchising the new “F-Word”?

I don’t think so, at least not yet anyway. However, with more potential franchisors pondering this question, the franchise community should work to ensure that franchising remains a reputable expansion method into the distant future. If more competent business owners question franchising as a viable expansion option, it could result in fewer valid franchise concepts brought to market, as expanding companies explore less “tainted” options.