What are the Traits of a good Franchise?
One of the intriguing things about the franchise industry is the range or types of franchises in so many different industries. I currently use an Excel spreadsheet to track 37 different industries. The main purpose of this spreadsheet is so I can find the right franchise to fit each buyer. Or, as I like to say, each entrepreneur has a genius be it sales, operations or management so let’s find the right franchise that fits that genius.
Once we know the genius of the entrepreneur, we match them with the better companies so now you have the right combination – matching a franchisee with a franchisor to create an unbeatable combination.
What are the traits of the better franchise systems?
The more successful franchise companies understand their strengths and weaknesses. They are constantly striving to improve and get better. These companies have certain traits to be successful. Here are those successful traits.
1. Return On Investment
One of the keys for a franchise buyer to be successful is understanding the money they pay should be seen as requiring a Return On Investment. The franchise program should therefore provide an opportunity of profitability that relates to their initial investment. The higher the investment, the greater Return On Investment the buyer should expect.
Equally, a good program recognizes that there needs to be a balance between the profit earned. If it becomes out of balance where one party is doing better than the other then the imbalance leads to a downward spiral.
2. Good communication
A good executive management team communicates issues, improvements as well as strategic changes. But there is more. A good franchise system or indeed any good business has to have a model that includes access to the executive management team or a franchise advisory committee.
3. Management By Walking Around
Part of my career included spending 5 years working onsite at Hewlett Packard. A common management term was called Management By Walking Around. Just as good communication starts at the top, a good franchisor includes its franchisees in decisions that impact franchisee operations which they facilitate with systems that allow problems and ideas to flow to upper management. This includes a formal process so that franchisees can provide real time feedback to strengthen and hear improvements from “those in the trenches” and how to make things better especially if it includes changes in franchise operations, marketing or finance.
4. When good is not good enough
If you are following the business news you will find that McDonald’s hamburgers are ranked one of the worst in the industry. A good company is only as good as its last success. As a franchisor rolls out new goods or services, as part of their quality control they must be tested or piloted before being rolled out to the entire franchise network. This establishes standards and creates credibility to not only the customers but also the franchisees.
5. The numbers matter
A set of quality financial statements helps the owner of a business know the direction they are travelling. A franchisor needs to create their own set of quality financial statements so they know their direction. A good franchisor should collect quality financial statements from each franchisee on a monthly or quarterly basis so they can guide and help steer them to success.
6. Standards are defined, measured and managed
There is an old business management saying. If you can’t measure it you can’t manage it. A good franchise system has standards. An even better franchise system records and measures those standards to ensure customer’s expectations are at least met and hopefully exceeded which protects and increases the value of the brand or the very reason the franchisor and franchisee have come together.
7. The franchisor attracts the right type of franchisee
In the last point it said that a good system has standards. The franchisor has different tools to achieve those standards. Their cheapest and most powerful tool is deciding which franchise buyers to become franchisees. They achieve this by creating a strong franchise development team to ensure they bring on the best available franchisees who will meet and maintain the standards of the franchise.
8. Franchisees are only as good as what they know
Whether it’s in business or our personal lives we are only as good as what we know. A quality franchise program has two effective training programs. The first is the initial training while the second is ongoing training and support. The ongoing training and support identifies weaknesses and then corrects these to create habits that now become best franchise practices.
9. SBA franchise registry
If a buyer needs finance to purchase their franchise, it’s a good sign if their concept is able to qualify for the SBA franchise registry.
The above are the more common characteristics of the better systems. A buyer will be more successful if they know their strengths and weaknesses or as I like to say, their genius. A franchisor will be more successful if they too understand their genius and attract the right franchise buyers. If you put both together then their chances of success are maximized and this is simply good business.
For more immediate help, send an email to Andrew Rogerson or give me a call on 916 570-2674.