Keys to Success
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
It's a struggle in franchising: the clashes between the franchisor, the creator of the brand and the system, and the franchisee, the person whose money and efforts keep the individual franchise going. From time to time, the thought enters-"without me, you'd be nothing."
Certainly one can't exist without the other, but is one more essential than the other? Franchise Zone spoke with Michael H. Seid, managing director of Michael H. Seid & Associates, a West Hartford, Connecticut, strategy house for franchisors, and Franchise Zone columnist, about the role of franchisees and franchisors and which matters more to franchising success.
Franchise Zone: Which do you think is more important to the success of an individual franchise: the franchisee or the franchisor?
Michael H. Seid: I don't think one can work without the other. If the franchisee did not matter, then every single McDonald's franchisee and every single Burger King franchisee and every single Mail Boxes Etc. franchisee, since they all have the exact same system to work from, all else being equal, would have the exact same revenue.
There are great franchisees in every system; even in weak systems you'll sometimes see great franchisees make the system better. And there are lousy franchisees in wonderful systems, and no matter what the system does for them, they will go out of business and there's nothing the franchisor can do.
I don't think you can say one is more important than the other, but if I had to pick one or the other--a great franchisee or a great franchise system--I would pick a great franchisee with a weak franchise system, because he's likely to succeed in spite of the system. Even with a wonderful franchise system, a very poor franchisee will fail. Dirty bathrooms and cold hamburgers will kill a McDonald's.
What role does the franchisee play in the success of the franchise?
The franchisee takes the minimum standards provided by the franchisor and makes them better. We're not talking about the recipe on how to cook a burger or make a pizza or how to clean carpet. We're talking about hiring better employees, providing better training, making the place cleaner than standards, calling the customer back quicker, whatever it takes. He improves upon the system's minimum standards, and that's why he's a better franchisee than the guy down the block.
What does the franchisor bring?
The franchisor brings the system, the brand. They bring all the pieces of the brand--the product, the services, the standards. They bring the community, all the training programs, operating systems, marketing programs, manuals, research and development and services that come from the franchise. They bring whatever is in the franchise agreement.
Many people think all franchisors bring the same thing. They don't. Some franchisors bring a lot to the table, and some bring very little, and it has nothing to do with what they charge. It's what they provide in their operating agreement. Just because they bring very little to the table doesn't mean they're a bad franchisor.
So even in a franchise where the franchisor is providing fewer things, the franchisee can still be successful?
Sure, there are franchisors out there that provide very little--they may provide the brand, buying groups, initial period of training and no other services after that except to visit the franchisee once a year. Some franchisees can't survive in a system like that and others thrive in it because that's a more entrepreneurial franchise system.
The franchisee will get what the franchisee agreement tells them they will get, and what is always worrisome to us in the industry is when [uninformed prospective franchisees] think all franchisors give the same things to their franchisees. That potential franchisee should call other franchisees and ask them questions: How well are you doing? What type of support is the franchisor giving you? Is that support good or bad? Is there more that you need? Have you had to hire outside professionals to fill in the gaps left by the franchisor? Can I pay for extra services the franchisor is not providing but will provide for an additional fee?
What can franchisees do to make sure they're getting into the right system for them?
They first have to make an assessment of who they are, what they need, what type of business support they require, what their background is. Once they figure out what all that is about, then they can start looking at the world of franchising, the 1,500 to 3,000 franchisors out there, and from those systems start to figure out what truly meets what they need.
If the franchisee plays such a key part in the success of a franchise, why become a franchisee? Why not start an independent business?
Even with the franchise fee, it's often cheaper to get into a franchise business. Let's keep in mind that most people, even if they've headed a division of a major Fortune 100 company, have never started a business. They wouldn't know where to go or how to do it. The franchisor has started a business and probably has made a lot of mistakes and survived those mistakes. He comes to the table with a brand that customers know and respect. He comes with manuals and training programs, advertising, other franchisees you can [talk to]. There are usually buying groups and other ways to reduce your costs, information on hiring and firing and all those pieces an independent businessperson doesn't have.
What more can franchisees and franchisors do to ensure the success of individual franchises?
The thing franchisors and franchisees today can do, which they haven't done that well in the past, is work better together. One of the frailties of franchising has always been that it's inelastic and not as competitive because of the franchise agreement in place. [Independent chains] can place locations wherever they want, wherever the customers are. In that way, they're more competitive franchises, as franchisors may be prohibited from putting a new unit down in that same area due to [encroachment] issues with other franchisees.
Franchisors and franchisees can be better operators on both ends by talking to each other on a regular and continual basis. Franchisors need to allow franchisees to be part of the strategy. And franchisees need to trust their franchisors to allow them to do things to be more competitive against non-franchise systems.