Beyond the First Step of Franchising

One of the main reasons companies choose to franchise is the extremely low cost associated with aggressive growth. Since the franchisee typically supplies all the working capital and pays for the right to do so, a new franchisor need only invest in the appropriate legal documentation and an operations manual, and they're "in the business" of franchising.

Of course, successful franchisors know there's much more to it than that--especially if they want to grow rapidly. These franchisors realize that getting into the business of franchising means getting into a completely new and separate business, and they must invest in that business accordingly.

It Starts With the Customer
The key to success in any franchise system is, and always will be, the success of the franchisees. With that in mind, one of the most important things for a new or established franchisor to do is to constantly strive to improve the value proposition at the consumer level.

Content Continues Below

It's really pretty basic. The more you can do to improve the core value proposition to the consumer, the better each franchisee's financial returns are likely to be. Successful franchisees need less in the way of support and pay the franchisor more in the way of royalties than do their unsuccessful counterparts. And, of course, this brings the added benefit of improving franchise sales. Nothing sells franchises faster than franchisees who are exuberant about their returns from a particular franchise offering.

At the top of the list from a consumer perspective is brand advertising and marketing. The better the marketing, the better the franchisees profit from increased sales and perhaps margins. Additionally, the time you spend on marketing allows the franchisee to be free of these concerns--allowing that franchisee to focus on the core issues of operations and customer service.

So, your first order of business may be to ensure that you have great consumer marketing materials. A qualified consumer advertising agency is often an important early "hire" for a franchisor--especially if you have done much of their work in-house in the past. This agency will almost certainly be different from the agency that's needed to help the franchisor sell franchises.

A good PR firm should also be on the fast-growing franchisor's wish list. Most people don't realize that 60 percent of the stories they read on a day-to-day basis are placed by PR firms--only about 40 percent are "hard news." And while PR is something that a newly hatched franchisor may initially try internally, an internal PR function will never be able to fully match a good PR firm in crafting the story angle and selling (and I do mean selling) the idea to writers and editors with whom they have a relationship.

Lastly on the list, a franchisor should be careful to continue to invest in research and development. This could result in new products, new menu items, new services, new delivery methods, new advertising or new suppliers--but the fact is the world doesn't stand still. When McDonald's started franchising, they only had 14 items on their menu. No Big Macs. No Filet-O-Fish. No breakfast. No salad. No drive-thru windows. A visit to the first McDonald's franchise (which is now a museum in Des Plaines, Illinois) readily illustrates just how far they've come in the last 50 years--and provides a valuable lesson to anyone who thinks they have "perfected" their business model.

Help for the Franchisee
Beyond the consumer level, you can strengthen the franchise system and make the franchise offering more attractive by offering additional benefits to the franchisee.

One of the biggest benefits that can be offered to franchisees by the franchisor involves the use of the franchisor's increased buying power. Even a small chain of stores can generally purchase more effectively than a single unit can, and larger chains can bring substantial volume discounts. These discounts can be provided to the franchisee in a variety of means. Some franchisors choose to provide this benefit in the form of negotiated discounts, others in terms of rebates, but the value is unquestionable. In the case of one franchisor we know, the rebates from vendors have approached the average royalty paid by the franchisees. Now that's a value proposition!

Other franchisors try to help their franchisees focus on either sales or daily operations by taking over the back room responsibilities that might otherwise occupy the franchisees' time. For example, some franchisors will take responsibility for ad placement, internet site management or accounts receivable collections. Franchisors in the advertising or publication industries (such as Valpak) often assume responsibility for printing, editorial content and even ad design. These services free the franchisee from much of the day-to-day operational routines that their competitors labor under, allowing franchisees to spend more time in productive pursuits (e.g., sales).

Likewise, some franchisors provide services to the end consumer to improve sales. One example of this can be found in some direct sales franchisors (such as Matco Tools or Snap-on Tools), which provide consumer financing to the customers of their franchisees--making the sale that much easier while creating a new profit center.

And of course, anything you can do to set your franchise apart from the competition will help. Some of these differentiating factors might include strong internal communications programs, franchisee intranets and the development of an active Franchise Advisory Council.

Sell Franchises Faster
Another way to make a franchise organization stronger, of course, is to make it bigger and faster. Assuming that quality doesn't suffer in the process of growing the company, faster growth can equate to increased economies of scale when it comes to advertising, public relations, purchasing and brand recognition.

The first thing you need to understand in this regard is that franchise growth is not something you "stumble into" or something that happens by accident. Franchise growth, at least in the early stages, comes about almost exclusively by design. The four pillars of franchise growth are a strong concept, adequate marketing expenditures, professional marketing materials and competent salespeople.

Start with the marketing materials. Ask good franchisors what business they're in and most will tell you, "selling and servicing franchisees." Yet many of these same executives spend a small fortune on consumer marketing and give short shrift to the marketing of franchises. A good brochure is an essential beginning, not only to sell the franchisee but also to help sell the franchisee's banker, accountant, lawyer, spouse and his know-it-all Uncle Charlie. In fact, virtually all fast-growing franchisors produce a full-sized brochure (similar in size and quality to an annual report), perhaps a two- or three-fold flier (for in-store use, direct mailings and trade shows), and, of course, a state-of-the-art web page.

So how do top franchisors set themselves apart from the crowd? One great tool is a sales video for use as a DVD handout or on the internet. In today's digital age, promotional videos, once a luxury for larger franchisors, now pay for themselves many times over. In addition to the upscale image they can create, videos can increase both your web traffic and your "capture rate" (the ratio of leads to discrete visitors), thereby improving overall sales performance. Moreover, since top quality video can be streamed to anyone at virtually no out-of-pocket costs, video is a great vehicle for the numerous unqualified leads that'll find their way to most franchisors through the internet. Send every "unqualified" lead a video link, and they'll get great information at no cost--so you receive high marks for responsiveness and professionalism without spending a significant amount in printing and postage to send out a brochure. And who knows, perhaps there's some "gold in them thar hills" after all.

Likewise, with the increasing use of broker networks in the U.S., video is rapidly becoming an indispensable tool for helping spread the word. Some broker networks, for example, have literally hundreds of individual brokers working for them. And educating each of these brokers on the value of a specific franchise can be a daunting task. But through the use of video, these brokers can receive an ongoing education on your franchise so, once they identify a suitable prospect, they can make a truly informed presentation.

Improving Quality Control
Top franchisors know that brand maintenance means more than just marketing. It also means quality control. The best franchisors typically have field support personnel whose responsibility is to visit franchisees in the field and determine if they're living up to brand standards. And while you may be reluctant to exercise these rights aggressively, more mature franchisors know that often the biggest advocates of strict quality control are the best operators among their franchisees--who don't want to see their brands undermined by a sub-par operator.

Beyond field support, the best franchisors are huge advocates of training. While training with early-stage franchisors can sometimes be informal, larger and faster-growing franchisors will take this a step or two further, by developing formal training programs that lay out in exact detail the knowledge that must be learned by each franchisee and/or their personnel. These training programs are designed to provide knowledge in a consistent manner, specifying on an hour-by-hour basis exactly what will be taught and learned, then creating accountability for this learning through the use of various testing vehicles.

Another tool that's rapidly gaining in popularity is the training video (either in a video, DVD or online format). These videos are especially useful for franchisors whose processes involve repetitive tasks and whose franchisees will be subject to high levels of turnover at the unit level--especially when these personnel are integral to the quality control process. And, in addition to the obvious quality control benefits, these franchisors will find they receive substantial value from a marketing standpoint--as prospective franchisees quickly realize the franchisor has done everything it can to make it easier for them to deliver quality.

Ultimately, of course, it all reverts to your ability to structure a program that delivers value. If franchisees succeed in delivering value to the customer and you succeed in delivering value to the franchisees, you're much more likely to create the win-win-win relationship that's the hallmark of successful franchising.