The One Element Your Franchise Can't Afford to Ignore
Mark Siebert delivers the ultimate how-to guide to employing one of the greatest growth strategies ever -- franchising. Siebert shares decades of experience, insights, and practical advice to help grow your business exponentially through franchising while avoiding the pitfalls. In this edited excerpt, Siebert explains how critical quality control is to the success of your franchise company.
Successful franchisees are at the heart of almost every successful franchise system. And for most successful franchisors, quality control is at the heart of franchisee success. In fact, if we start with the premise that a franchisor’s core business model is successful, we have the following equation:
Franchisee Success = Quality Control
When it comes to franchising, one of the most pervasive myths is that corporate stores will outperform franchise locations when it comes to quality. This is born out of the notion that operational control is the same as quality control. And while it's true a franchisor cannot control a franchisee the way it can control a hired manager (you cannot fire them at will, for example), there are a number of reasons franchisees typically outperform non-owner store managers:
Franchisees are often recruited from a higher-caliber candidate pool than are store managers. To accumulate the capital necessary to purchase a franchise, most franchise candidates have already had some substantial (and successful) business experience.
Franchisees typically invest in a franchise because they believe passionately in the concept and want to be associated with the brand. Managers often apply for a job because it was available and met their general compensation needs.
Franchisees are motivated to follow the system because they believe it works and know that if they don't follow it, they could lose their entire investment. Managers follow systems because they might lose their jobs if they do not.
Franchisees are typically highly motivated by the investment they've made. Managers invest no money and usually see a job only as a stepping stone in their long-term career plan. Even the best profit-sharing plans provide managers with much lower potential rewards and much less at risk.
Franchisees also have a pride of ownership. Most managers see their workplace from a very different perspective.
Franchisees typically plan to stay involved with a franchise for a decade or more, where they'll accumulate knowledge and experience that will allow them to better run their operations. Most managers look at the job with a much shorter time horizon.
Under most franchise agreements, franchisees cannot jump ship and go to work for your competitors. The best managers are often recruited away by the competition.
The ultimate goal for someone who buys a franchise is to sell it for a profit. Franchisees know this isn't possible unless the business performs at a high level. They're thus motivated to maintain a high level of quality in the business. A hired manager has no such motivation. So while your operational control will be reduced as a franchisor, the quality levels achieved by your franchisees will often exceed the quality in your corporate locations.
While a definitive study has never been conducted on the subject, there's plenty of anecdotal evidence supporting the theory that franchisees outperform locations run by corporate managers -- both in terms of revenue and expense management. When corporations sell company-owned stores to franchisees, for example, they almost always see revenue increases.
Bottom line: In our observations, franchisees historically outperform corporate managers by anywhere from 10 to 30 percent on the revenue side. And in a world where consumers are voting with their pocketbooks, improved sales are generally a strong indicator of increased quality.
Similarly, franchisees typically do a better job of managing expenses by:
- Managing labor better (sending employees home when the store isn't busy, etc.)
- Keeping tighter controls on inventory (ordering more efficiently, reducing spoilage by rotating stock, decreasing shrinkage, etc.)
- Improving margins through opportunistic buying
Not only can franchisees outsell similarly situated corporate stores, but they can often out-manage them as well -- occasionally allowing franchisees to succeed in markets the franchisor might find marginal for corporate locations.
The Pillars of Quality Control
Of course, the lack of direct operational control a franchisor can exercise has its drawbacks. Since the franchisor cannot fire a franchisee (or their employees) or employ similar levels of control over other aspects of the franchisee’s operations, the franchisor must guard against franchisees who try to change its systems in an effort to “improve” it. But while the franchisor cannot exercise absolute control of its franchisees, it has the obligation to control the brand and the brand image. And the brand, along with what it stands for, will ultimately dictate the success of everyone in the system. Remember: franchisee success = quality control
The factors that influence franchisee success are the same factors the best franchisors focus on to influence quality. We call them the four pillars of quality control:
- Franchisee selection
- Documented systems
- Training and support
- Legal documentation
There are few things that will have a greater influence on the success or failure of a franchise than the quality of the candidate. If you award a franchise to someone who doesn't have the skill set, work ethic, or resources to succeed, you're setting up both the franchisee and, in the long term, yourself for failure.
Second, you need to document your systems in detail so your franchisees will have a road map for success. Every successful business has systems, but they haven't always documented those systems to a high degree. When it comes to franchising, this piece is vitally important.
Third, it's imperative that you provide your franchisee with the support they need. For virtually every franchise system, that will entail some level of training, although the amount and type of training can vary substantially. In addition, there may be many other things you'll need to do to help ensure franchisee success. For some, it will involve assistance in areas such as site selection, lease negotiation, and construction. For others, it may involve the provision of back-office services and support. At a minimum, the vast majority of franchisors provide some level of field business support to their franchisees.
Finally, quality control in franchising means more than just having these documents in place. It also means you have to have the intestinal fortitude to enforce those controls.
In looking at these four pillars, you'll note none of them fall outside the controls you have to place on your company-owned locations. You need to hire good people. You need to provide them with specific tasks and have them done in a specific way. You need to train them and provide them with ongoing assistance to ensure they are following your systems. And if they're incapable or unwilling to follow those systems, you need to discipline or terminate your employees.
You'll also note that each of these four pillars comes with an associated cost:
- The increased cost of marketing that results from being more selective in the sales process
- The cost of developing comprehensive best practices operations documentation -- either in time or in fees or both
- The cost of the staff you hire to provide training and support to your franchisees
- The legal costs associated with developing and enforcing your franchise contracts
But the bottom line is, if you're willing to pay the price, controlling quality is simply a process like any other.