Why Do Some Franchisees Crush It and Others Fail? It Comes Down to This Formula. There are three factors that determine the level of success a franchisee can achieve.
- Three factors—circumstances, operations, and humanity— combine to determine how successful you're going to be.
- Your circumstances are all the external conditions affecting your business.
- Operations include your systems, policies, and tactics—everything related to work.
- Nothing influences our performance more than the way we manage the human elements that flow through every aspect of our business.
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This is part 1 / 9 of The Wealthy Franchisee: Section 2: Mastering the Mindset for Franchise Success series.
In my life speaking and coaching in the franchise world, I've met thousands of franchisees. Some of them were success stories, while others were cautionary tales. That's been the case with every franchise brand I've worked with: In the same system, running the same business, some people crush it, and others get crushed. Why?
It comes down to this formula:
C + O + H = R (Circumstances + Operations + Humanity = Results)
These three factors—circumstances, operations, and humanity—combine to determine how successful you're going to be. Understanding how each of these factors impacts the rest of the equation is key to getting the results you want. Let's look at each of them in turn.
Your circumstances are all the external conditions affecting your business. These include factors such as the economy, the competition, government regulations, taxes, labor laws, and commercial real estate's "fair market value." Some businesses are impacted by the weather. I've worked with an ice cream franchise in Canada that slows down when temperatures drop and a soup franchise in Michigan that slows down when temperatures rise. One emergency restoration franchise I spoke with thrives after natural disasters.
I faced plenty of tough circumstances during my years as an Edible Arrangements franchisee, some minor and others major (and some that were somewhere in between). Two weeks before my first Valentine's Day at Edible Arrangements, torrential rains wreaked havoc on California's strawberry crops, impacting price and quality. When a new Edible Arrangements franchise opened nearby with a territory that overlapped mine, my numbers dropped. I could go on.
But not all circumstances were bad. AIDS Walk Los Angeles decided to add our street to their course, routing thousands of hungry walkers right in front of my store. Just before building out our second location, I got a call about a closing restaurant looking to sell their walk-in cooler for pennies on the dollar.
What's important to understand about circumstantial factors is that they're totally out of your control, so it's tempting to blame any problems you're having on them. I can't tell you how many people have said to me, "This economy is killing us," or "I'm doing everything I can, but there's too much competition." They blame the government, scapegoat their franchisor, and curse a "lazy" young generation of employees. Some even attribute their decline to a change in consumer taste: "They just don't like us anymore."
I'd like to suggest that if your business isn't doing well, it's probably your fault. I don't say that to insult you. It should excite you. You want your problems to be your fault because if you're the problem, you can also be the solution.
Blame will not serve you. Taking responsibility will.
Wealthy franchisees know it's on them to find solutions to their challenges, and they'll look everywhere for them, including in the mirror. They rarely complain or blame. Instead, they open their mind, open their eyes, and get to work. Some franchisees feel entitled to good fortune. Wealthy franchisees feel entitled to nothing. They don't whine about the rain. They just grab umbrellas—or sell them.
Wealthy franchisees monitor their circumstances, but they don't use them to make excuses. They use them to make decisions. Their success is up to them. It won't come by accident, and they don't believe in luck.
Circumstances matter. We need to keep an eye on them so we can respond appropriately where we do have control. Once we're clear about what's going on, we take action by focusing on the remaining two factors: operations and humanity.
This is everything related to work. This includes your systems, policies, and tactics. It's your recipe for great waffles, your formula for carpet cleaner, and your method for teaching foreign languages. It's your branding, marketing, and pricing. It's your scheduling, cost control, and accounting. Operations are the things you pay your franchisor to teach you. It's everything that keeps you busy. Operations are the heart of a franchise. Their unique, replicable systems for serving customers profitably enable them to share the opportunity with franchisees. In most cases, you can come from an unrelated professional background and successfully implement the franchisor's systems.
The misconception in franchising is that fortune is born merely out of systems and sweat. So many franchisees buy into an incorrect, incomplete formula: Strategy + Effort = Success. They believe if they just follow corporate's manual, work hard, and work long, they will make money. If only it were that simple. I remember going through Edible Arrangements training in Connecticut with a large group of new franchisees. Many of them were also opening in the Southern California market. Over the course of five days, we all received the same training. We were given the same manual and taught identical procedures. Then we flew home and opened our businesses.
I visited many of my training buddies at their stores. The aesthetics of each location were identical. Our product line and pricing were the same, and we used the standard equipment. The locations varied a little in terms of exposure and demographics. But operationally, we all followed the same book. Some of my fellow trainees thrived, while others struggled. Some expanded, and some disappeared. The differences were not subtle. Some locations outperformed others by hundreds of thousands of dollars per year—running the same operation.
One by one, almost all the lower-performing locations were gobbled up and resurrected by better operators. On the surface, it seemed like it had everything to do with location. But that wasn't really true. Some attributed their success to more marketing since the top franchisees definitely invested in promoting their business. That made a difference, but it wasn't the difference. Maybe the top performers were putting in the most hours? Nope. Many of my struggling colleagues worked feverishly to keep their businesses going. Perhaps the top franchisees were the most innovative? It wasn't that either. People called them all the time looking for their secrets, only to hear they weren't really doing things that differently. Usually, they were working the same systems as everyone else. Top franchisees do have to work hard and constantly try new things to improve their business. But those aren't the only reasons they thrive. Hard work and good ideas are not the secrets to success. They're the basics. The wealthy franchisees I meet definitely have superior operations. But it isn't so much because they're doing things differently. They just do them better, and they do it with the help of this next factor that most people dismiss or are too busy to bother with.
Nothing influences our performance more than the way we manage the human elements that flow through every aspect of our business. That means psychological discipline, emotional control, and grit. It includes patience, empathy, and social skills. It's all those human characteristics that, for better or worse, distinguish us from computers. Wealthy franchisees are masters of their humanity. They have a strong mindset that drives every business decision. It's what makes them great.
Let's put aside the human factor for franchisees for a moment and look instead at customers. Consumers make all kinds of decisions based on emotion. Behavioral economics is a whole discipline focused on just that idea. It studies the cross-section of economics and psychology, and its guiding principle is that consumers behave irrationally. We make all kinds of illogical but emotionally satisfying decisions. It's common knowledge that tap water in most industrialized countries is continuously tested and safer than bottled water. But many people spend more per ounce on bottled water than they do on gasoline. We forgo bigger payoffs later to get smaller payoffs sooner. (This is known as hyperbolic discounting.) The threat of losing what we have motivates us more than the promise of gaining something new of equivalent value (known as loss aversion). And we all know that now-popular term "FOMO": "fear of missing out."
Understanding the psychology of consumer behavior helps businesses market and sell their services. One might argue the first known behavioral economist was Aristotle. In his treatise Rhetoric, written 2,400 years ago, he described the three key elements for influencing human behavior. These modes of persuasion are still used today by companies, politicians, public speakers, and others trying to persuade people to take a specific action.
Logos means "logic." This is where we use information, reasoning, and data to make our case. For a politician, this might mean sharing statistics and a five-point plan to fix a problem. For a company, it's describing the benefits of its products and services. Imagine an automobile commercial listing the features of the car, such as the engine size, miles per gallon, or its voice-operated entertainment system.
Ethos means "ethics," but more importantly, credibility. It's explaining why you're the expert, or why your company is most qualified to offer a solution. It could be a politician discussing their humble roots and legislative accomplishments, or a car manufacturer boasting about its J.D. Power and Associates awards and its number-one sales ranking in its class. If you're an established authority, you're worth believing.
Pathos means "emotion." It's the human side. This is where we try to move people to action by getting them to feel something. Often this is done by telling a story or showing images that tug at your heartstrings. It's a politician describing a vision for what's possible or scaring people with what their country-destroying opponent might do. It could be a shot of the driver of that car getting attention as he pulls up to a fancy restaurant. Wouldn't it feel great if that were you? Or the woman in the crowded elevator with dandruff falling onto her black coat. Wouldn't it be embarrassing if that were you? Think of a public service announcement getting your attention with images of starving children. If you feel something, you're more likely to act.
Sometimes I survey my audiences and ask which of the three is most powerful. Invariably they say pathos. Humans are emotional beings. Tapping into their emotions is the most effective way to influence them. So what does this mean for franchisees?
Well, even though business owners are on the other side of the market as sellers rather than consumers, they can still be irrational. That doesn't mean they're weak or mentally ill. It just means their emotions still influence them. They're vulnerable to pathos. Their humanity is very much at play. Wealthy franchisees don't deny their humanity. They just manage it. They control their pathos as much as possible so they can take action based on logos, their logic. Good business decisions are made with a cool head and clear data. Some people are naturally level-headed. They default to calm, cool thinking.
Most of us are prone to straying and more vulnerable to distraction and self-doubt. But that doesn't mean we can't improve our mindset—we just have to be more deliberate about it. Some people have naturally big muscles, while others must go to the gym five days a week. But the end result is the same. Our human condition matters because it determines 1) how we react to our circumstances, and 2) how we execute our operations.