What is the reason why some people become highly profitable, very successful franchisees even in new or modest franchise networks?
Why is it that while many franchise owners only have reasonably successful businesses as franchise owners, some of their colleagues are enjoying turnovers and profitability well above the network average and sell their franchises for significantly higher capital gain than others?
While there are over 80,000 franchise owners in Australia, not all are successful and indeed there are those who fail even in the leading franchise systems when others in the same system are thriving.
Why is this so?
It all starts with your attitude, risk tolerance and responsibility.
If you are considering a franchise, you need to be aware that you or the franchisor may fail. Going into any business or any franchise is a risk and you and your life partner need to understand that if you fail, you may lose any cash or assets which are part of the franchise. This may include your home if you have borrowed against it to finance the establishment of the franchise.
Does this sound too risky for you? Are you prepared to lose some or all of your hard won cash and assets? Do you have the confidence in yourself to be a profitable franchisee? If not, then business and franchising may not be for you and best you seek employment with someone who has the qualities that allow them to employ you so that your skills can make them profitable.
If you are an existing franchisee and are not in the top 50 per cent of the franchisees in your network you need to understand that it is you who have positioned yourself wherever you are placed in the rankings, not the franchisor.
How do the best franchisees think?
In my view, there is a strong correlation between those who are confident they will be successful and the development of a successful business.
However, the real difference I have seen in out-performers is that they clearly understand that they are completely responsible for their success and do not expect the franchisor to make them successful or even profitable. A franchise is an excellent choice for many individuals considering a commitment to own their own business. As an opportunity, a franchise represents a vehicle wherein someone may be granted the chance to be self governing and expect strong ROI in the long term with relative certainty.
However, this is by no means a guarantee. The importance of sound business acumen, knowledge and best practice cannot be understated. Perhaps now in this everchanging competitive landscape, more than ever before, there is a need for discernment when analysing the health, performance and potential of any franchise you are considering. As with many forms of learning, wisdom with respect to franchising is largely experiential. Following my time in franchising over the last 30 years in Australia and overseas markets, I have been fortunate enough to learn and benefit from some of these franchise life ‘lessons’. I have also been afforded time to observe the various nuances, idiosyncrasies and character traits that I believe embody the spirit of the best franchisees.
Some key learnings are:
This starts with a search for the franchise system that the better franchisees are most confident will succeed.
A number of variables can quantify the ‘health’ of a franchise. The focus may be on profit and ROI, market share, local area marketing, franchisee satisfaction and growth or with less material data or measures. Successful franchisees understand nearly all of these elements are at their core, influenced by the franchisee as an owner-operator as an individual.
The reality is that many unhealthy franchisees have borne the cost of poor advice, or worse chosen not to take advice, or because of poor (or no) research are simply unaware of extraneous details that may cause the business to succeed or fail and have a naive view that the franchisor will make them successful and bail them out if they get into trouble.
The best franchisees know education gives rise to inspiration and enlightenment that leads them to understand what they need to do in order for them to be successful.
They research a number of franchise systems, they buy and use the products and services to confirm they are confident they can sell them and represent the brand as a proud local ambassador, they talk to existing franchisees, they look at the potential market that they will be locating in and they prepare their own pro-forma profit projections. They also seek to ensure they understand the total capital costs needed to establish the franchise which often includes the hidden costs of their drawings to live on while the business is being established, opening promotional costs, legal and accounting advice, wages while training staff before opening, and importantly working capital to support the cash flow of the franchise before it breaks even and moves into profitability.
Most importantly I have seen they seek out and take the best professional advice from financial and legal advisors.
As a franchisee, the ability to be accountable to oneself is paramount. Successful franchisee candidates that I have come across are generally risk-averse entrepreneurs. The word entrepreneur itself originally comes from the combination of two Latin words ‘entre’, to swim out, and ‘prendes’, to grasp, understand, or capture. This came to be summarised later as someone who undertakes a risk without assurance. While the purchase of a franchise is an excellent way to mitigate risk, the franchisee is still ‘swimming out’ independently and as such should be aware that their actions will determine their ability to ‘grasp’ success. The best franchisees understand that they are accountable to themselves first and foremost. A great example of these qualities is acknowledged in the journey of Daniel Mesiti and Anthony Stahl, multi-unit Boost Juice franchisees and recent recipients of the national FCA Multi-unit Franchisee of the Year Award for 2016. As business partners, both Daniel and Anthony possessed self-accountability and accountability to each other. However their understanding of where the chain of responsibility ends saw them successfully found and run two Sydney CBD cafes and a mortgage broking service before turning to Boost Juice six years later. Their time spent in business before becoming a large franchisee was an asset to Boost, growing their brand to five stores. As partners, they shared a large and ambitious goal and saw it through. Each partner brought with them their respective talents and responsibilities to the other. Perhaps a partnership is something for you to consider also if accountability can be problematic as a franchisee.
Attitude towards Technology – Be Pro-Tech
President Barack Obama noted in his speech to supporters as a senator after the Feb. 5 2008 nominating contest prior to his presidency: “Change will not come if we wait for some other person or some other time. We are the ones we’ve been waiting for. We are the change that we seek.”
Well, the world is changing. Trump is now President of the United States.
And technology is changing at an exponential rate. In the last five years alone, the world has witnessed a paradigm shift in the manner in which people live their lives. From multipurpose drones and 3D printing to crowd funding sites and hover boards, we are living in a time of rapid changes in technology. The ability to adopt new modes of technology into a franchise can determine whether you thrive or strive. Ian and Irene Hughes of Poolwerx (the 2016 Franchisor of the Year) are one of the best performing franchisees in the Poolwerx network and an excellent example of franchise-owner couples who adopt technology rapidly to improve efficiencies in their franchise. The ability of Poolwerx to adopt and implement new technologies has seen them listed as one of Australia’s fastest growing franchises for the ninth consecutive year by Business Review Weekly (BRW) – one of only three brands to do so. The Australian Financial Review also judged Poolwerx as a top return on investment franchise for the third time since 2006. As a business, Poolwerx has also recently won the Australian Established Franchisor of the Year for 2016. The story of Poolwerx began 26 years ago as a ‘one man band’ out-of-a-van business and since become a large iconic Australian brand with over 106 partners operating close to 100 stores and the most highly qualified technicians in the industry. The introduction of this standard, new equipment and products has allowed Poolwerx to stay ahead of the market and remain a leading service Australia-wide.
An Understanding of Relationships – Be a People Person
Close interdependence of franchisees and franchisors on each other is an inevitable part of the franchising supply chain. As can probably be guessed, tension and strained relationships can be common in this aspect. Over the years I have sat in hundreds of meetings, large and small, with unhappy franchisees and seen the blame game played out.
“Not my fault” is not in the vocabulary of successful franchisees. They take responsibility for good relationships and work at it by being communicative and inclusive to the franchisor. They also apply this importantly to their support staff, often volunteering new ideas and being prepared to trial new concepts, products or services the franchisor has developed but not yet proven. As noted by the head of Franchise Relationship Institute and former successful franchisee then franchisor of Brumby’s Bakeries Greg Nathan, the franchise relationship “moves through stages”.
Many successful franchise entrepreneurs come to understand and accept not only their own strengths and weaknesses, but those of their business partners, stakeholders and franchisor. As a result, the relationship becomes stronger, more stable and more satisfying, though not without its occasional drama. Nathan points out the “three types of relationships are often referred to as dependent, independent and interdependent”. For the third interdependent type of relationship to prosper there needs to be adequate maturity, acceptance and respect from both parties. In other words, both parties accept responsibility for shaping the quality of the relationship.
This responsibility by the best franchisees for good relationships extends to the way in which a franchisee behaves with their community, their customers, their suppliers, their staff as well as their franchisor.
Understanding your ‘Partnership’ – Be Family Oriented
The support of your life-partner is a major factor in the lives of successful franchise owners. This does not mean that every spouse works in the franchise with his or her partner but in successful franchises the support of the spouse and family adds so much more to the lifestyle and satisfaction that contributes to success. An understanding spouse knows the long hours, stress, administrative obligations and financial pressures are part of the commitment that the best franchisees need to make in order for their business to be successful and are supportive of the time away from family that is needed to build a business for the future of the family.
To become successful often means going without holidays or luxuries in the early years of the franchise while working a 70 hour week. This is when the support of the family is critical and becomes evident in the best performing franchised businesses. Many successful franchisees often involve lifepartners and families in the business, which while having its own challenges can help limit labour costs and boost profitability.
Observe trends in the macro environment
Being a franchisee does not excuse you from having to consider external forces. How the best franchisees respond to change (or not), will ultimately influence the franchise performance for the better (or worse), regardless of market conditions.
Good franchisees see changes in the needs of their local community, customers and staff, developments in competitor activity and other factors that impact their business. They respond to these by engaging with the franchisor and support staff to develop and adopt new methods of doing business long before these trends may be spotted by the franchisor.
By taking complete responsibility for their success, the best performing franchisees are self-reliant, taking responsibility for the performance of their franchise and taking control of their future by relying on what they can control in their franchise.
This includes, faithfully following the franchise system, hiring, training and influencing their teams and the way they will interface with the community, inviting and listening to customer feedback, conducting regular pro-active local area marketing, careful financial and comparative analysis of their franchise on a monthly (or more frequent basis), and being actively engaged and present in their franchise during the busiest periods leading their teams, without relying on external factors that are beyond their control such as the franchisor, suppliers or the weather.
This pro-active, positive attitude and acceptance of responsibility for all that occurs in their franchise without blaming others is the hallmark of the successful franchise owner.
A versatile management professional with a broad range and depth of experience founding DC Strategy, Rod is considered one of the world’s leading franchise consultants with over 30 years at the forefront of franchising, licensing and business development in Australia, Europe, China, South East Asia, India and the United States.
As well as his role of Chairman of the DC Strategy Group, he currently serves as Chairman of Poolwerx (Australian Franchisor of the Year 2016) and is on the Board of several other national and international companies. He is also the Global CEO of Cartridge World, a 1000 store global imaging franchise network founded in Australia and now based in Chicago, and franchised in over 40 countries.