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WHAT MAKES GREAT FRANCHISEES TICK?

by Greg Nathan,
last updated 16/04/2015

Aug 2011 - The latest findings from the Franchise Relationships Institute show that having good family and social support is a major predictor of franchisee success. Greg Nathan outlines this and the other findings

Behind every great man stands a great woman, goes the saying, but when it comes to business then great franchisees need rather more than that. Recent research found that when it came to predicting which franchisees perform best, the key characteristic by a long way was Family & Social Support. In fact, this was three times more powerful in predicting performance than any of the other characteristics measured, including practical intelligence, service orientation, sales potential and drive for success.

Family & Social Support was defined by the research as ‘emotional support provided by friends and family and the extent to which there is a stable family environment.’ The finding is consistent not only with decades of social research showing the benefits of strong social support for a successful happy life, but with the comments of many franchisors who have learned from experience that if a potential franchisee’s partner or family are not supportive then the business – and the relationship – will almost certainly struggle.

This was just one of many findings to come out of the research which set out to establish what factors other than the system itself really contribute to franchisee success. The study included 32 Australian and New Zealand franchise systems that had been operating for at least five years, had a network of at least forty franchisees and had a sound reputation in the franchise sector. 890 franchisees of participating franchisors completed a questionnaire with 165 questions covering everything from background information to skills and attitudes. Franchisees were also asked to rate the success of their current business and any previous businesses they had owned, as well as their current satisfaction ratings with aspects of their franchise system.

Franchisors were asked to complete a questionnaire rating the same franchisees (without having access to the franchisees’ responses) which had ten specific rating scales relating to franchisee performance in three areas:

Financial performance - measured by profitability and sales benchmarked to the rest of the group, sales compared to site potential, and grasp of financial issues.

Customer focus - measured by local area marketing activity and customer service.

Cultural fit - measured by trustworthiness, compliance to systems and participation in meetings.

The resulting findings threw up some very useful information not just for the franchises involved but for anyone looking at buying a franchise. While choosing a franchise with a good system and good prospects is clearly vital for any business buyer, the research helps potential franchisees understand the other factors involved in becoming a top performer.

Why Do Franchisees Buy?

Franchisees were asked to rank, in order of importance to them, six possible reasons why they chose franchising as a career option. These were then analysed according to first preference rankings. The percentages ranked as a first option are as follows:

Have more flexibility and life balance 31%
Build more personal wealth
22%
Have greater control on how I do things 15%
Have more security and stability 14%
Achieve a personal challenge 
13%
Be able to work with my family 
5%

 As can be seen, ‘flexibility and life balance’ was clearly the strongest motivator followed by ‘building more personal wealth’. This goes against a common assumption that franchisees are most interested in making money and highlights the need for franchisors to look for opportunities to support their franchisees’ aspirations for more flexibility. It is also a reminder for franchisors not to underplay – and for franchisees to believe – the realities of long hours and hard work when building a business. If this is not understood, it may lead to later disappointment and resentment that can only demoralise a franchisee and undermine their performance.

Does Motivation Influence Later Performance?

The research also looked to see if there was any significant relationship between a franchisee’s primary motivation to invest in the franchise and their actual performance as rated by their franchisors.

A significant positive relationship was found between franchisor ratings of performance and the motivations:

  • ‘Have greater control in how I do things’
  • ‘Achieve a personal challenge’

On the other hand, a significant negative relationship was found between franchisor ratings of performance and the motivations:

  • ‘Have more security and stability’
  • ‘Be able to work with my family’

Interestingly, a significant relationship was found between people who are mainly motivated by’ building personal wealth’ and their level of satisfaction with the business. The stronger a person’s financial motives, the less satisfied they tended to be with the sales and profit performance of their franchise.

In summary, then, there is evidence to suggest that franchisees are likely to be better performers if they say they are primarily motivated by having more control over the way they do things or wanting to achieve a personal challenge. Franchisees who say they are primarily motivated by the desire to have more security or stability or to work with their family are more likely to be worse performers. Note that, as described above, a supportive family is vital to success and working together can be very successful – it’s just that if working together is a  new franchisee’s primary reason for buying the business, they are not likely to perform as well.

Impact of Work Experience

With up to 80% of franchises advertising ‘no experience necessary’, we were curious to see whether there was a relationship between a franchisee’s work background and their performance in the business. Franchisees were therefore asked to select from the following list the type of work they were mainly involved in prior to buying their franchise:

  • Teaching
  • Customer service
  • Administration
  • Selling
  • Managing People
  • Skilled manual work
  • Unskilled manual work
  • Professional analytical work
  • Emergency services, nursing or the military
  • Student
  • Other

Analysis showed that franchisees whose work had involved managing people performed significantly better on franchisor ratings of performance. Those involved in skilled manual labour performed worse on franchisor rating of cultural fit and customer focus but, interestingly enough, they were equally competitive on financial performance. There were no differences to support the myth sometimes heard in franchising circles that ‘teachers make poor franchisees.’

Impact of Prior Business Ownership

Many people who invest in a franchise have prior business experience and in our sample 23% of franchisees indicated they had previously run their own businesses.

A significant relationship was found between self-ratings of success in their current franchise and self-ratings of success in a previous business. People who indicated they had run their own business before rated the success of their current franchise higher than those who had not been in business before. This may indicate that they had a more realistic understanding of the difficulties involved in running a business.

However, franchisees with previous business experience performed significantly worse on the non-financial franchisor ratings of performance (particularly trustworthiness), customer focus, cultural fit and whether the franchisor would select them again. The more successful these franchisees rated their previous businesses, the worse they were rated by franchisors as constructively participating in the current franchise. There was, however, no relationship found between a person having previous business experience and ratings of financial performance.

In other words, people who have run a business prior to going into a franchise are more likely to believe they are successful in their current franchise. But they are also more likely to have difficulties in their franchise relationships, both with their franchisor and fellow franchisees. Franchisors should be extra careful in measuring cultural fit with people who have run their own business. This would especially include cases where independent operators are converting to a franchise.

Predictors of Performance

Can you predict in advance how a potential franchisee is likely to perform in any given area? This is one of the aims of the Nathan Profiler, an easy-to-use but scientific system we developed several years ago for improving the efficiency and success rate of franchisee selection procedures. The findings of this latest research have been incorporated into the latest generation of the Profiler (see below).

As part of this research, the 890 franchisees were asked to respond to 134 statements by deciding the extent to which each statement was:

  • Definitely like me
  • Like me
  • Unsure
  • Not Like Me
  • Definitely not like me

These statements and the 17 psycho-social scales to which they belonged had been developed from previous pilot research and looked at:

  • Business Acumen
  • Computer Literacy
  • Personal Organisation
  • Personal Presentation
  • Family & Social Support
  • Co-operation
  • Practical Intelligence
  • Communication Skills
  • Stamina
  • Emotional Resilience
  • Service Orientation
  • Team Leadership
  • Integrity
  • Sales Orientation
  • Drive for Success
  • Optimism
  • Openness to Growth

Analysing franchisee scores on these scales and relating them to franchisor ratings of franchisee performance showed that, as we have seen, Family & Social Support was three times more powerful in predicting performance than any other scale. Other scales with a high predictive ability were:

Optimism – the tendency to maintain a positive outlook and expect the best.

Communication Skills – the ability to communicate clearly and be comfortable mixing and networking with others.

Emotional Resilience – emotional stability and the ability to cope with stress, frustration and disappointment.

Reliability – the extent to which a person is straightforward, presents information accurately and does not take liberties.

Co-operation – the ability to tolerate and work with other people for the good of the group and be willing to comply with policies and procedures.

Business Acumen – having an interest in the world of business and being comfortable working with financial information.

The other eleven scales also showed some predictive ability in specific areas but not as strongly as the above scales. Also, some scales were more predictive of performance in different franchise systems depending on the nature of the business and the franchisee’s work. For instance, in franchises requiring face-to-face sales (such as financial services), Sales Potential and Drive for Success were predictors of performance, while these attributes showed no relationship to performance in other types of businesses.

Is There A Difference Between Men & Women?

There is a trend in franchising in Australia to encourage greater female participation in franchising, so we were interested to see how the women in our sample performed compared with the men.

Women performed significantly better on franchisor ratings of customer focus and cultural fit, but not financial performance. While there was a trend towards men performing better in the financial performance areas, this was not statistically significant.

Generally speaking, then, we could say that using our three-part definition of franchisee success (financial performance, customer focus and cultural fit), women tend to make better franchisees.

Do Age & Tenure Make A Difference To Performance?

Because baby boomer franchisees are increasingly moving towards retirement and younger generations are starting to take up franchisee roles, we thought it would be important to look at the influence of age on performance.

Younger franchisees performed significantly better than older franchisees on all franchisor ratings of performance except for profit performance, where there was no difference. Mirroring this trend, franchisees who had been longer in the business ranked significantly lower than newer franchisees on franchisor ratings of performance except for sales performance, where they were clearly stronger. In other words, newer franchisees performed better in most areas except for sales. This is likely because many of the newer franchisees would not yet have had a chance to build a base of repeat customers.

What Do Franchisees Think Drives Success?

While the above analyses have focused on significant findings related to franchisor ratings of franchisee success, what attributes do the franchisees themselves believe are most important? To find this out, 725 franchisees answered the following open-ended question: ‘When considering your performance as an operator of this business, what three attributes do you believe are most important to your success?’ The five most important rated by all franchisees, in order of importance, were: 

Position

Attribute

Sample Responses

1.

Being customer-focused

Customer service, knowing what the customer wants, customer satisfaction, call-backs/follow-up, solving customer complaints

2.

Being able to lead and motivate people

Good relationship with staff, leadership, recruitment of staff, staff encouragement, pleasant work environment

3.

Delivering on the brand and the product

Belief in product, quality of work, knowledge of product, professionalism, technical skill, having high standards

4.

Being well-organised and reliable

Being reliable, organisation, punctuality, time management, discipline

5.

Having clear goals and a belief in your ability to succeed

Individual drive, goals, dedication, self-belief, determination, desire for success, confidence, passion

We then looked at the responses of 137 franchisees who rated their businesses as being ‘very successful’ (as opposed to ‘moderately’ or ‘not very’ successful). They rated the top five attributes differently – note that for the most successful franchisees, being organised was not as important as having a strong work ethic: PAUL set as table

Position

Attribute

Sample Responses

1.

Delivering on the brand and the product

Belief in product, quality of work, knowledge of product, professionalism, technical skill, having high standards

2.

Having a strong work ethic and being focused on the business

Work ethic, dedication, commitment, focus on the business, going beyond

3.

Being customer-focused

Customer service, knowing what the customer wants, customer satisfaction, call-backs/follow-up, solving customer complaints

4.

Having clear goals and a belief in your ability to succeed

Individual drive, goals, dedication, self-belief, determination, desire for success, confidence, passion

5.

Being able to lead and motivate people

Good relationship with staff, leadership, recruitment of staff, staff encouragement, pleasant work environment

Differences

It would appear that franchisee attributions of what drives success are different in emphasis from franchisor ratings of performance.

Franchisees tend to believe that operational factors such as hard work, customer service, staff management and having strong drive make the greatest difference to their performance. These factors are, of course, important, but their practical and immediate impact on performance may camouflage other subtle and more important factors.

For instance, the results of this study highlight the importance of less obvious social attributes in differentiating high and low performers. These include social factors such as family support, communication skills and the ability to co-operate with others as well as internal attitudinal factors such as optimism, emotional resilience and reliability. Business acumen and computer literacy would also appear to play a more important role in performance than franchisees may realise.

Profiling High Performers

An earlier 2003 study conducted by the Franchise Relationships Institute suggested that 13% of franchisees could be categorised as Low Achievers – ie. they have a high likelihood of failing or are so difficult to deal with that they should not have been granted a franchise. A further 23% were Inconsistent Performers who require significant time and support from the franchisor to keep going. Most franchisors report that these franchisees, the bottom third by performance, took up two-thirds of the franchisor’s time and resources for little return. Think of the positive impact on a franchise system if that time and effort were invested in the 40% of Steady Performers or the 24% who are High Achievers.

That thought was one of the drivers behind the development of the Nathan Profiler, a professional, user-friendly method for assessing the attributes of potential franchisees against known predictors of success which is now being used by several of the best-known franchises in New Zealand. Traditional personality tests have been found to be poor predictors of business performance because they do not measure the factors that impact on business success. By contrast the Nathan Profiler measures the crucial but often overlooked indicators outlined above – including Business Acumen, Computer Literacy and Family Support.

Of course, success in franchising depends on many factors. These include luck, territory, financial and market forces, as well as a franchisor’s own training and business systems. However, as the above research shows, there are also factors within a franchisee’s own personality and circumstance that contribute greatly to their ultimate performance. By measuring these in advance, franchisors can appoint new franchisees in the confidence that they have every chance of succeeding.

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