Developing a Franchise System

by Simon Lord

last updated 04/08/2015

6 people who can make a franchise fail

by Simon Lord

last updated 04/08/2015

To succeed in franchising, you need good people skills as well as a good business model. Sadly, many new franchisors don't make the grade.

Grumpy FaceLet’s say you have a great business. You’ve developed it carefully, understand what drives it, and know how to reach potential customers effectively and economically. You have good cashflow, you’ve grown in the good times and survived the bad. Now you’re ready to take the next step and start franchising.

If you are a regular reader of this column, you know that it’s not a simple do-it-yourself process so you take advice. You appoint a good consultant, listen to them, give them access to the information they need, work with them on feasibility studies, business plans, manuals and create a sustainable franchise package.

Then you start promoting your wonderful new franchise opportunity. You get your first enquiries, maybe even appoint your first few franchisees – and then it all starts to fall apart. You aren’t attracting the right people, they aren’t signing up or aren’t getting going, and you’re finding yourself in conflict all the time. Despite all your care and attention, the franchise is failing. How could this have happened?

Put quite simply, it’s because one thing has been left out of the equation – you. You lack the most fundamental skill necessary to be a good franchisor: relationship management.

I had a lesson in this when I worked for the master franchisee of an overseas brand. He was a superb entrepreneur who had got a new concept off the ground in a somewhat conservative market, but as a people manager he was a disaster. He had a fiery temper and a tightness of pocket which caused huge hassles. Franchisees were on the verge of revolution before he had the sense to appoint a general manager who had all the people skills he lacked. With the GM as a buffer between the entrepreneur and the franchisees, the franchise thrived.

Note that, in this example, the problem was a master franchisee, not a franchisor. In other words, a successful overseas franchisor had actually selected someone who didn’t have the necessary skill set to manage the growth of the brand in another country. That’s hard to believe, but it happens.

Sadly, over the last 30 years I have regularly seen bright new franchises with everything going for them held back by the nature of the people promoting them. Here are some examples.

1. A business owner spent a lot of money creating a professional franchise package but never appointed a single franchisee. He wanted people who were clones of himself, but everyone he talked to failed to measure up. In fact, if he had found a clone, he would have fought with them non-stop – they would have had a huge streak of independence and bloody-mindedness.

2. A local entrepreneur prided himself on being a no-nonsense operator – great when it came to managing the manual labourers in his highly-successful business, but frankly rude when it came to dealing with potential franchisees and their professional advisors. He converted a couple of employees to under-achieving franchisees then gave up on franchising as ‘not being worth it.’

3. A good overseas franchise never got off the ground here because the master franchisee was looking for the ‘perfect’ franchisee – someone who would follow the system to the letter and was never difficult to manage. The franchise didn’t start to achieve its potential until the master franchise expired and the overseas franchisor appointed a local manager instead.

4. A new owner took over an existing franchise, attracted by the ready cashflow and potential for efficiencies in the supply chain. He thought that leading franchisees was like managing employees or directing managers – but he didn’t appreciate that franchisees need leaders, not dictators. The franchise fell apart.

5. A master franchisee understood how to run the business, but not how to promote it. They relied on whatever was supplied from overseas, which was not suitable for the New Zealand market. Franchisees started to ignore the big promotions and produce their own material, in breach of the franchise agreement. Eventually, they set up an independent group.

6. A new franchisor didn’t take time to build trust with his prospective franchisees. He was brusque with initial enquirers, believing ‘90 percent of them are tyre-kickers.’ He never followed up the information he sent out and took the attitude, ‘If they’re interested they’ll come back.’ They didn’t.

Any franchise specialist will recognise the above types and add more examples from their own experience. People problems have held a lot of good franchises back over the years.

So if you are serious about franchising your business, or becoming a master franchisee, ask yourself honestly if you have what it takes to be a franchisor? If it’s not one of your strengths, either don’t do it or appoint someone to manage the relationship side while you focus on what you do well. You’ll save a lot of time, energy and ­– just perhaps – your business.

This column was first published in NZ Business magazine, June 2015

Order a Print Copy
Order a Print Copy