by Greg Snell
last updated 23/07/2009
Confessions of a Field Consultant
by Greg Snell
last updated 23/07/2009
One of the biggest frustrations franchisees have is when their franchisor consistently tells them that they are under-performing but can offer them no practical help in doing something about it.
One of the biggest frustrations franchisors have is when a franchisee is failing to exploit the potential of their area or territory and doesn't listen to or act upon the advice they are given. By under-performing, they are not just damaging their own business but reducing overall market penetration for their brand and offering competitors easy growth.
Many franchisors believe that if a franchisee fails to address performance issues then the only solution is to encourage them to exit the franchise, preferably at an early stage before their investment in their business is too badly damaged. I believe, though, that although some certainly reach the ‘point of no return' many are salvageable if the right disciplines are put in place. A ‘repair' mentality can often be more cost-effective and cause less damage to the brand than a ‘replacement' mentality - especially in these days when franchisees can be hard to come by.
Over the past 30 years I have worked with a number of larger franchises and dealerships predominantly in companies which have sales, service and parts departments. As an independent trouble-shooter, I was able to look at issues without existing relationships and franchisor/franchisee issues getting in the way. In my experience, prioritising those issues - and finding out what is really going on as opposed to what the franchisee wants the franchisor to know (or vice versa) - can deliver real results.
It is important to recognise that identifying problems within a troubled business takes time. I would initially spend as much as five days with each franchisee I worked with. Generally, I started by talking to their accountant first, then the franchisee then, depending on the brief, their staff and some customers. In this way I got a good feel for the numbers, the systems and procedures that were actually being used and the people involved. From this research I could prioritise the issues depending on the reward/cost of implementing solutions, as well as ease of implementation.
Typically, I have found there are around 10 separate identifiable issues in most businesses, so it's important to break them down into such bite-size chunks. In the following case studies, I'll outline some real-life problems and the outcomes we found.
Losing Market Share
Franchise A was a long-standing business but had seen its market share drop from 40% to just 10%. The franchisees had opened a second outlet and taken on another (non-competing) brand as well. The franchise employed 20 staff.
Research showed that there were no divisional budgets with sales/gross margins/cost or profit information. Staff did not trust the financial reports and there was no business plan. As one staff member put it, ‘Planning is terrible because we never know what we are doing next.' The sales prospecting system was apparently to make notes on the back of a cigarette packet and there were no formal sales meetings. The only interaction between outlets was at owner and sales manager level.
Staff felt that the franchisee was not providing direction or leadership and that they were having to drive the business while the boss spent time drinking at the club. ‘He had great people around him but slowly they have all left,' one commented. ‘Now his inadequacies are showing up.' The franchisee's wife had also left him after he compromised himself with a salesman's wife. The workshop manager and sales manager came in for criticism because of their lack of people skills.
As a result of the interviews and discussion with the franchisor and franchisee, the following actions were taken.
- The leadership issues were discussed with both the franchisee and his business partner. It was made clear that more was expected and this was (slowly) delivered.
- The workshop manager was replaced and the sales manager resigned soon after the report was issued.
- All divisions now have budgets, targets and KPI's. These are negotiated annually and reviewed monthly.
- Staff meetings are held monthly. Training was conducted on how to conduct effective meetings and a fixed agenda was set. Communication flow and direction are much improved.
- One branch was sold and the second franchise exited. This increased focus and freed up capital.
As a result, the franchisee has increased market share again in the retained outlet.
Plugging The Leaks
Franchise B had recently been acquired as a family business by a mum, dad and son. The business employed 7-8 staff and the family also brought good collective skills to the business. The son acted as manager and led sales, while mum was strong administratively and dad was more ‘hands-on' within the service department. The franchisor suggested a full review of internal operations when the new owners took over in order to get them off to a good start, and the franchisees co-operated willingly.
The review found, as the franchisor had suspected, that there were a number of areas where no procedures were in place or systems were not being properly followed. These included:
- New service requests were not being logged with vital information such as repair type or required repair time.
- Parts required were not documented and may not have been charged to customers.
- Time cards were not entered on to the job sheets and correct times may not have been charged to customers.
- Service staff notes were often very sparse, leading to customers querying accounts.
- Although staff had employment contracts they did not have job descriptions or accountabilities.
Under these circumstances, the potential for waste - if not actual fraud - was considerable. Systems were being bypassed and customers were uncertain what they were paying for. As a result of the review, major areas for improvement were easily identified. Staff were given clear responsibilities and limits; KPI's were determined for two or three major indicators in each area of the business and holes were plugged where ‘leakage' could occur. The new owners were able to transform the operation of the business and were sufficiently enthusiastic to look at acquiring a second outlet.
Another similar example to the above, where a husband and wife had recently bought an outlet, found that disorganisation rather than leakage was the big issue. Although Franchise C had the MYOB accounting software, it was not being used to manage the business. Systems were not computerised (or computerised systems were ignored), purchasing was haphazard, there was no management of work in progress, no measurement of KPI's and charge-out rates were some 10-25% below the competition. Great for winning business but, if low prices aren't matched by high efficiency, very bad for profitability. Unless the issues were addressed rapidly then the business would soon face major financial issues.
Many of these issues came to light during the staff interviews, and many related to the franchise's manager. He was thought to be ‘a great guy' but by his own admission he was disorganised when it came to paperwork, easily stressed, a soft negotiator and a person who avoided conflict - all bad traits in a small business.
Some of the remedies were:
- Immediately review charge-out rates.
- Use computerised systems. Introduce electronic job cards and link to MYOB.
- Authorise one person only to issue purchase orders.
- Introduce KPI's and have action plans to meet targets.
- Constantly review actuals against budgets.
- Train manager and consider using an external business coach.
A common saying in franchising is that when an existing franchise is sold to a new owner, profitability will only go up or down - it won't stay the same. Clearly, this is a business where having an enthusiastic new franchisee on board will have a considerable effect upon the profitability of the business and the franchisee's return on investment.
Preparing For Sale
My final example is Franchise D. A franchisee whose business was producing strong results under his leadership wished to follow other interests. His preferred exit strategy was to let senior staff buy into his business while retaining some investment himself; however, he wanted to carry out a ‘health check' first to ensure that the business would continue to operate successfully without his daily involvement.
The review found that, while the business might have performed well so far, there were huge tensions under the surface that were likely to emerge once the leadership provided by the existing franchisee was no longer there.
Staff reported that there was friction between the two managers of key departments, that stock levels were too high and that there was little transfer of knowledge from management to staff. Communication was poor and management meetings had been stopped because one manager always got upset when his department was criticised. This temperamental manager was one of the projected investors into the business under the new structure.
The company had a good record of retaining customers but a poor record of attracting new ones, and there was no new sales target. The premises looked tired and there was no formal business plan. It was not a recipe for a successful transition to a new structure - under this health check, the patient looked critical.
The first issue to be addressed was that of the temperamental manager. He recognised his issues when they were pointed out and given his desire to buy into the business was receptive to the need for change. He was booked on a suitable management course and his efforts to change were recognised and supported by the staff. Issues between the two managers were frankly addressed at a facilitated face-to-face meeting and a new working relationship ensued. Both of these initiatives were assisted through the application of proper systems within the company which reduced errors and stress.
A proper prospecting system with quote tracking was introduced and the sales team's ‘retain' focus complemented by a ‘gain' programme. This reaped measurable rewards and put the business on a sounder footing. A staff training programme was introduced to help staff upskill and transfer knowledge within teams. Staff and managers attended training programmes run by the franchisor.
Monthly management meetings were re-introduced with agreed KPI's and action plans. This improved communications and helped create a much more unified, effective and promising organisation. The owners and potential investors were able to look forward to a much brighter future.
Restoring Business Health
Although the examples given relate to one particular type of franchise, many of the issues apply equally in other companies too. A food franchise has its production teams and service teams and may employ many more people - both full time and part time. Even within small teams, the same strengths and weaknesses, the same short-cuts and frictions can arise. This applies even when the franchisor provides well thought-out and workable systems. People, after all, are only human.
Most of the issues I have seen over the years come back, in the end, to management. Often, franchisees can access funding, have the drive, the training and the enthusiasm to succeed, but lack the necessary skills when it comes to the consistent management of people, communications, disciplines and structure. Or they start off well on top of things but as the business matures they lose that on-the-ball quality that has got them to where they are. They take staff knowledge for granted, don't set the budgets or the KPI's and turn a blind eye to the little short-cuts people learn to take.
In these circumstances, it is often difficult for a franchisor - or for their regular field consultant - to effect change because they, too, are part of the furniture. The eye of an outsider - whether requested by a franchisor concerned about losing competitiveness or a franchisee concerned about their declining investment - can be a valuable tool in restoring a franchise's business health and efficiency.