How Do You Franchise THAT?
How to Make a Lot of Money as a Franchisee
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One of the most frequently asked questions that I hear, especially coming from my more entrepreneurial clients, is, “Why would anyone ever buy this franchise?”
This question is usually followed by a series of observations. “Anyone could do it.” “There’s nothing to this business.” “I don’t think this business can be franchised.” And of course, the final underlying question, “Why wouldn’t someone simply do this themselves?”
Their concern is a valid one. Some concepts are simply not well differentiated. Moreover, some of them have low barriers to entry.
So can a business that is not unique still franchise successfully? And if so, how?
The Mindset of the Entrepreneur
Whenever I hear these questions, my first response is to point to some of the undifferentiated concepts that have achieved high levels of success in the marketplace. “What about janitorial services—why have they been so successful?” Then I go through the list. Maid services. Lawn care. Carpet cleaning. Temporary and permanent placement firms. And of course, the list goes on and on.
The fact of the matter is, a significant number of franchise companies are in industries in which their products or services are not readily differentiated.
What these questioning entrepreneurs fail to understand is that, as entrepreneurs, they are the one group on earth that is perhaps the least suited to understand the mindset of the prospective franchisee.
The typical entrepreneur is, at least by my definition, someone who never saw a rule he or she did not want to break. And, in many respects, the entrepreneur is often the last person you would want to be a franchisee. The best franchisees are not the rule-breakers. And, in fact, the truly entrepreneurial are often the least inclined to buy a franchise.
The best franchisees are motivated adopters—people willing to accept some level of risk, but people who, nonetheless, are willing to follow the rules established by their franchisor.
But if the franchisee isn’t buying your “secret recipe,” what exactly are they buying?
Ultimately, what the franchise prospect is buying is a combination of two things: a strong value proposition plus a unique market position.
Developing the Value Proposition
If you are thinking about franchising a business that you feel isn’t particularly sexy or unique, chances are, you have already watched a number of your competitors come and go. Why did they fail, while you survived with a similar product or service? The answer is the system.
The system is the embodiment of all those things that make the ultimate difference between success or failure. Site selection. Lease negotiation. Advertising. Customer service. Branding. Positioning. Purchasing. Pricing. Merchandising. Hiring. Training. Managing. Quality control. Financial management. It can be found in everything from the products you buy to the way your people answer the phones.
When someone buys a McDonald’s franchise, they aren’t doing it because they want the recipe for the “special sauce” on the Big Mac. In fact, they probably aren’t doing it because they believe that McDonald’s serves the world’s finest hamburgers. But few would argue over the quality of their systems—which are among the best in the world.
The best companies not only have developed their systems, but they use those systems to ensure consistency at the consumer level.
And that is what your franchisees want to buy—a consistent consumer experience that has been proven in the marketplace.
And your job, as the franchisor of an undifferentiated concept, is to show the franchisee how to replicate your success. Through some combination of services and support, you need to teach your franchisee how to achieve what you have achieved. That will likely mean the development of training programs, operations manuals, site selection criteria, advertising guidelines and other elements of “the system” that will allow your franchisees to take advantage of the intellectual property you have developed over the years. Moreover, you will want to provide your franchisees with the benefits of your labor and your relationships—the brand, your purchasing power, etc.—that you have developed over the years. Combined, these elements constitute the value proposition that your franchisee will pay you for.
But the value proposition alone is not enough.
Positioning your Concept
Even the most mundane concept can work as a franchise if it can be replicated. But if your system does not have that special “sizzle,” you may have to work hard to sell it.
For those few concepts that are fortunate enough to be “first movers,” their first position in the market can be enough—assuming, of course, that they grow fast enough to maintain brand dominance. But for the rest of the franchisors out there, a value proposition alone will not be enough. The concept will need to be differentiated from others in the marketplace if it hopes to achieve any significant level of success.
Let’s take another look at McDonald’s. On its surface, especially in the early years, it was a simple concept—basically, hamburgers and fries with drinks. And for years after they started franchising, dozens of franchised competitors came and went. All, that is, except for a select few.
Burger King realized McDonald’s had staked out the “fast burger” segment in the market and knew if it were to compete with McDonald’s, it had to differentiate itself in the eyes of the consumer. So it adopted a position that McDonald’s could not attack: “Have it your way, at Burger King.”
The genius of this position was that Burger King had staked out a position to which McDonald’s could not competitively respond. Burger King’s operating system differentiated it from McDonald’s, and McDonald’s was not in a position to revamp its operating system to respond to this new threat. And Burger King prospered.
Over the years, more competitors came and went.
More than a decade later, Wendy’s was able to crack the “Big Two” using a different form of differentiation: marketing. At that time, both McDonald’s and Burger King were heavily promoting themselves to children. Wendy’s succeeded where others had failed by offering “old-fashioned” made-to-order hamburgers and promoting itself to an older audience, using an octogenarian spokesperson asking “Where’s the Beef?” and an offer that included “plenty of napkins”—which is not what the person feeding children may want to hear.
In order to succeed in franchising—especially if you are in a commodity-type market—you simply have to differentiate your concept from those of your established franchised competitors.
That differentiation can come at the operational level (as in the cases of Burger King), in the form of marketing (Wendy’s) or in a number of other forms. Some concepts differentiate themselves in the eyes of their franchisees by offering a lower investment franchise package (a double-drive thru hamburger operation is less expensive to build and operate than is a Burger King).
Others differentiate based on services: both high and low. Some franchisors tout their high levels of service. Some janitorial service franchisors, for example, will actually procure their franchisee’s customers—so all the franchisee has to do is to service the account.
Interestingly, others have taken just the opposite approach. Some carpet cleaning and postal service franchises got their start by promoting themselves as “the un-franchise,” touting minimal fees and minimal intrusion into the franchisee’s day-to-day operations.
Contractually, franchisors can differentiate themselves through a more liberal contract, through reduced fees or royalties (not a particularly good strategy, in most instances), through a bigger territory, or through different support services.
Be Best at Something
In fact, there are numerous ways for franchisors to differentiate themselves in the marketplace, even if they have a relatively undifferentiated consumer offering. But if you want to capture a long-term market position, you need to be perceived as being the best at something.
Retail consultant McMillan|Doolittle, in their groundbreaking work on the EST model for retail success, propose that a retailer needs to be the best at something in order to survive in today’s competitive marketplace.
The model, in grossly oversimplified terms, states that a retailer has to be best in one of five essential areas in order to “win” in the retail game:
- Biggest: a dominant assortment
- Cheapest: lowest prices
- Easiest: high-service orientation
- Quickest: fast-service orientation
- Hottest: fashion orientation
Moreover, the theory states that while retailers can choose to be two of these at once (biggest and cheapest, a la Wal-Mart), they will make a big mistake if they try to be more than two. They hold that the strategy of trying to be everything to everybody leads to a lack of position and a downward spiral in the market.
In franchising, especially when it comes to commodity-oriented concepts, many of these same principles apply. Over and above the need for a strong value proposition, the best franchisors will actively seek to command their desired position in the marketplace. You may find other things to differentiate your concept—or perhaps new ESTs where you can command the high ground.
One thing is for sure: If you don’t know how you want to be positioned in the marketplace, your prospects may end up being educated on your position by your competitors. And that is generally not a good strategy for sales success. For even more information on positioning, read "The Importance of Brand 'Sizzle.'"
[Mark Siebert Via Entrepreneur Magazine]
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posted by Kevin @ 4:28 PM
