Knowledge is power

Better-educated franchisors attract better franchisees. JASON GEHRKE

Jason Gehrke

By Jason Gehrke

This article first appeared on 23 September.

Education alone may not be a determinant of business success, but it can be an essential element in the overall combination of factors that come together to plan, launch and sustain a profitable financial enterprise.

Not surprisingly then, a commitment to ongoing professional development and educational qualifications are commonly used by franchisors as selection criteria to assess the likely future chances of success of potential franchisees.

Many highly successful entrepreneurs who start franchise systems have little or no formal educational qualifications. However just because they might not have been to university doesn’t mean they aren’t continually learning, and prefer instead to attend short courses and workshops, and read books written by other successful business people.

Furthermore, as their business develops, such entrepreneurs often surround themselves with highly-qualified talent because they are savvy enough to realise the limitations of their own skills and hire staff with the smarts to fill the gaps.

But equally, the use of education and professional development as selection criteria for franchisees could also be used by potential franchisees to assess what franchisors are worthy of their investment.

Studies in both the United States and Britain indicate that failure rates among start-up franchisors can be as high as 75% over 10 years – a business mortality rate not too dissimilar from commonly understood failure rates for independent small businesses (which is understood to be approximately 85% in five years).

This potential failure rate, combined with the severe consequences of system failure on its franchisees who lose a large portion of their investment, if not their entire business, would suggest that education on sound franchising principles and techniques is necessary for franchisors before and during the use of franchising to expand.

Yet all too often it is the case that business owners start franchising their concept, and then realise after they receive complaints from franchisees and problems emerge in the network that they don’t have the answers for everything and need to learn more about the business of franchising.

For example, important franchisor processes such as field support, site selection, financial benchmarking of individual and group performance, and franchisee selection are just a few areas where franchisors can flounder.

For those franchisor personnel with previous work experience in, and an understanding of the operations of large company-owned chains, a passing familiarity with these concepts overlooks the one key difference between corporate and franchised chains – the franchisee who has invested in the brand and expects to get a return on their investment. Managing and supporting franchisees is a world apart from managing and supporting employees in a company-owned chain.

It should be understood that franchising is not a business by itself, but a way of doing business that transcends the boundaries of business type and industry. Therefore a fundamental knowledge of the principles of franchising is essential for franchisors to be effective in their role of leading and growing their organisation, in addition to the specific industry-knowledge particular to their business.

An assessment of these two types of knowledge and proficiency is important for a franchisee to determine the viability of a long-term commercial partnership with a franchisor.

Not only should franchisees be encouraged to ask for more detail about the business qualifications and franchising experience of officers named in a company’s disclosure document, but they should also be considering the wider context.

For example:

  • What is the franchisor’s professional development policy for its staff?
  • In the last 12 months, what training programs (including conferences) have been attended by franchisor personnel who will be involved in supporting the franchisee’s business?
  • Were these internal or external programs?
  • If externally presented, what training organisation was used? If internally presented, what are the qualifications of the trainer?
  • What relevance do these training programs have in supporting a franchisee’s business?
  • Were the staff tested for competency at the end of the training program, and if so, did they pass?
  • What induction training (if any) are franchisor staff required to undertake prior to working with franchisees?
  • What qualifications and franchising experience do franchise support personnel have? (Given that officers of the franchisor are required to disclose their business qualifications and experience in the disclosure document, yet franchisees will most likely have a closer working relationship with other personnel in the business, this should not be an unreasonable question.)
  • What ongoing professional development is required of franchisor staff, particularly those in direct contact with franchisees?

Caught up in the excitement of becoming their own boss, a potential franchisee can easily view a franchisor through rose-coloured glasses, however asking some serious questions about the franchisor’s knowledge of franchising, and their commitment to learning, can be highly revealing.

Questions of this nature will be particularly useful to help distinguish one franchise opportunity above another if the business concept, investment level and other factors are similar. Many franchisees shop around for the franchise that suits them best, and often narrow their search to two or three businesses that may operate in the same market and be direct competitors of one another.

A franchisor’s demonstrated commitment to continual improvement through ongoing professional development might make all the difference between a potential franchisee applying for one system in preference to another. (And for that matter, if a potential franchisee is thinking about their business investment in this kind of detail in advance, it may actually make them a more appealing candidate to a franchisor as it demonstrates a thorough and planned approach to starting their business.)

Not only can a commitment to ongoing education and professional development make a franchisor more appealing to potential franchisees, it can also improve its long-term chances of survival and extend competitive advantages over its rivals.

Perfection in franchising is a journey, not a destination. Ongoing education of franchisor personnel makes that journey safer and more sustainable for both franchisee and franchisor.

 

Jason Gehrke is a director of the Franchise Advisory Centre and has been involved in franchising for 18 years at franchisee, franchisor and advisor level. He provides consulting services to both franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News & Events, Australia’s only fortnightly electronic news bulletin on franchising issues. In his spare time, Jason is a passionate collector of military antiques.

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