The new version of Street Smart Franchising is now available.  New changes includes “franchising in tough times” and the impact of the franchisor’s corporate culture on franchisees’ performance.

I recently participated in a panel discussion at the recent IFA Conference with attorneys Andrew Loewinger of Nixon Peabody and Joel Schweidel of Kahala Corporation about “must have” provisions in the franchise agreement.  In preparation for the presentation I started pondering the role of the franchise agreement in modern franchising.

I often hear the franchise agreement referenced in such terms as…

• a document which clearly capture the roles and responsibilities of both the franchisor and franchisee and define their legal relationship to one another
• the franchisor’s last line of defense against one or more angry or renegade franchisees

In addition, if a franchisor finds itself in a conflict situation with its franchisees, their agreement spells out what the franchisor could do in the way of legal action and default provisions.  However, it tells the franchisor nothing about the right thing to do.

I was recently watching a debate on YouTube about whether or not absolute “right” and “wrong” exists, author William Lane Craig, PhD in Philosophy, posed the following ethical dilemma.  He invited the audience to imagine for a moment that the German Army won World War II.  The Nazi regime then continued to exterminate anyone they considered unfit for their master race.  The Nazi propaganda machine effectively brainwashed all remaining survivors to believe these exterminations were necessary to strengthened the human race.  There was no on left on Earth to protest or say different.  Would the Nazi’s actions then become righteous because the Nazis declared it so and to the victor goes the spoils?  Or would their actions be immoral simply because some actions are ABSOLUTELY WRONG regardless whether not they are considered culturally acceptable.

For those of us who believe in moral absolutes, the franchise agreement should neither be considered “the final word” nor a source for moral guidance.  While in most situations, “right” and “wrong” may not be as clear as in the example Craig offered, we need to rigorously work to find that grain of absolute right and act accordingly, even if we find ourselves on the short end of what’s right.  

Franchisor leaders who have established a reputation with franchisees for being moral, fair, and just in their dealings will find they do not need to rely on the protection offered them under the franchise agreement.  In conflict situations, franchisees almost always engage them in productive, win-win problem solving.  Put another way, the same franchisees whom the agreement is designed to protect the franchisor from will circle around the leaders and support them.

In a recent discussion, Greg Nathan of Franchise Relationships Institute defines fairness in 3 ways:

1. Consistent with the franchise agreement
2. The right thing (moral and just)
3. Financially sound (taking into account the business considerations of all parties).

In conclusion, the final protection of the brand ultimately lies in the franchisor’s well-earned reputation for fairness and trusting relationships, not in the carefully crafted clauses of the agreement. 

In the beginning of our last franchisee recruitment training academy  we went around the room and asked each participant, “What one thing do you want to take away which would make these two days together worthwhile?”

One thirty-something young man said, “I want to learn more about buying behavior so I can tell between who is a real buyer and who is wasting my time.”  A thirty-something woman simply added, “I want to close more deals.”

And what professional salesperson wouldn’t want to waste less time and close more deals?  But what if franchise development professionals are not called to be professional salespeople. 

 Random House Dictionary defines selling and recruiting the following ways:
Selling: “To transfer goods to or render services for another in exchange for money.”
Recruiting: “To strengthen or supply with new members.”

Recruiting comes from the French word “recruiter” which means “to strengthen.”

Selling comes from the old English word “sellan” which had basically two meanings: to exchange for money and to betray.  I am who believes franchisors who operate from a “franchise sales” paradigm employ both of these meanings at the same time.

The goal of selling is to close a deal.  The goal of recruiting is increase the franchisor’s competitive position by adding to its talent pool and bench strength.  Recruiting requires the recruiter to distinguish those candidates who will predictably add value to the system from those who will predictably deplete the system by requiring the franchisor to divert more resources supporting them than the franchisees contribute in royalty dollars.  Yet the franchise salesperson is often rewarded as if each franchisee recruited adds the same value.  This sets up a scenario where the franchise salesperson can win in the short term while poorly performing franchisees and the franchisor both suffer long term.  He is where “sellan” as in “betrayal” kicks in.

Franchisors operating from a sales paradigm cling to a false belief that all royalty dollars are equal.  Those who operate from a recruitment paradigm correctly understand that a peak performing franchisee pays more in royalties and consumes fewer resources than average, meaning their royalty dollars offer the franchisor a higher margin than under performers and a better return on resources.

At the end of our intense two-day Mastering Franchisee Recruitment program, we doubled back around the room to listen to what participants took away from the program.

The thirty-something man said, “I thought I wanted to size people up quicker so they don’t waste my time.  What I learned was that I am so focused on my own agenda I don’t listen for their wants and needs.  I saw I am wasting their time.”The thirty-something woman said, “I wanted to close more deals.  Bug I learned I am so concerned with closing them I forgot to get to know them as a person.  And that’s not what I stand for or who I want to be known as.”Dr. Phil said, “There are two types of people: those who get it and those who don’t.”  Franchisors need to train and retain franchise development professional who do.

I have seen the future of negative franchisee validation and franchisors aren’t ready.  I’m not ready.  My jaw hit the floor.  I forwarded a recent link to FPG Consultants of damning video created by a disgruntled, failed franchisee of a large home service franchisor and posted on YouTube.  I received back a steady stream of one word responses like, “Wow!” “Geez!” and “OMG!”

The two-minute video computer animation shows a running dialogue between two characters, one representing the franchisee and the other the franchisor.  The story starts with the franchisor promising the franchisee a better life and includes other franchise sales techniques used by the franchisor during the franchise sales process.  The video continues with the now operating and struggling franchisee telling the franchisor, “I am following the system and the system isn’t working” and begging the franchisor for more ideas and assistance.  The franchisor responds with “you need to spend more money” and “you are not following the system.”  When the franchisee eventually goes out of business, the franchisor character forces the franchisee to sign to what amounts to a “gag order” in consideration to get out of future financial obligations and pasts debts.  Lastly, the video directs viewers to the franchisees’ website www.(the franchisor’s name)sucks.com.

Once there, visitors can read threatening emails and mail correspondence between the franchisee and franchisor.  In addition, the franchisee posted the actual confidentiality agreement the franchisor requires failed franchisees to sign where franchisees promise to never make another negative comment to any franchise candidate about anyone within the organization or the opportunity itself in exchange for forgiveness of debt.

If you are a franchise candidate looking to invest your entire life savings, and you know these agreements between the franchisees and the franchisor exist, why would you trust any positive feedback any franchisee gives you?

If that isn’t damaging enough, this disgruntled franchisee posts past franchisee testimonials the franchisor used in print advertising to promote their franchise opportunity.   Next to the testimonial, the franchisee posted the date that the franchisee poster child went out of business.  This sends the message to all franchise candidates, “Even if you hear positive feedback today, don’t assume these franchisees are going to be around tomorrow.”

Franchisors have labored under the false notion that if their franchise agreements are strong enough, they will protect their investment and maintain control over their own destiny.  While the scales of justice often tip in the franchisor’s favor, the scales of public opinion will usually tip towards the franchisees.  The internet and social media are great leveling forces.  One single failed franchisee with nothing more to lose and a lot more to say has a world-wide audience and at any moment can put a heavy thumb on the scale.  Ultimately, these forces will work together to entice franchisors and franchisees to work together and problem solve rather than damage the brand they both represent.  But they may need to learn a hard lesson first.  The greatest protection a franchisor has lies within how consistently the franchisees produce strong financial returns, how readily franchisors own their role in the results franchisees produce, and how well they listen to each other’s concerns and engage in win-win solutions.

Stockholm Syndrome is the term psychologists coined to describe the phenomenon which occurs when hostages start sympathizing with their abductors.  The poster child for Stockholm syndrome is Patty Hearst, daughter of billionaire media tycoon Randolph Hearst.   For those who are too young to remember, In 1974 19-year old Patty Hearst  was kidnapped by the Symbionese Liberation Army and held for ransom.  Sometime within her 57-day captivity, she joined their ranks, picked up an automatic weapon and robbed a bank with them.

I believe some minor strain of Stockholm syndrome is evident in franchising.  It occurs when field consultants make franchisees’ issues their issues and join the franchisees’ latest crusade against the franchisor rather than representing the franchisor’s issues in the field.

I think field consultants have the toughest and loneliest job in franchising.  Many (when they aren’t working alone in their home offices) live out of a suit case, face long stints on the road, eat a steady diet of mediocre restaurant food, and at the end of a long day, crash at some 3-star, limited service hotels.  Their primary social network are the franchisees they serve.  They spend far more time with franchisees than they do with their colleagues in the corporate office.  Sometimes, rather than assimilating to the franchisor’s corporate culture and being steeped in the franchisor’s concerns, they assimilate to the franchisees’ culture and adopt the franchisees’ concerns.  And why wouldn’t they?  That’s where they are spending most of their time.  When we work with franchisee field support teams, we often hear that they feel like orphans or forgotten members of the team. 

Given the importance of their job, franchisors need to pay attention to the social needs and emotional hygiene of their hard-working, overlooked, and under appreciated operational support field staff.  They should consistently reach out and give them a solid experience of being a contributing member of a bigger team rather than being marooned on an island.

CNBC recently aired a 60-minute documentary called Behind the Counter: The Untold Story of Franchising, which took a look at how franchising works mostly from the franchisees’ perspective.  They focused on 5 Guys, Camp Bow Wow, Cold Stone, Dunkin, and the new P & G brands, Tide Dry Cleaners and Mr. Clean Car Washes.  It was fascinating to me to watch a smart, business-savvy reporter like Darren Rovell ask questions about why franchisors do what we do.

During the documentary, one CEO was grilled pretty extensively on what Darren Rovell considered to be inconsistent results of franchisees and high failure rates.  The CEO created some distance from these failed franchisees by making such comments as, “They didn’t follow the system,” and “We can’t run their businesses for them.”

It was clear the reporter saw the totality of franchisees’ successes and failures as different results which occur within one system.  The CEO saw franchisees’ successes as “the system working” and franchisees’ failure as “a failure to work the system.”  This exchange made me take a pause and reflect on the question, “What is the system, really?”  Does The System merely describe the franchisor’s operating system or does it include everything the franchisor and franchisees do and don’t do which impacts the franchisees’ results?  Does The System include the wide range of franchisees’ results (including failure) or does it merely include franchisees’ successes?

I remembered a book I read by Peter Senge called The Fifth Discipline, which altered the way I look at systems.  According to Senge’s way of thinking, The System would house all the cause-and-effect relationships, actions and even inactions which work together to produce the broad spectrum of franchisees’ results.  All of the below would be part of The System.

• The franchise sales people and process which attracted and awarded both the successful and unsuccessful franchisee
• The franchise salespeople and process which failed to recruit other franchise candidates.
• The pressure franchise salespeople feel to approve a marginal candidate because they aren’t hitting growth objectives
• How first time business people feel when they evolve from a “pay check” mentality to a “profit mentality”
• The cost of financing and expansion capital
• What is and isn’t taught during training.
• The natural tendency of entrepreneurs to resist operating systems designed by third parties.
• Everyday breakdowns the franchisor, franchisee, and suppliers experience as a result of doing business together
• Friction in the franchisee-franchisor relationship
• Why customers do and don’t buy products and services franchisees offer.

Simply put, Senge’s believes The System includes everything that does and doesn’t occur, distinguished and undistinguished, accidental and intentional, which work together to eventually determine whether or not the franchisees’ cash register rings.

There are basically two types of partnerships: those that stink and those that are great, with those that stink apparently far outnumbering the other.  As a result, many franchisors go as far as discouraging franchise candidates from forming partnerships during the recruitment process.  “You can do it yourself,” they say.  “Why would you ever want a partner?”

Because of the synergy frequently created by great partners’ complementary skill sets, often a committed partnership will outperform franchisees who go it alone.  Therefore, Franchise Performance Group is not against all partnerships, just the stinky ones. 

The quality of an existing operating franchise partnership is almost always designed to be that way from the beginning.  Great partnerships are like the successful married couples who had dated for three years before they got married, having and surviving the tough, “How many kids do you want?” pre-marital conversations.   As a result, they enter into matrimony with their eyes wide open and with carefully managed expectations.  On the other hand, stinky partnerships are like the couple who met at the airport bar and decided (after a few belts) “they were meant to be together” and it thought it would be a great idea to hop a red eye to Vegas and get married at an “off the Strip” casino chapel by some unshaven black jack pit boss with bloodshot eyes and smoking unfiltered Camel cigarettes.

The mistake most franchisors make is they neither take the time nor ask the questions necessary to predict the likelihood of success of the partnership.  Prior to awarding any partnership a franchise, the franchisor should probe the key areas below and listen intently on how the partners respond. 

If a franchisor doesn’t hear intelligent, well-reasoned responses to the franchisor’s questions regarding these areas of concern during the franchisee recruitment process, they should know upfront the partnership is positioned to fail.  The franchisor then has a choice to make: 1. Run like the wind or 2. Demand the partners think their partnership through and create a formal partnership agreement addressing the areas above and submitting it to the franchisor for feedback.

Each year, the best thought leaders in franchisee recruitment gather together for a couple of days to discuss what is and isn’t working regarding franchise sales.  My strategy for attending these conferences aside from learning additional best practices and networking for new clients, is to also determine what is changing.  For instance, I ask myself, “What is being emphasized which wasn’t in the past?” and “What was emphasized in the past which seems to have disappeared today?”  Here are my answers to those questions.

1. Those thought leaders who see it as the franchisee recruiter’s role to determine the candidate’s quality of fit and likelihood of success appear to be winning the philosophical battle over those who advocate “Sell everyone and let God sort’em out.”  Banks are paying more attention to the franchisees’ ability to succeed and repay loans, pushing franchisors to do the same.  The hard charging, hard selling franchise sales animals are either hiding out, laying low, or becoming extinct.
2. There is a greater emphasis by franchisors to protect the franchisor’s corporate culture.  While this was always a hot topic among CEOs, corporate culture never appeared to be a major concern of the franchisee recruiters until now.
3. Much more attention was being paid to the relationship and impact of franchisees’ performance and unit level economics on franchisor’s ability to grow. 
4. The credit crunch seems to be driving a “back to the basics” approach to franchising.  Banks are holding franchisors accountable for better loan performance, meaning better franchisee performance.
5. There is greater awareness that the franchise sales process needs to evolve from “mostly conversation” and “franchise salesperson as gatekeeper of information” mentality to “content is king” and “franchisee recruiter is the ambassador of the brand and facilitator of the investigation process.”  More and more of the franchisor’s story and recipe for success is being demonstrated through multi-media content rather than transferred through conversation.
6. Franchisors are starting to pay more attention to franchisor economics.  Darrell  Johnson, CEO of Frandata emphasized that not every royalty dollar paid to the franchisor has the same margin attached to it.  Struggling franchisees consume more of the franchisor’s time, money, and financial resources than successful franchisees while contributing less.  In these tough economic times, more franchisees and franchisor’s struggle.  Struggling franchisees need help, which means franchisors may need to invest more money in support resources at a time when they need to be tightening their belt and conserving cash.  Poor recruitment choices become more evident and detrimental to financial resiliency of the franchisor.
7. As a cost-cutting measure, more franchisors appear to be considering outsourcing franchisee recruitment to professional recruitment teams who work more on performance-based compensation.
8. Greater need of franchise sales specialty CRM and marketing systems such as Process Peak, Captivate, and Emax.
9. Although each year over 40% of franchisors being mystery shopped discover they never follow up on their mystery leads, their number one concern still seems to be lead generation rather than franchise sales processes and skill development for recruiters.
10. More franchisors appear to be using Item 19 Financial Performance Representations.  While I’ve heard only about 30% of franchisors publish a FPR, about 80% of those attending our Mastering Franchise Sales 3-hour training workshop did.
11. More franchisors seem to be using behavior profiles and values assessments to get a clearer picture of who franchise candidates are, further demonstration the franchisor’s greater concern with the franchisees’ fit and likelihood of success.
12. 2010 will spell the beginning of the end of franchisor mediocrity.  In order to thrive, franchisors are need to commit themselves to master the business of franchising which can be defined as recruiting, training, developing a cohesive community of peak performing franchisees.

 And one bonus tip.  If you attend a conference like this, don’t carry around notepad with a black leather binder like I did.  It might get picked up by accident when your back is turned and then you have to write blog posts from memory (which is never a great idea.)  I should have learned my lesson from the black Samsonite luggage set I once purchased and no longer use for exactly the same reason.

Franchise Sales Tipping Point E-Book

Historically, franchisors thrive during recessionary times.  In the past candidates would seek business ownership as a career option in bad times than when times were good.  However, this recession appears to be different.  What’s worked in the past does not seem to be working as well now.  Why?  Joe Mathews, Founding Partner of Franchise Performance Group (FPG), believes we are entering into a new time where the old rules no longer apply.

Mathews, co-author of Amazon’s best-seller on franchising, Street Smart Franchising just released a new e-book co-written with fellow franchise consultant Thomas Scott that documents the new franchise sales winning formula for this new economy.

Franchise Sales Tipping Point: 10 Keys to Creating a Breakthrough in Franchise Sales is available as a free download by visiting www.franchiseperformancegroup.com.

Mathews asserts, “Yesterday’s winning formula is tomorrow’s failed strategy.  The franchise buyer has changed the game forever.  Franchisors need to change with the game.”

Mathews, a 25-year franchise sales veteran, has worked closely with such iconic franchise brands as Subway, Great Clips, and Snap on Tools.

“After 25 years of studying franchise sales, we know from time to time, sudden shifts occur which can derail franchise sales programs,” said Mathews. “Franchisors who adapt to these changes first often experience a huge advantage over their competition.  The ten keys outlined in this e-book will alert franchisors about what they need to do to stay ahead of the new curve.”

Co-author Thomas Scott is a former franchisee, franchisor and franchise marketing consultant specializing in franchise sales lead generation, pr, social media, web development and franchise marketing systems. He helped such brands as Showhomes Home Staging, Planet Beach, and Computer Explorers build brand awareness and generate engaged franchise leads.

About The Franchise Performance Group
The Franchise Performance Goup, founded by Joe Mathews in 2002, has worked such iconic chains as Subway, Great Clips, Meineke, Snap on Tools, and Dunkin Donuts.  Mathews specializes in the area of franchisee recruitment.  He is a regular presenter at IFA conferences and is an instructor with the ICFE (Institute of Certified Franchise Executives).  Mathews is author of four books, Street Smart Franchising with Don Debolt and Deb Percival, Franchise Sales Mastery and The Meaning of Life Project.

For more information, visit www.franchiseperformancegroup.com

Phone: 860-567-3099

Email: Joe@FranchisePerformanceGroup.com

Click here for a free download of the E-Book

When discussing franchise development best practices at events such as the recent Franchise Update Leadership & Development Conference and IFA Conference, you hear franchise professionals throw around terms such as “franchise sales,” “franchise development,” and “franchisee recruitment.” If you were to examine their core philosophy on how to best expand a franchise network, you would find professionals seem to fall into two separate and distinct camps: Recruitment and Sales. Both parties maintain their philosophies are superior to the other.  Sales seems to be the dominant philosophy of the moment.

In this blog we distinguish the differences between these philosophies, and see which philosophy produces the best results and is most consistent with the long-term, best interest of franchisors and franchisees.

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