Franchising fights back from recession, but performance gaps keep many companies from expanding
By Joe Mathews and Joe Mathews
“Franchise Sage” Darrell Johnson, CEO of FranData, has played an integral role at the past five Franchise Update’s Franchise Leadership and Development conferences, which is to look at the key economic indicators and predict what it means to franchisors.
Each year, optimistic attendees joke that Johnson, the consummate realist, “sucks hope out of the room” with extremely detailed, accurate, and consistently spot-on economic forecasts. Hope, Johnson implies, is a lousy franchise development strategy.
This year, at the FLDC in Atlanta, Johnson predicted ongoing economic difficulties for the next three years regardless of the political climate. That means continued struggles for franchise systems to recruit new franchisees and improve unit-level economics.
The silver lining? Skilled franchisors whose franchisees perform exceptionally will still thrive even in this weak economy. Perhaps this is why small business confidence remains strong. As in all recessions, people strongly consider business ownership, including franchise ownership, and banks are slowly beginning again to lend to driven franchise owners with operationally excellent businesses.
There’s the rub, though: Franchisors have to consistently perform at high levels.
The days where the rising tide of the economy kept mediocre franchise concepts afloat are long gone. As Franchise Update Publisher Steve Olson said at the conference, “Franchise companies are in danger of missing opportunities to grow because of gaps in performance.”
Franchise Performance Group agrees, and as students of behavior, we also know that breakthroughs emerge from breakdowns. Franchisors can judge the magnitude of the breakthrough possible by the size of the breakdown they are currently in. While improvements often come from adoption of new practices or techniques, seismic breakthroughs come from system reinvention. It’s time for many franchisors to acknowledge their franchise development and operational breakdowns and reinvent to pave the way for organizational breakthroughs.
Our list of takeaways and breakthrough ideas from this year’s Franchise Update Leadership Development Conference in Atlanta:
• Franchise Sales Cultures are Out and Operational Excellence is in. Smart franchisors abandoned the idea “whoever sells the most franchises wins.” They have come to the conclusion that franchising is basically a two metric business: franchisee profitability and franchisee satisfaction.
• Lead count is out and the number of engaged franchise candidates in the pipeline is in. Franchisors used to say, “It takes 100-200 leads to find a buyer.” Smart franchisors realize it only takes one lead to create a buyer. Smart franchisors are focusing on “Buyer generation strategies,” which include offering buyers more substantial and transparent content before requiring them to come out from behind the computer screen and throw their hat in the ring.
• Watch Bill Knight, VP of Development from Chem-Dry. He gets it. His presentation was among the best we’ve seen at conferences. Chem-Dry has managed to open over 100 new units a year, dominating its competition by thinking strategically about lead generation, using brand storytelling and mastering franchise recruiter skills and pipeline management. Knight had an entire room of recruiters nodding in agreement as he gave a detailed and transparent walkthrough of how he drives results. Knight is a perfect example of what it takes to bridge the performance gap in today’s market. Expect to hear more about him in the year to come.
• Attorney Lane Fisher is to Item 19 as Columbus was to the notion of a flat Earth: Fisher elevated the item 19 conversation from “should I or shouldn’t I?” to “How do I best segment the data to best tell our story to our target franchisees?” He advocated Item 19 information on both website and in advertising. A few years ago, the mere suggestion of such a thing would give franchisor’s in-house counsel cardiac arrest. For the 70+% of projected franchisors who have an item 19, listen to Fisher’s opinions. He gets it, and if your attorney is still making it difficult for you to produce a useful item 19, get a second opinion from Fisher.
• Out with skimpy franchise opportunity websites and “franchise tabs” on consumer sites and in with content rich franchise opportunity sites. Large amounts of online content, strategically geared to answer the specific questions franchise buyers ask most often, leads directly to more emotionally engaged and “buyer ready” candidates. Content can be intelligently distributed through franchise opportunity websites, franchise blogs, landing pages, email campaigns, portal pages, online PR. Perhaps the biggest franchise lead generation trend this year was simply that more brands are moving to content-heavy websites built on WordPress and are using brand storytellers to create the sites rather than web designers.
• Mystery-shopping your franchise salespeople is in: This is stunning: Franchise Update reported Forty-nine percent of mystery shopper leads were never contacted by the franchise company. This more or less happens every single year. Our big surprise is how every year we are still surprised. There is a skill deficit crisis among franchise salespeople. VP’s should finally take a stand and say, “Master your craft or do something else.” VPs should also budget significant dollars in franchise sales skills training, coaching and mystery shopping. In the past recruiters could squeak by with sub-par performance because of a lack of accountability and erroneous assumptions by departmental leadership that recruiters are doing their jobs properly. Top performing recruiters often outperform their counterparts by 200-300%. Think about the lost value of the franchise fee revenue, lifetime value of the royalty stream, and equity value of the qualified franchise candidates who get away. Most training and ongoing coaching programs can be paid for with one extra deal.
• Franchise recruiting is a conversation. In any conversation between a salesperson and candidate, three simultaneous conversations are going on: salesperson to candidate; salesperson with himself; candidate with himself. Skilled franchisors know the buying decision is made in the conversation the candidate has with himself. These skilled franchisors create streams of content, franchise opportunity websites, and recruitment processes all designed to manage and shape this conversation. Best-in-class recruiters know how to gain access to the candidate’s inner conversation through sound interviewing skills and open and transparent dialogue.
• Out with “Franchise Opportunity Website as an online brochure” and in with “Franchise Opportunity Website as the franchisor’s first conversation with the candidate.” Want to bridge the performance gap Steve Olson talked about? Design your company franchise website to appeal to franchise buyers, who yearn for detailed and accessible information they can trust. Your site is your online home base, media center and franchisee recruiting tool in one; it’s the most effective way to attract likely buyers through portals, organic SEO, PPC, email campaigns and your consumer website. Franchise Update reported that the internet and referrals were responsible for almost 3 out of every 4 new franchisees recruited. Virtually all of these buyers are checking you out on the website before they are ready to be approached by your recruitment staff.
• Working with Franchise Brokers is an “all or nothing” proposition. Brokers look for companies with strong economic performance, excellent validation and highly trained salespeople. They want franchisors who are ready to grow quickly and develop all 50 states and often Canada. If your franchise takes the “tortoise” rather than the “hare” approach, broker networks are probably a waste of your time and money.
• Franchise salespeople need new skills. Salespeople increasingly need excellent interviewing and listening skills. They need to possess at least the same level of business acumen and sophistication as the franchisees they recruit. The franchise sales game is changing rapidly, and tenure and experience in franchise sales should not be confused with “competence.”
• PPC is worth looking into. Again. Pay-per-click search, often called PPC or SEM, is generating enough buyers to warrant renewed attention. Don’t take money away from improving your franchise opportunity website, portals or PR to experiment, but if you’ve got some left over resources in the budget, spend it to drive web traffic. Franchise Performance Group suggests companies are using much more targeted methods with PPC to generate more engaged leads. Chem-Dry’s Bill Knight talked about how his company is generating some buyers by narrowing in on specific groups of relative keywords and using segments of his content-heavy website to convert leads in place of traditional landing pages and broad based search terms. He is using paid search to expand the organic ranking and reach of his website and it pays off. The takeaway? High-performing PPC is closely related to your organic search and better handled by your content marketers than an SEO company. Overlap the two and you’ll boost quality lead flow.
• Learn to speak “bank:” FranData’s Johnson says banks have plenty of money to lend but hesitate to lend unless they know the money is going to be paid back. Let’s face it, banks don’t want the franchisees’ collateral, they want the principle and interest off a successful business loan. They want to loan on a business that has a demonstrated ability to succeed and a high likelihood of future performance. Learning to speak bank helps you set your potential franchisee up for success with a bank. Bankers, who don’t know your brand and typically have little experience with franchise lending, can’t always interpret an FDD to make a loan decision. Johnson suggested you give the banker a detailed but digestible report on your earnings history and industry segment, placing your brand in context and helping the banker understand the likelihood of success.
• Web analytics — and not just Google Analytics — matter. From the show of hands at Franchise Update, the typical franchise development exec spends little time with web analytic data. Most companies rely on their IT or marketing departments for that, but franchise development staff need to look at them monthly, if not more often, to understand their online effectiveness. For the franchise opportunity websites we manage, we can now track IP addresses with custom analytics, something Google Analytics doesn’t do. The data shows that buyers read more content and spend 400% more time on the site and read twice as much information than those leads who request information and then punch out somewhere in the process. Franchisors are going to start paying attention to the differences between buyers and everyone else.
• Retargeting is paying off. Retargeting — the practice of displaying banner ads on popular websites to the people who visit your website but don’t fill out a form — is picking up steam. Several companies reported that spending a few hundred dollars a month on retargeting increased deal flow by one to two percent, which may not sound like much but represents a significant rise.
• Portals are getting it. Buyers generated by portals made a nice comeback this year. Franchise Update reported that portals were the most productive source of online franchise leads outside of your company website. Portals are working harder to attract better leads and we had some exciting sidebar conversations about some upcoming innovations which will reinvent how franchisors and portals interact. Franchise Performance Group predicts that the “cost per lead” model will be completely abandoned in favor of a flat fee for generating web traffic. Portals tell us that what’s holding up the reinvention is the piss-poor design, content, and conversion results of too many franchisors’ franchise opportunity websites. Smart franchisors are engaging portals in conversations about how to better drive leads to the company website to create a more informed and higher engaged lead. This may mean a lower lead flow but should lead to a higher contact and close rate. Note to franchisors: Upgrade your websites and start publishing more content so we can help portals help us create a breakthrough in franchisee recruitment results.
• More franchisors are filling their franchise sales positions by hiring franchisees to do the job. Franchise salespeople had better take notice of this trend. Franchisors are starting to reject the notion of “franchise sales specialists” because of the overall lack of skill development and unwillingness of franchise salespeople to stay current with how buyers buy franchises. Franchisees are credible and they know the business from the trenches. Need to hire a new salesperson? Take a look at your current or former franchise owners as part of your search.
• More young people are buying franchises. This year, the number of franchise owners in their 20’s spiked. For the first time, 50% of franchise systems now have franchise owners in their 20s and 97% have owners in their 30s. College graduates in a dismal job market are turning to franchise ownership as an alternative. Recruiters should consider young candidates who lack money or skills but might have family support. No doubt some shady franchise salesperson has recently uttered, “Do you know where your mom keeps her checkbook?” Kidding aside, franchisors had better start training franchisees how to deal with extra pressure and dysfunction family businesses sometimes create.
• Culture sells. People want to associate with brands that aren’t just successful but that fit nicely with their own values and priorities. They want a culture that’s fulfilling and fun. Here’s the thing about culture: You can’t fake it. If you build a great culture and back it up with solid systems and marketing, expansion will naturally follow, and your franchisees will turn into your best brand champions. Amit Kleinberger, CEO of Menchie’s frozen yogurt, the dominant brand in the self-serve frozen yogurt segment says, “People don’t buy the ‘what,’ they buy the ‘why.’” By this he means while franchise buyers are interested about how a franchisor gets their product and services to market, they really want to know what a franchisor values and stands for.
If you haven’t attended this conference, consider doing so next year. This is the best source for detailed, tactical information on franchise development, and we recommend sending as many people from your team as possible.
What were your takeaways from this year and what do you intend on doing to make sure your brand doesn’t miss growth opportunities due to low performance?