By definition, an emotionally charged buyer is someone who makes a buying decision based on feeling rather than rationale and reality.  This creates fertile ground for a misalignment of expectations; the consequences of which are typically dire in franchising.  But why is franchising different?

Well, in scenarios where you may be selling goods and/or services and the buyer and seller are independent of each other once the transaction is complete the consequences are not as severe.

As an example, if I visit a car dealership and see a shiny, new, red, foreign sports car I might envision myself sitting behind the wheel, driving around, and being the center of attention.  It smells new, it looks new, and it handles great.  I could easily romanticize about all the joy this car will bring me, and it’s this type of emotion that will be easily picked up on and played by the car salesman.  Despite the high cost of ownership including the premium gas, insurance, expensive maintenance, not to mention the price tag – I can probably talk myself into buying it.  However, in a few weeks the newness will wear off and I’ll find that nobody was as impressed with it as I thought they would be.  I didn’t achieve all of the joy that I had envisioned that day while standing on the lot and now the reality of the gas, insurance, maintenance, and first loan payment has sunk in.  I still like my car but I can see that my expectations were not realistic due to my emotions.  I rushed the decision a bit, but perhaps I’ll sell it or just leave it in the garage.

The good news for the car dealer is that they aren’t relying on me to drive the car every day or to maintain it.  What I decide to do with the car after the sale is made has no impact on the dealer’s business.  A car dealer wants you to be an emotional buyer.  They want you to create an emotional bond with the car, fall in love with it, romanticize about how great it will be to have it.  Because a rational approach would require studying the total cost of ownership and being realistic about what you’re really getting and therefore you might not buy it.

In a franchising business model the seller (franchisor) is dependent on the buyer (franchisee) after the transaction.  This dependency creates a completely different relationship dynamic than a typical B2B or B2C transaction.  A franchisee who wants to sell their business soon after opening, or one who quickly becomes overwhelmed with the realities of operating a business and underwhelmed with the fruits of owning it is not an optimal situation.  If too many of these misaligned relationships occur during the growth phase of a franchisor’s life cycle the cost of unwinding them, in both financial and human resources, could easily drain the franchisor thus pulling the focus away from new opportunities and setting the sights on extinguishing fires.
The bottom line is that if your franchise sales process is primarily designed to create an emotional engagement with the candidate (especially those who have never owned/operated a business), without doing a thorough job of ensuring that expectations are aligned, then you are most likely setting the stage for long-term failure.  You will win the battle of selling franchises but lose the war of building a sustainable, healthy, franchise system.

Investing the time to create a sales process built around understanding your prospective franchisee’s expectations and criteria, instead of trying to create an emotionally charged buyer, is a step in the right direction toward longer-term success.

As always, I look forward to your feedback and comments.

1. Lack of consistent business processes in all areas including franchise sales, pre-opening, operations, and franchise administration.
2. Lack of IT infrastructure that enables the organization to manage their business processes.
3. Lack of analytics/reporting tools that enable management to benefit from business intelligence, or monitor and improve the business.

This is an excerpt from a typical conversation…

Us: “Can you briefly walk us through your franchise sales process.”

Franchise Exec: “Sure, we receive our leads through various portals or from our corporate website. The leads are emailed to a sales person (or our sales team) then entered into a spreadsheet.”

Us: “Ok, then what?”

Franchise Exec: “Then the salesperson follows up with the lead to see if they’re qualified and if so we send them an application to be completed.”

Us: “I see. What happens next?”

Franchise Exec: “If the application is returned, we review it to see if the prospect meets our initial requirements. If so, we send them a copy of the FDD, then we’ll invite them to our corporate office for a Discovery Day.”

Us: “What happens after the corporate office visit?”

Franchise Exec: “Well, we just follow up and answer any further questions; discuss the FDD; possibly refer a financing contact. You know, work on getting the agreement signed.”

Us: “Sounds easy enough. So, what’s the problem?”

This is where the conversation usually gets interesting and I say that for this reason – most folks begin to identify their symptoms, not their problems.

“We need to generate more leads.” Symptom.

“We are not meeting our goal for number of franchises awarded.” Symptom.

“We are not able to award franchises in the markets that we want.” Symptom.

“I don’t know what my sales team is doing on a daily basis.” Getting warmer, but still a Symptom.

Now, we could list symptoms for days. But the truth is that until the underlying problem is identified it cannot be solved. I would encourage you to begin working to identify the problems that are the root causes of your symptoms. Try starting with the problem breakdown that I listed above to see if this fits your organization.

As always, I would welcome your feedback.

• Introduces the main factors affecting ROI from Cloud Computing, and compares the business development of Cloud Computing with that of other innovative technologie;
• Describes the main approaches to building ROI by taking advantage of the benefits that Cloud Computing provide; and
• Describes approaches to measuring this ROI, absolutely and in comparison with traditional approaches to IT, by giving an overview of Cloud Key Performance Indicators (KPIs) and metrics

In presenting their model, business metrics were used to translate indicators of cloud computing capacity-utilization curves into direct and indirect business benefits. The metrics used include a number of measures, of which I’ve included a few below:

The entire white paper and relevant documents can be found online here. This is an excellent resource for executives and managers to consider when evaluating cloud technology investment.

But is it possible that the managers citing this lack of confidence are putting a new face on the old “not invented here” mentality? Many companies using “closed” models for innovation have long used it as a defense to maintaining their internal staffs and large R&D budgets. P&G and others are showing the true power of open innovation models in the market today. When speaking with most franchise industry people, and there are some exceptions out there, most of their views represent the closed model. If it doesn’t fit their view of the world, mostly based on quarter century old paradigms, then it won’t fly.

So what are the other potential barriers to innovation? Strategos, Gary Hamel’s consulting firm, released a survey with senior executives in 2004 on the key barriers to effective innovation. Some interesting statistics in that study regarding the top factors cited as barriers…

• Short term focus/ focus on operations (63%)
• Lack of time, resources or staff (52%)
• Lack of systematic innovation process (33%)
• Leadership expects payoff sooner than is expected (31%)
• Management incentives not structured to reward innovation (31%)

Also interesting that only 15% cited “we don’t know how to think out of the box” as a barrier to innovation. Now because managers think its so doesn’t make it so. This survey reflects beliefs not necessarily realities – a case in point being the excuse of having inadequate resources to innovate. That is as much a reflection of folks not really doing what they should be doing as anything. The bottom line is this: there’s a direct relationship between innovation and failure. The key killer of innovation is the lack of tolerance for failing – a necessity for innovation which directly reflects an organization’s culture. Watch no risk no innovation below for insights on this important barrier to innovation and if you are ready to really impact the way your franchise system works, take some risk and set up a test drive of our franchise flywheel application. Innovation isn’t as scary as people believe.

Its easy to “demand” results: particularly when there is so little understanding as to how those “results” might be achieved. Sadly many believe such demands are a sign of leadership: funny as that is. This faulty thinking that is at the center of huge failings ( think GM and the recent Wall Street debacle as examples). In franchise development, particularly during slow economic times, the opportunity for brands to separate themselves from the pack is greatest but only through an effort of focusing on core business model issues and opportunities. Trying to figure out how to sell more franchises isn’t the answer, although for many that remains the solution.

The principal role of intelligent leaders in franchising or any other industry is to illuminate their organization about the need to choose between the status quo and a future of greater potential. As the article, “Pleasing Wall Street is a Poor Excuse for Bad Decisions” put it: good decisions rarely have much to do with the near term. No matter if you are a public or private enterprise, for profit or not for profit, the near term result should never be driven at the cost of the big picture. Dr. Ed Catmull, founder of Pixar, who wrote the article notes, among other things:

Managers who focus on maximizing short-term profits end up driving out things that generate long-term value — like R&D. They use all sorts of excuses when they make those decisions, including the need to please Wall Street and create shareholder value. But they’re just excuses for poor thinking.

We need business leaders who have a respect for technical issues even if they don’t have technical backgrounds. In a lot of U.S. industries, including cars and even computers, many managers don’t think of technology as a core competency, and this attitude leads them to farm out technical issues. But we live in a technical society; technology is just fundamental to our way of life. Technical understanding should be a core competency of any company.

Watch Ed’s description about how his firm, Pixar, was and is able to innovate. He is a smart man and I concur with his views. Near term results by the way are NOT at the center of their success but other more important things are. What do you think about that ?

“Even as some segments of the economy bounce back, the lagging pace of improvement in the real-estate market continues to hamper owners’ efforts at landing credit. “As the big guys are doing better, people ask, why not the smaller firms? Well, this is a huge part of the reason,” says William Dennis, Jr., a senior research fellow at the National Federation of Independent Business in Washington.

Because business owners used real estate to support financing endeavors in a variety of ways, the subprime crisis hit Main Street particularly hard as it rippled through the credit markets. Before the real-estate bubble burst, home and business properties were a reliable source of collateral for many businesses.”

Franchisors, who rely on and had relied upon easily available credit in the recent past for franchisees to expand, are going to have to reconsider their growth plans for the forseeable future as collateral values aren’t going up anytime soon. That is why it is critical for franchise systems to use this opportunity to sharpen their swords. Improving internal systems, methods and support to really help existing franchises achieve greater profit and stability is more important than ever. Franchise flywheel represents the type of tools ZOR’s should be adopting to put an emphasis on improving core capabilities until the damper on growth passes.

When given a clean slate, many new companies have chosen a full embrace of the cloud model, figuring the technology industry has matured to the point were these types of services make basic business sense. For example, Arista Networks, a five-year-old company that makes networking equipment, runs its sales software with a cloud software company called NetSuite, its corporate e-mail on Google Apps, and other Web infrastructure with Amazon.com.

“It’s so much easier,” said Andreas von Bechtolsheim, the co-founder Arista and Sun Microsystems and one of earliest investors in Google and VMware. “For a new company like us, you would just never build a traditional data center anymore.”

And this is where the real story lies. You see while larger organizations might be wary of the Cloud, each day they fail to shift their IT infrastructure to the Cloud is a day the competition is gaining a leg. The same is true for all industries including franchising. Ironically, the ROI for larger corporations adopting the cloud is much higher than for smaller ones from a strictly cost benefit standpoint. From a strategic point of view the ROI is even higher.

Yes companies are adopting the Cloud and for the ones doing it slowly or not doing it at all, they best reconsider their long term viability.

Like most people we speak to, this organization is using spreadsheets, outlook, old versions of ACT and other fragmented tools to run their business. In reality many of these folks cannot tell “come here” from “sic ‘em” without involving many hours of effort and people’s time. There is no 360 view of the business. There is no coordination of communication, orchstrated work flows and as a result there are many more people being employed to do mundane things. Even more obviously, what those folks ARE DOING is not nearly as productive as it could be. This is usually acknowledged by the people we talk to and then, as in our call last week, comes THE DISCUSSION. What’s the price ?

Now price is an important variable and its an important question. I mean you have to deliver value for the dollar. We understand that and really see this as our primary advantage. For this ZOR the price would be a mere one hundred and fifty dollars a month. That’s right $150 a month. What was surprising is that THIS WAS OBJECTIONABLE. Can you believe it ? I can’t. $150 a month is a mere $1,800 a year to have something that actually helps you MANAGE your business instead of it managing you. $150 a month is what many companies spend on a single mobile telephone bill per executive manager. It’s a single dinner with a franchise prospect. It is less than 10% of the average franchise unit fee. How is that objectionable?

Do you think franchising generally has ignored the benefits that technology and systems offer? What can explain this type of thinking? We continue to mine for the insightful ZORS who can see the value in the franchise flywheel. Can you help us find some more evolved ZORS to speak with?

Franchising is tough right now. Its not just that lending has dried up for many franchise concepts. It isn’t just a function of the recent recession in general that is increasing economic pressures on franchises. The fundamental environment most companies face is becoming exceedingly difficult overall, requiring core changes to business concepts. These changes don’t just pertain to the franchise company itself but as importantly to the business models they promote and franchisees operate. Some key trends make it unclear wether many established and growing franchise systems are sustainable, as shocking as that sounds. The following four factors are providing most of the impetus for fundamental changes that franchise systems must make:

Increased competition
Advancements in technology;
Evolving consumer needs and wants; and
A more complex and demanding legal environment.

Increased competition

Competition is intensifying in many industries. An example is the fast food market where the most established franchise brands reside. As illustrated by tough competition in the U.S. pizza market, increased competition is resulting in flat to lower sales and discounting as companies attempt to protect or build market share. Ultimately this exercise is unproductive and will inevitably erode profit and sustainability.

Smart companies operating in highly competitive environments work hard to improve efficiencies and differentiate themselves. McDonald’s, for example, has been rapidly evolving its menu, operations, and offering of new services like wireless Internet access. The chain is also focusing more on quality to differentiate itself from others. But this is McDonald’s, the giant of the industry and a true exception. What will franchise systems a fraction of their size, which represents the clear majority of franchises today, be able to do ?

Curiously, more US franchisees have left the McDonald’s system in the past twelve months than in the previous five years. This is a telling trend and may be a clue for other franchise brands with lesser brand leverage and resources who attempt to respond to change. It just will not be an easy environment for franchise systems to navigate or survive.

Technology advancements

Advancements in technology is also increasingly impacting franchises. For example, the ubiquity of the Internet is radically shifting how smart competitors market their products or services. Conversely, the Internet has spawned new competition, like Amazon.com, which competes with traditional bricks and mortar operations. Other advancements, like inventory management systems, cloud based CRM systems, GPS devices and digital closed circuit television provide franchised operations with opportunities for improved efficiencies, security, and more sales. However, these tools also require effort and expertise for successful implementation throughout a franchise. They also require additional capital investments. Something many systems are incapable of or without.

Evolving Consumers & Legal Environment

Consumer needs are shifting rapidly posing a real problem for franchised operations. Coupled with the threat of lawsuits and legislation, an increased number of consumers watching their weight has resulted in radical changes to restaurant menus. As a result McDonald’s has introduced fruit, salads and wraps and Subway has introduced Kid Packs which substitute fruit for cookies and 100% juice for soft drinks.

There are obviously a number of trends and changes that must be considered by prospective and existing franchisors and franchisees. Some of these trends require quite fundamental changes to the way businesses operate. Navigating this change requires huge patience and resources to gain acceptance and implement. When applied to multiple business owners with limited resources and whom are dealing with great frustration this is quite problematic.

Bottom line is the SOP is not going to likely work for most franchise systems given the degree of change going on. If you are a manager, executive or franchisee, how aware are you of these pressures and do you concur with the analysis that your business models are feeling significant and greater pressures requiring fundamental change ?

At the Flywheel Group this has made us stop and think, given all the potential that the cloud offers clients particularly in franchising, that we need to do a better job of sharing more about what the “Cloud” really is.

Its really important for people in any organization to grasp the concept of the “Cloud” because it is going to touch everything in our lives and organizations, if it hasn’t already started to. Franchise executives and managers should take a moment to catch up on the basics with this quick video which is an excellent and short explanation of how Virtualization, Utility Computing and Software as a Service are converging to make Cloud Computing an important aspect of franchising today. Watch !