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.

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?

Why is this important ? By understanding the keys to success and applying certain disciplines from this learning, emerging franchise brands can greatly improve their chances of survival.

So what are the key variables that separate winners from losers in the franchise game ? Scott Shane of M.I.T.’s Sloan School of Management prepared some interesting academic research in 1998 which identified some key variables which are shown to be the key drivers of success. His research was published in Sloan’s Strategic Management Journal, Vol. 19, 697–707. and deserves close evaluation by franchise managers and franchisee participants.

The study tested his theories through the use of survival analysis on a cohort of 157 new franchisors established in the United States between 1981 and 1983 and tracked over time. The dependent variable in the study was exit from franchising; as previously mentioned Shane (1996) found that three-quarters of all new franchise systems ceased franchising within 10 years of their formation. The high rate of failure of new franchise systems suggested that survival of a new system over time is a critical measure of success (Carney and Gedajlovic, 1991).

Shane’s research focused on mechanisms that leverage “agency costs”, a financial theory which explains how best to organize relationships in which one party (the principal or franchisor) determines the work, which another party (the agent or franchisee) undertakes. Since the agent’s self-interest are in conflict with the principal’s, alignment of outcomes via contactual relationships is a key to mutual success.

Here are his key findings which set forth the underlying characteristics of successful franchise systems:

New franchise systems which permit passive ownership of franchised outlets are more likely to fail than are other new franchise systems.

New franchise systems which require higher levels of franchisee cash involvement are less likely to fail than are other new franchise systems.

New franchise systems which require franchisees to have experience are less likely to fail than are other new franchise systems.

New franchise systems which are geographically concentrated are less likely to fail than are other new franchise systems.

New franchise systems which are more complex are more likely to fail than are other new franchise systems.

New franchise systems which employ master franchising are more likely to fail than are other new franchise systems.

New franchise systems which have higher levels of total investment are more likely to fail than are other new franchise systems.

The results of the study indicate that franchise systems founded between 1981 and 1983, which are structured to economize on agency costs, are more likely to survive than franchise systems which are not structured to economize on agency costs. This finding is important because the failure rate of franchise systems is high, with over 72 percent of the new franchise systems in the sample ceasing to franchise by 1995.

1. Understand HOW and WHERE to engage qualified prospects;

2. People trust others more than brands, so franchisors need to mobilize their fans and followers to be cheerleaders. Consider this: franchisees are now the “creators” and “sharers” and “distributors”;

3. LISTEN: 3.5 billion brand conversations happen every day in the cloud and few pay any attention to them;

4. Franchise brands must be more honest and authentic: (a) only 5% of people say they believe ad claims, (b) half of consumers say brands don’t live up to promises and (c) franchisees are even more cynical, often for good reason;

5. Forget MASS anything; it’s ALL about customization;

6. Learn Digital or Die;

7. Measure as much as you can. Learn analytics and USE them;

8. Social media does not do everything; there needs to be integration with traditional vehicles of communication, but “pushing” tactics will not work. It’s now all about Inbound, i.e., customers and prospects pulling in a company’s message; and successful franchisors need to think more about communities than campaigns, learning to “crowd source”.

Successfully employing these strategies is hard for brands to do, primarily because they don’t have the tools to systematically perform these disciplines. Answers, however, are available. A quality solution that relies on the latest tools and trends can set a brand and organization apart, leading to true and lasting recruitment solutions that work.

John Patterson who founded National Cash Register was the originator of the professional selling movement. He invented most of today’s “standard sales operating procedure”: territories, quotas, prospecting scripts etc. He was an amazing man. He was the “Thomas Edison of the sales profession”. Interestingly, John Patterson hired a fellow called Tom Watson at NCR and trained him in all his sales techniques. Tom Watson left NCR after several years and set up his own company…IBM. IBM has long been considered the “gold standard” for professional sales organizations. So the story of just these two men is a history of the professional sales profession in a nutshell. John Patterson invents professional selling and Tom Watson perfects it.

The innovations that Watson and Patterson initiated, however, took place in the 1890’s. This was when the last big shift occurred in the way a professional sold – a Sales “1.0” methodology. Since that time a lot has changed and so has the opportunity to adopt a more effective Enterprise 2.0 approach. Why should a franchise organization reconsider its “awards” or sales methodology based on 2.0 thinking ?

In the recent past franchise prospects moved into the “Internet world”. The tipping point was Google. With Google you had a search engine that really worked for prospects. People were given a tool that they could use to find almost any information they needed. This helped them research and make early decisions on which franchise to pursue.

Prospects no longer needed sales people to give them basic information. Therefore, franchise development professionals lost an “excuse” for engaging a prospect. Prospects can find whatever detailed information they need early in the process simply by typing into Google and pulling up dozens of whitepapers, webinars, FDD’s and a plethora of alternative opportunities. The power is in their hands.

Now prospects not only use Google , they are increasingly using social networks. Development professionals are therefore dealing with more well­ informed buyers with numerous ways of learning and researching what THEY want to know and this is making the old methods of franchise development obsolete.

The path to a “new way of franchise development” is also being driven by the Internet. Tools have recently appeared (and more continue to appear) that are giving people a way to fight back against this wave of prospect behavior in engaging with franchise development professionals. These Internet­ based tools really help development professionals build optimal franchise relationships that result in new successful franchises. They are not CRM systems set up as management reporting systems. They are tools that make a developers job easier and more efficient. Using these tools to improve your award process is what Enterprise 2.0 and Franchise Flywheel is all about.

Contact us today to learn more about how professional franchise organizations are adopting Franchise Flywheel to implement Enterprise 2.0 development solutions that increase ROI for your development process. Its time to reevaluate your approach by working with a solution that embraces these new trends.

Most businesses seeking to franchise a concept do so with the belief that it is a proven way to expand their company successfully. However, its not nearly as easy as many statistics might lead you to believe. A handful of brands comprise the clear majority of successful franchises and thousands of smaller franchise systems experience a very different life cycle when compared to their few larger counterparts.

For example, a study focusing on franchisor success rates, over a twelve year period, was published in 1998 by Francine LaFontaine and Kathryn Shaw. The findings concluded that only 28.6% of franchisors were still in business after a 12 year period. During their study period 1,941 of the 2,524 companies that began franchising quit franchising: a nearly 77% attrition rate. These findings are largely counter to the main stream statistics promoted by the franchise industry.

A recent White Paper entitled, “Franchising: Disparity in Numbers” written by my colleague Clint Lee of the Flywheel Group (you can obtain a copy here) shows detailed research on the reality of franchising today. The key point is that success in franchising is obtained like it is in most industries: a combination of competent people, a sound and proven business model, and continuous process improvements. Interestingly, these often aren’t the most emphasized disciplines you would hear among many “experts”. Visit the Flywheel Group and learn more about our Franchise Flywheel philosophy. There is an answer to quality franchise system management and it isn’t what most “experts” would tell you.

The consultant gets on the telephone to the office trying to understand what had happened before, trying to get some guidance on what to do as he witnesses major problems before his eyes. Its a mess.

Imagine the alternative. Using his iPhone the consultant instantly pulls up the entire history of interactions with the managers and franchisee. He sees the last series of communication from marketing and operations on his device. There are notes from past visits and qc scores for operations.  He sees that the franchise contract is about to mature in the next 3 years and handily notes his visit in the device. He has a 360 degree view and is much more effective without having to copy hard files or call people at the office to try to understand what had been going on before.

Watch the video below and learn how salesforce.com mobility integrated into solutions like the Franchise Flywheel enable franchise field consultants to achieve results when they need it the most. On the ground.

Having worked in IT and franchising for over 25 years, I only wish the “Cloud” was around a few decades ago like it is today. I remember it well, dealing with IT people, and hardware and software infrastructure that required many resources and delivered little in the way of quality solutions in a reasonable time frame. Mobility – wishful thinking or perhaps impossible unless you had a budget the size of the national debt. Does anyone recall IBM’s RPG code ?

Amid rapid technological change, investments in hardware and software development left executives like dogs chasing their tails: as soon as you thought you had the answer, a new technology brought into question the investment. As a result, quality IT solutions didn’t receive a lot of attention in franchising. Many that did failed. This was particularly true for small to mid sized companies with limited resources.

As an early adopter of the “Franchise Intranet”, I’ve always had a great appreciation for what technology’s promise offered the franchising world. But alas, providing field consultants with a detailed 360 degree view on a smart phone was not an option in that past. Monitoring social media chatter or using it to handle franchise or customer support was even more of a fantasy. Thankfully there is a whole new world and a better opportunity to deliver solutions that can make a difference in today’s world.

When you think about what IT should be for franchisors, a way to make a REAL impact to how the business functions by lowering costs, and improving efficiency, you’re thinking of the Cloud. The Cloud helps deliver this with little consideration for the software and hardware investment obstacles that use to impede progress. It also does this in record time, with little need for overly technical developers and at an unbelievably inexpensive cost. Locking in with a third party proprietary solution that holds you over a barrel for the rest of your organization’s days – forget about it. Yes its that good.

In this day of limited resources, the need to use technologies to generate REAL business results is essential to successful franchise companies. Ironically, many franchisors aren’t using open system cloud solutions like they could. They are over paying for software or worse off in the hands of a closed proprietary system that keeps them from realizing huge benefits. This is where salesforce.com can and franchise flywheel can deliver tremendous options to revolutionize a franchise business model.

Watch this video (see below) about the power of the Cloud and salesforce.com here and learn how the Franchise Flywheel could make a big difference for your franchise system.