Too often, I come across franchisees, including colleagues within my own franchise organization, with a “what are you going to do for me” attitude.   They feel that they bought a “business in a box,”  a “turn key” operation and that the franchisor should have everything already figured out now and for all eternity.   The franchisor should be a 24-7-365 machine, turning out proven innovative, cutting-edge ways to acquire and keep customers, lower operating costs, and differentiate from competition.  Yes, good franchisors are constantly, tirelessly innovating in these areas and become better at doing so as they grow their franchisee and experience base.

But where do you think this proven innovation comes from?

Ronald McDonald and the Fillet-O-Fish Sandwich were not marketing strategies cooked up by expert marketing consultants in an ivory tower at Hamburger University.  They were created by franchisees in the field.   Lou Groen was a McDonald’s franchisee in a predominantly Roman Catholic area of Cincinnati, Ohio in 1962.   He started serving fish sandwiches since many of his customers observed the practice of not eating meat on Fridays.  Groen’s innovation was a hit, adopted into the McDonald’s master plan by 1963 and served nationwide by 1965.

Groen saw a need, an opportunity for his business and he took action.   He did not wait for McDonald’s to put together focus groups and conduct thousands of surveys or ask that they throw a lot of money in an effort to determine if people might order fish.

And this is how it often happens in franchising, especially in younger franchise systems.   The genesis of a lot of innovation is trial and error in the field by franchisees who have a need or see an opportunity and take action.  I’m a living example of this.  The business system I received when I joined my franchise system in 1999 gave me a foundation to start and grow my business.   I mastered the various elements of the business system and succeeded.  Along the way, I found many ways to improve the system and identified potential opportunities to generate new business.  Somethings I tried worked terrifically, others did not and cost me some time and money.  Fast forward to 2011 and you’ll find my thumb print and contributions, as well as those of other innovative franchisees, throughout our franchise training and business systems.  Franchisees entering our system today are buying a much more robust business system that contains the wisdom gained from franchisees and the franchisor conducting trail and error than what I purchased in 1999.

Successful franchisees love to innovate and franchisors love innovative franchisees.  Some people considering franchising fear that they will be restricted left and right by big brother franchisor.  The reality is the majority of franchisors encourage their franchisees to explore new ways of growing and operating efficiently.   A franchise system’s best source of R&D are the folks in the field with their thumb on the pulse of what works and does not work in their businesses.   This has to be done within reason of course; a franchisee’s innovation cannot encroach on other franchisees’ businesses and it cannot deviate too far from the core business model.  Selling tacos out of my Mail Boxes Etc. would have been too much of a stretch.  But offering gift wrapping services made sense.

And looking for new ways to improve and expand comes naturally to successful franchisees; it’s what keeps us invigorated and excited about our businesses.   I, for one, would become bored with my business if there were no new mountains to climb.  Franchisors understand this.  They want their high producing franchisees to stay engaged and excited and know that they must not place too many restrictions on their thirst for charting new waters if they want to keep them and their royalty revenue.

The balance of innovation typically does equalize as a franchisor matures.  As the franchisee base grows, so does the royalty base, which in part funds R&D and system improvement, but it is never exclusively the responsibility of the franchisor to continue to develop ways to improve and refine the franchise business system.   This is important for prospective franchise owners and new franchise owners to understand when they are setting their expectations about what they are going to “get” or not from the franchise system they choose.  If a person wants to be a part of a franchise organization where corporate is leading (and funding) the innovation and testing and measuring, he needs to choose a more established company.   Choosing a younger franchise can be a terrific way to get in on the ground floor, at a lower cost, and have the first pick of territory but in doing so, you cannot expect a young franchisor to behave like a mature franchisor.

A colleague recently shared a story with me about a woman he helped who chose a very young franchise for all the benefits mentioned.  Shortly after joining the franchise, her highly unrealistic expectations came to light.  She came from a very large corporate setting where systems and departments were highly organized.   As one of the first franchisees, she found that there was a lot of room for growth and improvement in the marketing and operations.   She loudly communicated her observations and delayed the start up of her own business, expecting the franchisor to implement all her ideas immediately.   She was expecting this young franchise company to look and behave like a mature, sophisticated franchise organization.  Other franchisees came on board and started working the business model that was in place and began growing businesses.  Seeing others surpass her is what it took to light a fire under her and she began working the model in place.

The lessons to take away here are:

• Those who choose a young franchise must start with the model that exists, the model that has worked for the franchisor.  Once you’ve mastered that model, start acting on your ideas.  Those that work may be incorporated into the franchise master plan.  I can tell you that it is very rewarding to see your ideas and efforts adopted into the overall business system and benefit new franchisees joining the family.
• By choosing a younger franchise system, you are accepting the fact that you are a pioneer.   You will spend your time and your money on some trial and error for improving the core business system.  If you don’t like this fact, then don’t choose a young franchise.  Choose a more established organization.
• While the balance of organizing and funding innovation does equalize as the franchise system matures, it is never exclusively the responsibility of the franchisor to continue to develop ways to improve and refine the franchise business system.   I am a part of a 23-year-old company and I am still innovating on my own watch and nickel.  I would leave if the opportunity to innovate no longer existed.

Here’s part deux of my commentary on CNBC’s recent feature story about franchising.  Here’s Part 1.  It’s also my first of likely many posts addressing “personal responsibility.”

“A lot of people assume the government is going to protect them…do they?”  was asked of a well known franchisee advocate in the interview.  Another question I hear along these lines is “will the government or franchisor give me my money back if I fail?”  I’m gagging as I type this….wait…give me a minute…

I’m back, I’m OK.  The lack of personal responsibility and entitlement attitude in such statements tend to make me choke.  The answer is no and no, as it should be.   Are there terrible franchise systems out there with terrible business models that will cash my check faster than I can say incompetence?  Yes!  But whose responsibility is it to conduct MY research pertaining to MY investment and make MY decision?   I feel the overarching premise and practice of “government protection” in franchising, as in many areas that impact our lives (ahem, health care) makes us consumers lazier and dumber.  As a prospective franchisee, I am a consumer.  It’s not Uncle Sam or Mama Franchisor’s job to hold my hand, blow my nose, conduct my due diligence and make the hard decisions for me.  And thank God for that.

There is an endless amount of quality public information and resources available, for little or no cost, on how to thoroughly investigate a franchise opportunity and make intelligent decisions.   Unfortunately, intelligence is often nowhere to be found when people are struggling as a result of their own bad decisions, and the blame game ensues.  The lawyer interviewed in the Cold Stone Creamery segment said his reasons for buying the franchise were the allure of the long lines of people waiting to pay high prices for their entertaining ice cream experience.  This guy was doomed from day one!   I’m interested to know what his pre-decision due diligence effort looked like; there was no mention of this in the segment.

The witch hunt Camp Bow Wow segment was spun to make CEO Heidi Ganahl look like a crook, discrediting her statements all along the way. There’s a discrepancy I want to point out in Heidi’s defense.   In response to Darren’s question about her opinion on requiring franchisors to provide financial performance information, Heidi said, in part, “The FTC does not allow us to provide SOME information on profitability and returns.”  In some situations, THIS IS TRUE; any lawyer well versed in franchise law will tell you so and give examples.    The camera then cuts to Darren’s interview with Associate Director of the FTCs division of Marketing Practices,  Lois Greisman.   Darren says, “We talked to a franchisor who said we can’t release ANY type of financial information because the FTC does not allow us to do so.”   Lois’ negative response is appropriate to Darren’s statement, unfairly making Heidi look like a liar.  There’s a big difference between SOME and ANY.  The semantics are so slight here but they are important.  This is why I ignore main stream news, it’s spun, cut and edited to make for a dramatic story.   I’ll save my opinions on personal responsibility in the media for another day….  Stay tuned.

So, where is a franchisor’s personal responsibility when it comes to franchisee success and failure?  It goes without saying that a franchisor is responsible for providing factual information and truthful, complete explanation of it.  A franchisor is responsible for disclosing where they lack experience, knowledge or resources.   A franchisor is responsible for fulfilling their said obligations.  Most importantly, a franchisor is responsible for rejecting prospective franchisees who are not qualified to own their franchise or who want to own it for the wrong reasons.   When I encounter franchisors with above normal levels of struggling or disgruntled franchisees, a weak recruiting process is often the primary culprit.

A strong franchisor will welcome a new franchisee into their family because they’ve validated that franchisee possesses the particular skill sets needed to operate and grow their business model.  A weak franchisor will mistake passion and enthusiasm for their product/service for needed business skills.   A strong franchisor will validate the franchise candidate’s ability to support his business and personal financial needs through and past the ramp, AND they will want verification of how he is financing their business.   A weak franchisor will take a franchise candidate’s word for it.  A strong franchisor requires the prospective franchisee to explain why she believes she is positioned to succeed and how owning the business will fulfill her needs and goals.  A weak franchisor sells the prospective franchisee on why she will succeed and how owning the business will meet her needs and goals.

But, at the end of the day, I am the consumer and the burden is on me to determine if I am aligning with a strong or weak franchisor, if I am wired with the skills to succeed and if I can afford it.   I am personally responsible for seeking out and using the available resources to help me make such decisions.    I may be inviting backlash from existing or former franchisees who feel they have been wronged and that their failure is not their fault, and in some cases I have witnessed this and know it’s true.  However, most struggling franchisees whom I’ve encountered are at the bottom of the bell curve because of their own choices and behavior; most set themselves up for trouble before they signed on the dotted line.

One last little rant: the comment about SNO (units signed but not open) was misleading as it was covered by CNBC.  Approximately 20-25% of  franchisees are multiple unit owners, sometimes called Area Developers.   They commit to opening multiple units over time on a mutually agreed upon production schedule.   So the SNO quotient may or may not be a red flag and cannot be judged on the surface without further exploration.   But this was not explained thoroughly and left viewers with a certain perception.  Again, drama.