Navigating the Franchise Business Success Waters

One of the greatest mistakes entrepreneurs make when pursuing a new business endeavor, franchise or otherwise, is in their assessment of not only the opportunity, but what it will take to succeed. Many tend to see the majestic opportunity floating above the surface and fail to see the mass hidden underwater that, if not navigated correctly, can sink the ship. Therefore, navigating the murky waters to find business success can be cold and treacherous for the ill prepared.

While much of a business owner's success lies with a quality concept, most comes from the entrepreneur's ability to operate effectively in all aspects of the business. We've all seen examples of a business failing under one person, only to succeed under another. Some people are naturally built for business, others are not. However, this does not mean that someone who is not a natural cannot learn to be a successful business owner. This is where franchising may be a good option for those who may be a little uncertain of their business acumen.

That said, not all franchises are created equal. Therefore, a prospective franchisee must be vigilant in their assessment of not only the franchise opportunity, but also with their understanding of what it will take to succeed. While much of a franchisee’s success lies with a quality franchisor, a franchisor can only do so much. Even the most successful franchisors have some dogs (poor performing locations) in their portfolio. In most cases, the dogs are not because the brand is weak or the product stinks. It’s usually because the franchisee failed to hold up their end of the bargain. Some franchisees just don't do what needs to be done to succeed. I would venture to guess that had the dog owners in many franchisor portfolios gone it on their own and not engaged with a franchise they would have died the same death, only quicker.

The difference between those that do and those that don’t succeed in business may lie in their behaviors. Notice I didn’t say can or can’t. That’s because fundamental business behaviors can be learned and developed. There are certain behaviors that every successful businessperson exhibits. Once learned and consistently executed, they can greatly increase the odds for success. However, the key is execution. Anyone can create a plan, but not everyone can execute the plan.

Below are some behaviors that we have found to be present in successful franchise entrepreneurs. We consider them to be the difference maker and fundamental to long-term success.

• Successful entrepreneurs read and understand the Franchise Disclosure Document (FDD) and Franchise Agreement (FA), ask questions about both, and seek legal opinion before contractually engaging with the franchisor. A good businessperson knows the rules of the game before playing. They seek to ensure that there are no surprises after they’ve signed the agreement. A prospective franchisee must know all the financial obligations, as well as all the limitations and expectations being set forth by the franchisor before they sign on the dotted line.

• They confirm in writing any oral representations that are made. A good franchisor will not make any claims that cannot be backed up in the FDD. If claims are being made that you have not read in the FDD or FA, hold the franchisor accountable for putting it in writing. If they won’t then that will tell you all you need to know about the character of the organization’s leadership.

• They interview current franchisees. Don’t just rely on the list of franchisees that the franchisor may have given them as possible contacts. They look in the FDD and call a few that are not on the list. Then they ask some very pointed questions about the franchisor and their experiences. One very telling question to ask is this, “Knowing what you know today, would you engage in business with this franchisor again?”

• They seek to understand how many multi-unit owners there are. Multi-unit owners telegraph satisfaction. If there are many one-unit owners it could be for a reason, which may be dissatisfaction. After all, you don’t typically invest in more units unless you are a satisfied franchisee.

• They seek to understand why franchises have failed. Every franchisor has some number of failed franchises. This is part of doing business. Some people who get into business had no reason for doing so in the first place. Many franchises fail because the franchisee did a poor job of running the business. That’s not totally the fault of the franchisor and in many cases shouldn’t be held against them. However, a franchisee should try to figure out the cause of the failure. Even if failures were the fault of the franchisor, it is worth understanding why they failed. I wouldn’t throw the baby out with the bath water because some franchises have failed. Maybe you'll learn it wasn't the franchisee. Maybe you'll learn that early on the franchisor had some poorly designed systems that contributed to some of the failures. Maybe you'll also discover that the franchisor learned from those early mistakes and rectified those errors. Almost every company makes execution mistakes. Companies like GM, Ford, Toyota, and Apple have all screwed up in their history. It doesn’t mean they are bad investments today.

• They know how much capital it will truly take to succeed. Every business, franchise or not, must withstand the test of time. In my analysis, the most successful units are those that have been given time to become established. There are few overnight successes. Even some of the most iconic franchise brands needed time to establish themselves. Having enough capital on hand to carry the franchise through that growth stage is critical. Cash-flow is king in small business. However, it may take a few years to get to a point where enough cash is flowing for the business to support itself on its own.

• They understand the time commitment involved and assess their own willingness and ability to match the necessary commitment. This is a key point and one that is many times taken too lightly. Based on my experience, the best performing businesses possess a very common denominator and that is a very involved owner. Businesses with very involved owners tend to do better than those with passive owners. This is because no one will care more about your business and its success than you. However, involvement takes time and if you don’t have it to give you may want to rethink the investment. That said, this is where partnering can be a very beneficial approach. If you can find or have a partner willing to carry the torch at the level you would, then that may be a great option for pursuing a business you are excited about but stretched too thin to give it your all.

• They interview the corporate personnel before agreeing to become a business partner. A franchisee must get to know those who are making decisions about his/her future. If there is not a feeling of trust and confidence in the ability of those at the top to take the organization where it needs to go, then it is a marriage that is doomed to fail. You need to know and understand the strategic vision of the organization. You also need to know where their passion lies. If it’s not with the brand, then it will come through in their leadership. Passionate and smart people at the top should work as hard as you when it comes to making the business work.

• They analyze their market in advance. A franchisor may help with site selection, demographic analysis, and real estate acquisition. However, it is the responsibility of the franchisee to decide whether a particular location is the right location. Know the competition, market receptiveness for your product or service, and how much advertising and marketing will be necessary to break through. Not all markets are the same and some will be easier than others to succeed in. Knowing this up front can be the difference between success and failure.

Randy Stepp is a Principal with Renaissance Leadership Group. RLG is a full-service business and franchise development company whose purpose is to help business owners realize their dreams of independence and freedom.

Visit Renaissance Leadership Group at www.renaissanceleadershipgroup.com to learn more about business development