franchising

In relation to my previous blog post about my guest post that seems being unpublished, I decided to publish the post here.

I think I guest the post myself, for you to enjoy :)

Why Brand Management is Paramount in Franchising

Brand management is important for any businesses. However, it is paramount for franchise businesses.

You know what really troubles me in running my franchise units?

No, it’s not really my franchisor who troubles me. Surprise, surprise - it’s my fellow franchisees.

This is fact - not all franchisees are cooperative. The owners buy the franchise units hoping for a shortcut into entrepreneurship. Although for some cases it’s true, it’s not really true for most.

Franchising requires franchisees to follow set rules enacted by the franchisor. The basic rule of thumb, if you followed all the rules and the operation manual point by point, you will likely to succeed.

The problem with those who hope for a shortcut into entrepreneurship, they usually think that they can do whatever they can to their franchise units. The truth: not! - Rule number one: follow the rule or get ’sacked’ by the franchisor. Rule number two: read rule number one. Not all franchisees are happy with those rules.

What do unhappy franchisees do?

1. They want out - they will either sell the unit or bail out of the agreement.
2. They half-abandon their franchise unit.
3. They speak bad words about the franchisor - even considering the fact that the blame is actually on them.

The unhappy franchisee type #1 is not damaging the brand of the franchisor, but the #2 and #3 is.

Why brand management is paramount in franchising? Because a franchise is not only built by the franchisor, but also by the franchisees.

If a franchise unit’s performace is spectacular, the other franchise units reap the positive reputation and enhanced brand image. If a franchise unit is a failure, the brand image is affected. Plain and simple.

I once complained to my franchisors on how other franchisees manage their franchise units - not because I feel I run my units the best, but for the fact that I want the benefit of the brand name I rented! Rented? Well, of course - I pay for the franchise, royalty and marketing fee - all in all, I pay rent for the brand name I use for my units. If somebody messed with the brand, not only he/she is messing around with the franchisor, but also with me :)

To cut the story short, I am a happy camper due the fact that my franchisor is listening to the franchisees’ complaint - some franchisees are, finally, ’sacked’ and force to either close down their business or transfer ownership of their units - to preserve the brand image.

Are you involved in franchising or other businesses and have a story to share? Please do share yours by commenting to this article.

Ivan Widjaya
Brand builder

I wrote a post for Small Business Branding, titled Why Brand Management is Paramount in Franchising. Thanks, Vera, for having me as a guest in your excellent business blog!

I basically highlight the importance (and the real challenge) of managing brand in franchising. I say ‘real challenge’ due the fact that the brand name is not only built by the franchisor, but also by the franchisee.

Please do check my guest post out and share me what you think :)

Ivan Widjaya
Guest posting

Franchise industry is a different world of its own in entrepreneurship.

A certain type of entrepreneurship may or may not a best fit in franchising. If you saw a franchise unit runs well, don’t be surprised to know that it’s because of the location, not because of the right franchisee running the unit. What the best fit franchisee impacts is on two issues - everlasting franchise unit growth beyond it’s locational perks, and great relationship between franchisee and the franchisor, as well as with other franchisees.

Running a franchise unit as a franchisee is challenging and unique - Being a franchisee resides in a position between professional and entrepreneur career path. As a franchisee, you have to follow set rules as professionals do, as well as to have the creativity and vision as entrepreneurs do.

To be a successful franchisee - beside the location, location, location factor, of course - is the ability to position yourself well in both professional world and entrepreneur world.

7 habits of a highly effective franchisee

There are certain habits that make you a better franchisee - franchisors eager having you joining them as a franchisee.

1. Nurture a good relationship with the franchisor.
   Good relationship means better teamworking and problem-solving - and don’t forget, you ’stuck’ with them for at least 5 years. 5 long years are better enjoyed in a positive relationship, don’t you think?
2. Walk on his/her own two feet.
   Come on, admit it - you love to shriek and whine at your franchisor. Stop being a baby, and run your franchise unit like an adult - independent and proactive.
3. Continuously benchmark his/her franchise unit to other franchise units.
   See what other successful franchisees do, copy it and modify it according to your franchise unit’s need, or even to achieve better results.
4. Be proactive in every franchise meeting.
   Franchise meeting is supposed to seek solutions and solve problems in franchising issues - It’s not a lecture, even a seminar where response is limited, although encouraged. Be a good contributor.
5. Offering solutions, instead of requesting franchisor to help resolving problems (all the time).
   People enter franchising hoping for the franchisor’s support. True, but you are suppose to offer solution on how the franchise can improve - if the franchise succeed, your franchise unit succeed, as well.
6. Don’t rely on the employees - rely on the system.
   Running a franchise often involves managing employees. Although they are one of your best asset, don’t depend your franchise unit’s survival on them. Franchising biggest plus is THE system. Depend on the system, including employee and management policies, to manage employees. Your franchise units must run well with or without your employees.
7. Be an impact in the community where the franchise unit resides.
   The community where your business resides is where your customer from. Your franchise unit is successful because of the community surrounding it. It’s a great habit to give back to your community, such as sponsoring a charity event or donating money and/or time to a good local cause.

Following and pursuing the 7 habits will put you in the ‘authority’ position of francshising - impacting your own franchise units, the franchisor, and other franchisees. Moreover, having the 7 habits, well, as your life habits, will bring you beyond the franchising itself - more business opportunities and network of friends.

Ivan Widjaya
Pursuing the 7 habits

Franchising is about getting the right business at the right location, right?

Wrong! It’s about the franchisee agreement and the ability to stick to it. Therefore, franchising is not for everybody.

Franchising is for those who can follow set rules and comply to what outlined in the franchise agreement. If you can live with it, you can succeed. If not, you’d better be opening your own business.

Franchising involves two totally different entities united in a common ground called franchise agreement

It would be unfair and bias to talk about franchising from one side only, whereas there are actually two sides involve in it - the Franchisor (the brand owner) and the Franchisee (the brand licensee).

They are united by a franchise agreement. I’m not going to talk deep into franchise agreement, yet (maybe in my future posts?)

What I am going to talk about is that the agreement filled and ’spiced’ with the rights and responsibilities of franchisor AND franchisee - therefore, it’s uber important.

When an agreement is done between two entities, that’s usually needed due to the ‘contradictive’ nature of the two entities.

An agreement is sealed to unite the differences.

Franchise agreement is NOT partnership agreement.

Alas, many people mistakenly believe that franchise agreement is partnership agreement.

This misconception causes wrong expectations of the franchisees - they expect the franchisor to be equal partner with shared responsibility. Well, it’s totally wrong!

There are several basic differences between a franchise and a partnership:

• A franchise doesn’t share profit - it charge a form of royalty and marketing fee in return for support and branding.
  A partnership (licensing, business opportunities, multi level marketings, etc) - either equal or not - share profit.
• A franchise doesn’t share risk - franchisee holds the whole responsibility of the success of its unit, whereas the franchisor guarantee that the support and brand image are well taken care off.
  A partnership shares risk among partnership members.
• A franchise implements top-down approach - franchisees must comply and follow the franchisor’s guidelines.
  A partnership, as you might guess, determines who’s in charge by the amount of share owned in the partnership.
• In a franchise, relationship are enacted on set rules - again, in my noobpreneur term, generic relationship.
  In a partnership, relationship are negotiated - in my noobpreneur term, organic relationship.

Why franchisee agreement is very important

Just like any other agreements, franchisee agreement is purposed to lay all rights and responsibilities on the table - to see whether they are the best fit for the franchisee and the franchisor. If you liked it, carry on. If you didn’t, bail out.

This is important, because the latter disputes in franchising are mostly caused by the misinterpretation of franchise agreement by the FRANCHISEE - not the franchisor.

In many publications, franchisors are often blamed for the franchisees’ failure. Believe me, more often than not, it’s the franchisee who s–ks, not the franchisor. I’m a franchisee, I know what I’m talking about :)

Yes - franchisors have their own bad, but the call to agreeing or not-agreeing on the agreement is on the franchisees. You sign it, meaning you understand it. Period.

Last words

Franchise agreement is not easy to understand - it’s often lengthy and boring :)

However lengthy and boring it is - the franchise agreement is crucial.

About the length and complexity, the franchise agreements are set to regulate every single detail - to let potential franchisee fully understand what it takes to run the franchise unit.

If the agreement was too simple, potential franchisees might see the franchisor is not serious enough to tackle potential problems.

One word of advice - if you were not a good agreement reader, consider hiring a lawyer to translate the agreement into more casual language and warn you if potential problems presented.

Ivan Widjaya
Franchise agreement reader

I’ve post a few on franchising - mostly from the eye of a franchisee.

This time, I present you a story from the franchisor side.

A story from the CEO of nation’s leading Business Services Center about franchising

When I’m talking about nation’s leading franchise, it’s non-US; It’s in a country where I live right now - just to clarify :)

I have a good relationship with my franchisor - the CEO of the Business Services Center. We share a lot about franchising.

One time, he shared a story that broaden my insight on franchising.

Not all franchisors share the vision of ‘growing together’

He mentioned that many franchisors think about franchising as a vehicle to rapidly grow their business and assets - that pushes franchisee interests on lower priorities.

He stated that it is his interest for franchisee and franchisor to grow together, because if the franchisees succeed the franchisor will reap the result, too - better brand value and awareness, and strong franchise performance, that lead to many opportunities.

Franchising your business is not easy

Franchising seems like a good idea to expand a business - but it’s not easy. He shared that although the cashflow is admittedly nice (in my case, the royalty fee is 5% of sales), almost all are ‘vanished’ into R & D and marketing campaigns.

He stated that the overhead in franchising is nose-bleedingly high - cost are sky high, and performances could be better. What gives? Mismanagement in the headquarters?

He honestly said that the liabilities here is not only the franchisor, but also the franchisee - ‘bad’ and uncooperative franchisees slow progress and consume unnecessary resources.

The impact is severe - the other cooperative franchisees and the franchisor suffer the consequences - lackluster support, damaged brand image and value, and lose focus.

How to solve? To ‘weed out’ bad franchisees, he had to splash some money to buy back the broken franchise units. His franchising strategy doesn’t include closing franchise units - buying them back are more viable, in his opinion, to preserve the brand image.

It’s simply not easy.

If it is not easy, why you insist on the benefit of franchising?

Despite the problems above, he mentioned that franchising is necessary, and a great, time tested, business strategy.

He took the franchising route, rather than licensing or partnership route, to incorporate exponential nature of franchising.

Exponential means covering strategic areas fast and outnumbered competitors - hence, achieving better brand awareness and exposure.

Franchising is at it best if the franchisor and franchisee can work well together

The power of franchising lies in the ability to agreed on a common goal despite all the differences. McDonald’s - a classic story of a successful franchise - becomes one of the world’s leading francishors due to its ability to work together with the franchisees.

Currently, my franchisor have more than 110 franchise units nationwide.

My benefit as a franchisee? A brand image that is nationwide, and a profitable business, thanks to the effort of my franchisor.

The end.

Ivan Widjaja
Franchise believer

Most people ask, “are buying a franchise unit will make you rich?”

My sole answer, “No - You WON’T.”

Why? Am I bitter toward franchising?

No - I am a big fan of franchising!

I believe the power of economy of scale and exponential growth - they are key to riches - both are present in franchising.

With economy of scale, a franchisee enjoy a better purchasing power - simple: 1 business ordering a widget gets different pricing to 100 business ordering the same widget in volume.

With the exponential growth of your franchisor, you enjoy better exposure and brand awareness without doing a thing on your part! Neat-o!

However, franchising has its drawback.

The not-so-good things about franchising

The benefits of franchising I mention above don’t come for free. In exchange of those benefits, you are obliged to pay a franchise fee (which has to be renewed after a certain period of time) and a royalty (or other forms of revenue.)

THIS is where people got wrong thinking that buying a franchise could make them rich.

Buying a franchise is buying a cash flow - yes, you can get a healthy (and hefty) cash flow. You can enjoy a good lifestyle owning a well-run franchise unit, and also enjoying the exposure in your local area (which may also translated into more clients and cash for you.)

However, in my humble opinion, that’s about it, really. You can’t really get rich and financially free by owning a franchise.

I agree what Yaro Starak of Entreprenerus-Journey.com said, that you will be rich AFTER you sell your business, not WHILE you run your business.

Why Franchising won’t make you rich

I believe you have heard stories about the acquisition of Feedburner, Blogger, and such - the owner is a rich man after their business is sold.

In other words, riches come in the form of capital gain, not cash flow. To describe - Cash flow keeps all gears working well, but capital gain buys you the engine.

Again, this is why you should consider starting up your own business - Your franchise unit does has valuable assets - but not the most valuable one - the brand name. No matter how long you own your profitable franchise unit, the owner of the brand is not you - it’s the franchisor.

If you eventually sell your profitable franchise unit, you are selling assets PLUS goodwill (cashflow, good local image, etc) MINUS brand name value. And that’s not a number you would love to see by selling your business.

In my opinion, the biggest selling point (and value) is your brand name - To have it, there is no other way unless you start your own busieness.

So, purchase a franchise or starting up your own business?

My answer - if you were valuing capital gain over cash flow, choose starting up yourself. If the other way around happened, choose franchising.

Also, consider your skill set and entrepreneurial style - no one-size-fits-all solution here :) One person can be a better franchisee than the other - this also applied to starting up a business.

Choose what kind of entrepreneurship you want to do - it could take decades to find yours. So I suggest start choosing now, before you got too deep in something you don’t like later on.

Ivan Widjaya
On franchising

Franchising is hot. It is, in fact, hot for decades.

Why would people buy a franchise unit? What make a franchise appealing?

The number one reason people buy a franchise unit is to cut his/her way into entrepreneurship.

Yes - buying a franchise brings you a few steps ahead of other entrepreneurs. While other entrepreneurs work long hour to trial-and-error their business concepts, not mentioning the amount of resources to push their ‘baby’ to grow, franchisee unit buyers cut right to the chase into entrepreneurship ‘buying’ a proven system.

That’s why franchise units are relatively expensive to buy compared to the similar, non-franchise, counterparts - Franchisors, the brand and concept owners, take the hassle out from you in return for a sum of money, often called franchise fee.

Franchisors offer you tested and true, proven, system, including location surveys, employee training, marketing and promotional tools, etc. As long as you play by the rule and utilise the system the right way, you will likely to succeed than not.

That’s amazing! I want to buy a franchise unit right away!

Whoa! Slow down, cowboy… Perhaps you have the money to invest in a franchise unit, but buying a franchise, as well as other businesses, need some evaluations prior deciding whether to take the franchise unit or look elsewhere for better options.

What you have to know about franchising

Franchising is not easy - trust me - read my previous post about it. Please also read the Episode 1 :)

Franchising is like marriage. If you turned-off about the idea of marriage, perhaps franchising is not for you.

Believe me, many franchising ask you for a private interview before you are ‘allowed’ to own one of their unit. The current trend - they ask you about your family and/or marriage life. Some of them ask you to come with your spouse.

Why is it important?

The premise is, if you manage your family right, you can succeed managing the franchise unit.

Franchising needs teamwork and the willingness to follow franchisor rules and guidelines. Franchising needs trust and respect.

If the franchisors said that direct selling is not recommended for your unit marketing campaign or a certain location is not good for the unit, then you should listen to them - they know what they talked about. They’ve been there, you haven’t.

How to Choose the Right Franchise

Here’s some tips from my experience on how to choose the right franchise:

1. Don’t choose the franchise based on your hobby and interest
   Choose one that is unique and answer a problem in the community. Also, choose by its ability to sustain changes and its business life cycle length.
2. If your felt that you can’t work well together with the franchise’s CEO, bail out of the deal
   Chances are, if you can’t stand the franchise’s CEO style and habit, you can’t stand to work with him/her later on - not good for your franchise unit!
3. Study the financials - consider the franchise fee and royalty fee
   The first things to look into a franchise financials is: the franchise fee, the length of franchise agreement, the franchise renewal free, and the royalty fee. Thus, you can calculate your monthly ‘franchise unit ownership’ fee.
4. If you felt that the offer is too good to be true, perhaps it is too good to be true
   Franchise is not outrageously profitable - not a single franchise in my entire franchise units ownership career can achieve extraordinary results. Exceptional performance yes, but not extraordinary performance. Thus, run away from ones that offering it.
5. Study the company background - hire a detective!
   Just kidding :) My point is, you have to learn the basic company background - the established date, the ownership structure and changes, and the reputation.
6. Study the franchise’s growth plan
   A good franchise is one that have a written growth plan to share with potential franchisee. No growth plan written might mean no plan at all.
7. Does the franchise guarantee anything? Choose one that is NOT guaranteeing a certain BEP or ROI
   A franchisor might offer you a guaranteed 24/7 support, but not a guaranteed break even period (BEP) or return on investment (ROI). Nobody can guarantee you anything about it - unless you deal with fortune tellers :p
8. Have a chat with the other franchisees
   Franchisees are the most trusted source of franchise information - They won’t trick you to buy a franchise like theirs, will they?
9. Don’t choose a big name franchise
   Choose a smaller franchise with outstanding record and ‘ride the wave’ together with them. McDonalds is uber expensive, anyway.
10. Don’t choose a franchise that doesn’t even have one own unit
    The franchisor’s own unit is your benchmark and your measurement of success. If the franchise you interested in doesn’t have any, how can you benchmark or measure the potential of buying a franchise unit from them?
11. Choose a franchise that trains you, the franchisee, a lot
    Good franchisors take franchisees’ personal development seriously, because strong franchisees mean strong franchise units.
12. Pick a franchise that doesn’t allow you to improvise too much
    If your entrepreneurial spirit are freedom, no boundaries, creativity and improvisation, don’t choose franchising route - you can perform well starting up your own business. Franchising needs military-style people that can work well under a guidline.

Bottom line: You can achieve riches with franchising if you are willing to work in a family-like system that has a operating manual. If you can’t stand rules and dos-and-don’ts, don’t choose franchising.

Ivan Widjaya
The learning franchisee

People tends to forget the essence of franchising - No, it’s not getting a proven system in exchange for a franchise fee and royalty - it is a definition of franchise.

The essence of franchising is networking.

That’s why owning a unit from a franchise that only has 5 units in total is not recommended - it’s even an absurd way to enter franchise industry.

A franchise true power is the ability to network with other franchise unit owners - the more, the better. Not only you can trade best practices on how to run your franchise unit, but also you actually can get some business from them, even do business with them.

Franchise owners are professionals and entrepreneurs - They usually have their own network and team. They have their own inner-circle members. You can enter the inner-circle by build a genuine relationship with them. You may reap what you sow later on.

The key is being nice and genuine - don’t approach them by doing what a sales and marketing person did - It’s useless, and they may avoid you all the way.

You may find that networking and doing business with other franchise owners are actually more lucrative than the franchise itself - so, I conclude that buying a franchise is like buying a membership to enter the network of business owners.

That’s why you have to buy a franchise unit that is NOT your hobbies or interests-based. Buy a franchise unit due to the franchise’s business and network potential. With tens of thousand units worldwide, a McDonald unit would be nice, but it is way, way much expensive for the rest of us.

How to network with other franchise unit owners

Do a basic business relationship building - have a general conversation early on, then move to business conversation later.

Tell them a bit about yourself, out of topic. They might interest in your personal life than the business itself. But, by doing so you will get their respect and trust - important in any business dealings.

Contact regularly with them - at times, request for a business lunch or dinner - schmooze them. Then, soon it might be the right time to offer some business opportunities or request for contact from their inner-circle.

The basic rule of thumb, profits each other - don’t ask them something and not giving back to them in return. And, oh, don’t forget about timing - it’s very important.

There’s there :)

Ivan Widjaya
Franchisee networker

I owned several local franchise units. To tell you the truth, the first time I buy a franchise unit is my effort to cut my way into entrepreneurship. I thought it was easy. It’s not.

I learn franchising the hard way. Many people, just like me, buy a franchise unit with a wrong reason - mainly, they want to take a short cut into the world of entrepreneurship and to live an American Dream - fast cars, house with pools, lots of zeros in bank accounts, etc. This way, they - including me at that time - will be guaranteed failure even before the business itself run.

Franchising takes a lot of work - and money. You see, the premise behind franchising is that you ‘lease’ a proven system - developed through trial-and-error and involved a lot of resources - in exchange for a sum of money (typically a franchise fee and a royalty fee). Expensive? Yes. In return, you’ll receive support and expertise that will help you to run your business. Therefore, are franchise units are less likely to fail? Yes. But they DO fail, although on a significantly lower rates - mostly, it’s not the franchise system that fails. The franchisee is the main culprit.

I love franchising. I love the idea of running a business will less risk of failure. But somehow, I failed in one of the franchise units I owned. Why? Again, wrong reasons to buy the franchise unit.

Wrong reasons to buy a franchise unit

• Get rich quick - If a franchise offer you this, run away! Getting rich in franchising is a marathon, not a sprint
• Franchise units are easy to run - The system is there, but it’s not easy to run. Not only customers expect you to perform, but also your employees and your franchisor
• The system will run the business by itself - Not possible! You need manpower, and manpower need to be managed
• Customers will come by themselves because of the brand name - Yes, they will probably do so, but retaining a returning customers are paramount, and this is what most franchisee forget to do!
• To become an entrepreneur - Entrepreneurship can’t be bought! It’s action and hard work that make someone becoming an entrepreneur. Even in most franchising case, entrepreneurship is suppressed! Franchisors need people who can follow rules and guidelines, not people who try new things all the time.

If it’s not easy, why franchising is so appealing?

Franchising IS appealing. If you can follow rules and guidelines in a system, you are most likely to succeed. Creativity is usually encouraged, but it must be under franchisor’s approval. Following franchisor’s footsteps is highly encouraged - it’s the only blueprint to success.

Some words of advice on becoming a successful franchisee

Of course, it’s your job to choose the right franchise - bad franchise will always mean bad result for you, no matter how hard you try to improve your franchise unit.

So, do your homework - list franchises that you are having interest in, and contact them one by one. Don’t do this by phone! Meet face to face and have a conversation, because franchising is like having a family - You stick to your franchisor for a lifetime of your franchising agreement. No matter how promising a franchise is, if you are not comfortable with your franchisor, just move on.

Schmooze your franchisor! Spread good words of your franchisor to your colleagues. Give valuable advice. Help your franchisor solve business problems. You will reap what you sow in one way or another - good words on you, referrals, unexpected opportunities, etc.

Don’t team up with other franchisees to form a union against your franchisor! Network with other franchisees to develop and market the franchise, and most likely, your franchisor will help you with resources, including funds. Your franchisor’s fund for your franchise units benefit - sweet deal! :)

Patience is key. Franchise businesses do return your investment in longer period than other type of businesses. But the system will provide you longer business life cycle and longer period to reap for profit. If you don’t see results immediately, relax. In my experience, that is the typical franchise business - longer return on investment, even longer break even point.

The most important tip: Follow your franchise rules and guidelines. I can’t stop reminding you of this because it is very important. Most of the time, your ability to follow rules and guidelines will eventually determine your success. Trust me, I’ve been there.

If you have all the resources and mindsets needed, I highly recommend you to buy a franchise unit. Lower risk, longer business life cycle, longer period for profit - It’s heaven, IF you are the right person for franchising.

Related posts other people has read:

Buying a Franchise - A Good Way to Network and Get Some more Business

How to Choose the Right Franchise

Noobpreneur.com is On Top 50 Franchising Blog Post 2008

Purchase a Franchise or Starting Up Your Own Business?

How to Choose the Right Franchise - Episode 2