Sometimes the fastest way for a U.S. company to penetrate an international market is though a master franchise structure. This has wide-ranging implications for fee structure, the franchisee profile, marketing, training and support. Area development structures are also used. In any case, entering an international franchising market requires careful planning and strategy. Check out this recent Entrepreneur Magazine article which discusses some of the unique challenges and benefits of international franchising.
Article originally published on FranchiseExpo.com, May 2017.
Many lessons can be learned from John Lee Hancock’s “The Founder,” but perhaps none more important than the lesson of quality control and consistency as the foundation of franchise success. In one particularly humorous scene, Ray Kroc (the “founder” of McDonald’s) finds several units straying away from the company’s beaten path, from selling items like corn on the cob and fried chicken to operating as drive-ins and attracting undesirables.
Prospective franchisors cite this scenario as what’s ultimately held them back from swimming in franchise waters. For those that have worked hard to build their brand, the genuine fear that franchisees won’t sustain the quality standards they’ve established is very real.
All this means is that the prospective franchisor is focused on the right things. Maintaining quality in your franchise system should be a focus for a franchisor, and separates great franchise brands from those that don’t succeed.
The perceived loss of control
When it comes to franchising, an oft-repeated myth is that corporate locations will always outperform franchise locations in operations quality. This misperception is born of a fear that as a franchisor, you lack the control of franchisees that you typically have over hired managers.
This perception, however, fails to consider the motivations of a franchisee to institute a proven and systems-based approach to their business. For a franchisee, poor performance can, in worst-case scenarios, lead to the loss of the entire franchise, in turn leading to the loss of the franchisee’s investment, home, lifestyle, children’s college fund and retirement plans. Aside from the financial implications, franchisees are also motivated by pride of ownership. They relate to their businesses far more than even the best managers, leading to a potentially tighter ship than that of a typically business operation.
Put simply, franchising facilitates improvements in quality at the unit level in many ways. Numerous studies suggest that franchisees outperformed their company-owned counterparts by up to 30 percent, and whether it’s because they’re more motivated, or any number of other factors, the franchise benefits as a whole.
Duplicating success via the operations manual
Documenting systems of operation lend a big hand in a quality control. In franchising, this means a highly developed operations manual. A robust manual has multifold benefits, the most of which is its key role in training franchisees and their employees. The manual not only serves as a blueprint for operation, but as an ongoing piece of reference for even the most established franchisee, becoming the default go-to in most every scenario.
When it comes to “control,” the franchise operations manual is key, as long as the franchisor understands where to draw the line. The greater control a franchise exercises over the franchisee, the greater likelihood they step into a relationship where they become responsible for actions of the franchisee and their employees. So, the key in crafting a well-written operation manual is understanding the line in the sand on control issues.
As a rule, franchisors should exercise any aspects of the business that directly impact consumer perception, but scale back control over issues that don’t have a direct implication, instead providing recommendations and best practices to franchisees.
Understanding the role of support
Ongoing support comes in various forms, including on-site field visits, with the ultimate goal being higher quality and more profitable franchisees. Through field visits, representatives are able to observe the franchisee’s business and reinforce brand standards to prevent a potential fried chicken fiasco. A premium field-consulting program focuses on brand compliance and quality control, making its way through a checklist of brand standards to ensure the franchisee is in full compliance, and taking appropriate actions if not. Remember, the best franchisees not only receive adequate support, but also have condfidence the franchisor cares about their success. That’s a recipe for common objectives in a franchise system.
Opinion: Why Trump should be huge for the franchise industry
By: MARK SIEBERT
Whether or not you like him, are comfortable with his character, or agree with his stance on international trade, immigration, gun control and a host of social issues, President-elect Donald Trump almost certainly will be good for franchising.
The franchise industry as a whole continued to thrive during Barack Obama’s presidency, with average annual job growth of 2.6 percent over the last five years—nearly 20 percent higher than for all businesses, according to the International Franchise Association. Today, the nation’s almost 800,000 franchisees employ 9.1 million people, the association says. In Illinois alone, there are 29,000 franchised establishments with a total of 321,000 workers.
But the industry did so while overcoming some of the most significant obstacles that franchisers have faced since the Franchise Rule was instituted in 1979. In recent years, both franchisers and franchisees have been hampered by changes in the rules for overtime pay, the definition of joint employment, burdensome regulations and requirements for health insurance that could substantially alter their business economics.
Perhaps the biggest concern in the franchise community has been the National Labor Relation Board’s recent departure from the traditional interpretation of joint employment. Under the Obama administration, the NLRB broke from long-established precedent and ruled that a franchiser could be a “joint employer” of its franchisees’ employees even if it did not control their conditions of employment.
This move created fear in the franchise community, as it could impact the potential liability of franchisers for the actions of their independent contractor franchisees and their franchisees’ employees. Meanwhile, franchisees worried that their “joint employer” franchisers would exercise control over day-to-day operations and perhaps be forced to the union bargaining table—potentially compelling these formerly independent businesses to adopt wages and benefits they did not bargain for—putting them at a competitive disadvantage against their nonfranchised competitors.
As Trump begins replacing the NLRB’s members and its general counsel, we can anticipate a return to the more rational standard of “actual control” that previously existed, greatly reducing these concerns.
Trump’s nomination of Andy Puzder as secretary of labor will further boost franchise growth. As chief executive of CKE Restaurants, which franchises most of its Hardee’s and Carl’s Jr. outlets, Puzder intimately understands the franchise business model and how issues such as joint employment, the new overtime threshold—the rule, put on hold by a federal judge, would require overtime pay to full-timers earning less than $47,476 a year—have hindered its growth. If confirmed, Puzder will work to roll back these ill-conceived initiatives.
Trump’s pick of Linda McMahon to head the overly bureaucratic Small Business Administration and its $124 billion loan portfolio is another encouraging sign, as the SBA has become increasingly difficult for franchisees to deal with in recent years. As former CEO of pro-wrestling’s WWE, an international licenser that started as a true small business, McMahon is well-suited to bring a much-needed streamlining to this organization.
Additionally, while it is too early to speculate on what modifications in the tax code and changes to the (un)Affordable Care Act will look like under President Trump, both should fuel significant expansion in franchising and small business more generally.
Ultimately, the best solution for higher wages is more jobs. As demand for employees rise, so too will the competition for the best employees. By eliminating the barriers faced by our country’s businesses, America’s greatest job creator will continue to drive job growth in 2017 and beyond.
Mark Siebert is CEO of iFranchise Group, a franchise consulting firm in Homewood.
Mark Siebert talked to Inc. radio’s Alan Taylor about franchising a business.
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Mark Siebert joins Jim Blasingame to explain why a franchisor entrepreneur would naturally have the kinds of traits that would make that person a great president:
Here they discuss employment relationships in the franchising industry.
Mark Siebert talked to WTMJ radio’s Derrell Connor about how entrepreneurs can grow their business without spending their own money.
“For a lot of people, getting a franchise is sort of the American dream,” Siebert said. “They dream about owning their own business but they don’t want to go into business by themselves. If you’ve got a business and it’s successful and you’re looking to expand, franchising is the way to do it.”
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In this radio interview with Steve Pomeranz of On the Money! Radio, Mark Siebert discusses his new book Franchise Your Business: The Guide to Employing the Greatest Growth Strategy Ever. As an expert in the business of franchising, Mark’s book lays down the strategy for determining if a particular company has what it takes to enter into the franchising arena.
Click here to read about and listen to the entire interview.
Mark Siebert joins WTMJ radio’s Derrell Connor to discuss franchising.
Business like Subway started off with one store and then grew into (inter)national brands. So how can other small business grow into franchises?
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Mark Siebert joins Jim Blasingame to reveal the entrepreneurial track that starts with buying a franchise and operating it as your business, including resources for your search.
Mark Siebert joins Jim Blasingame to report on the recent assault by the Obama administration’s NLRB on the franchise industry’s relationship between franchisors and franchisees as they employ people across the relationship.