Top 5 Predictors of Franchisee Success
Q&A With Eric Stites, CEO and Managing Director of Franchise Business Review
There’s something exhilarating about starting your own business — nurturing it from the ground up and working relentlessly to make it grow. That’s true whether you start a business from scratch or join a franchise organization.
For some business owners, however, there’s a particular satisfaction that comes along with joining a franchise. Although there’s certainly something to be said for becoming an independent entrepreneur, there’s also a long list of benefits to becoming a franchisee.
Indeed, satisfaction among franchise business owners is at an all-time high, according to research conducted between October 2017 and March 2019 by research firm Franchise Business Review (FBR). Of those surveyed — which included 29,341 franchise owners — FBR found that the vast majority:
- Enjoy operating their business (88% strongly agree to agree)
- Enjoy being part of a franchise organization (87% strongly agree to agree)
- Respect their franchisor (85% strongly agree to agree)
- Are satisfied with their franchise (excellent to good overall)
Given the high numbers, it begs the question: What, exactly, is contributing to franchisees’ levels of satisfaction? We chatted with Eric Stites, CEO and Managing Director of Franchise Business Review, to get the inside scoop. Below are some of the major factors that predict success for franchisees.
Success Factor #1: Preparedness for Economic Changes
FBR has been measuring franchisee satisfaction since 2005-2006. Although initial satisfaction held steady in the earlier years, not surprisingly, it dipped during the recession a decade ago. Today, the numbers are higher than they were prior to that recession. What gives?
“A lot of factors go into satisfaction and engagement, but economic factors are big,” Stites explains. “When the economy is doing well, consumer confidence is high.” That confidence equates to an increase in people going out to eat, opting to buy services for their homes and overall spending more money — in other words, an increase in people seeking out franchise products and services. And the more people spend, the more small businesses benefit.
Because franchising tends to follow the ebbs and flows of the economy, the most successful franchisees are those who are prepared for any bumps in the road. The downside of a sluggish economy may be a slowdown in consumer spending, with the upside being a possible increase in franchise growth. When times are tough, people may be more fearful about job stability and more likely to take the leap into business ownership. The opposite also tends to be true: During an economic boom, people have less of a reason to leave their jobs and pursue the potentially risky endeavor of starting a business.
As a franchisor, your best bet is to plan how you’ll combat a dip in consumer spending while also aiming to boost franchise sales. Work to strengthen your brand’s reputation and confidence in your products and services — with the understanding that social media and online reputation play a large role in how your franchise is publicly perceived.
By strengthening your brand, you’ll help franchisees stand apart from competitors even if the economy slows — not necessarily with lower prices, but rather with great customer service, responsiveness to reviews, community engagement and company culture. Both the consumer and franchise recruiting sides of your business stand to benefit from a thriving, positive online presence.
Success Factor #2: Access to Marketing, Technology and Innovation
Key drivers of franchisee satisfaction include marketing, technology and innovation — that is, having access to the most forward-thinking programs and services. The franchise companies that continually invest in innovative technologies and systems are the ones that thrive. In turn, their franchisees are able to thrive as well because they’re able to gain and maintain a competitive edge.
“I always tell [prospective franchisees] to talk to the franchisor to understand the programs they offer, but also talk to franchisees to see how well those programs work,” advises Stites. Franchisors may talk at a “high level” about their marketing, public relations and social media programs, he adds, but talking to franchisees will provide a more detailed and realistic picture of how those programs are functioning at the location level.
Evidently, it’s an area that not all franchise companies get right. “In all the years we’ve been doing this” — surveying franchise organizations and publishing their findings — “marketing, technology and innovation always score the lowest.” However, the ones that score high on the innovation front tend to have a few commonalities:
- They focus on the people. Successful franchise organizations live by the motto that franchisees are in business for themselves, but not by themselves. The most successful franchises involve franchisees in the process of implementing innovative new technologies and services. “They’ll use franchisees to test it first and prove ROI before rolling it out to the entire network,” Stites says. “If the franchisee feels like it was their idea, it will be much more successful than feeling like it was something mandated by the franchisor.”
At Rallio, we’ve seen this process in action when we on-board new franchise brands. The franchisor will work with us to select a number of locations for pilot testing of our Rallio social media platform and Rallio Local agency services. After a testing period, usually around a month long, we’re able to show the franchisor certain success metrics such as an increase in followers and engagement, a boost in sales, a boost in online reputation, and/or an increase in new-hire recruiting numbers. From there, we can more easily get franchisee buy-in and roll out Rallio products and services brand-wide.
- They’re adaptable. No successful business stays stagnant. If you’re not continually updating your systems as a franchise organization, you’re not going to be around for long. Keeping up with changing customer needs and expectations by way of innovative processes, programs, products and services keeps you ahead of the curve both as a franchise and at the location level. You’re also able to empower franchisees to keep reaching their target customer market and building a loyal customer base (more on that in the next point).
- They focus on the customer. With new innovations, franchisees are better equipped to deliver better, more personalized customer experiences. The evolution of social media has given rise to changing customer expectations. Gone are the days of picking up the phone to voice a complaint or question; customers will simply take to social media. And customers who post brand-related questions or reviews on social media want their concerns addressed immediately. With better, faster technology and methods of replying to customers — e.g., the Rallio platform and our agency-style marketing services — franchisees are able to ensure rapid responses to customers.
Success Factor #3: Clear Communication Between Franchisor and Franchisee
The better the communication between franchisor and franchisee, the better the odds of success for all parties. Part of that clarity comes down to having easy-to-communicate programs and processes that any franchisee can easily execute with the proper support. Stites says the KISS principle applies: Keep it simple and easy to grasp.
Take, for example, the food industry. “If the menu gets too complex, then operating the business becomes too complex,” says Stites. The same is true across the board: From operations through marketing, if you can keep your systems simple, focused and duplicatable, then it’s much easier to plug newcomers into the organization and set them up for success.
With marketing, for instance, focus on three to five core methods and do them well, and franchisees will be more apt to try them successfully at the local level. Our Rallio Local clients are successful for this very reason. From corporate down to the individual franchisee, we help them execute a few key strategies focused on customer engagement and responsiveness on the major social media platforms, like this crowd-pleasing photo on one of our client’s pages:
Another benefit of simple programs and processes is that franchisee recruiting efforts become more streamlined, too. Imagine your developers out in the field recruiting candidates and having to communicate a set of lengthy, complex procedures to prospects. There’s a high chance of something getting miscommunicated or overpromised — and, later, franchisees getting let down or overwhelmed by an overly complicated system. Now imagine them in the field selling a plug-and-play system instead, one that a dedicated, determined franchise candidate can pick up and run with. Which system do you think will be more successful?
“It starts with setting realistic expectations from day one,” says Stites. “It’s better to underpromise and overdeliver.” From a corporate level, ask yourself if you’re aware of exactly what’s being said by your development team out in the field. What are they saying to candidates? What expectations are being set? Sometimes the CEO or development executives don’t even know what’s being promised, adds Stites.
The danger of doing the opposite — overpromising and under-delivering — is real. Oftentimes, expectations aren’t set correctly when franchisors bring candidates on. “During the recruitment process, they talk about bells and whistles,” says Stites. Franchisees think they will open their doors and customers will flow right in (more on that next), and they’re later surprised to learn there’s much more work involved. Making sure everyone is on the same page will help to set the proper expectations and set franchisees up for success.
Success Factor #4: Avoiding Common Pitfalls
Although the franchisor is responsible for setting proper expectations, it’s also up to franchisees to do their due diligence — in terms of both the franchise in question as well as their own appetite for hustling to build a business. Oftentimes, franchisees buy into a franchise system thinking they’ll just swing the doors open effortlessly and customers will pour in. In reality, the work involved with building a business is the same regardless of whether it’s a franchise or an independent business.
“Whether it’s a franchise or non-franchise, it’s a ton of work [to start a business],” says Stites. “It’s the hardest job you will ever have.”
Although theoretically there are systems and processes in place with a franchise, there’s still hiring to do, operations to facilitate and marketing campaigns to launch. No matter how you slice it, you’ve got a business to run, and you either have to do it yourself or hire a team to do help. “A lot of people think, they hate their job and they will go into business,” not realizing the work and commitment involved, says Stites. “If you hate your job, you can quit. If you buy a franchise, you signed a 10-year or longer agreement. If you don’t like it, it’s much harder to unwind that.”
In addition to considering your own desire to work tirelessly for your business, it’s also important not to commit to a franchise based solely on its particular product or service. “People may get excited about the product or service the company is offering,” says Stites, “but the skills to be a successful franchisee could be very different from what the actual product or service is.”
For example, a fitness enthusiast may think they should open a fitness franchise just because they like the gym. However, from a franchise candidate standpoint, it’s more important to understand what makes a particular brand successful and how you personally can make your location thrive. As a franchisee, you’ll need to be out networking in the community, building relationships with customers and colleagues, and pouring your heart into all the behind-the-scenes efforts required to run a business — i.e., you won’t just be working out all day.
This realization that franchising is much more work than anticipated can cause franchisees to fail or plateau. If they achieve a certain level of success, they have to either keep going, or stay stagnant and risk becoming obsolete. Just as the franchisor must adapt to changing times, so must franchisees.
On the positive side, the benefit of joining a franchise system is that franchisees have access to an entire network of owners who can help provide motivation and support. As a franchisor, you can help your franchisees by facilitating a connected community. Underperforming franchisees should have a lifeline to the most successful franchisees, whether by phone or through an online platform, so they can share ideas and find out what they are doing differently. Says Stites, “The most valuable asset is the franchise network.”
Success Factor #5: Finding Just the Right Size
According to FBR, of the approximately 3,000 U.S. franchise companies in operation today, 69% of those companies are smaller franchise companies with fewer than 100 locations. When preparing to join a franchise, candidates should consider its size in addition to the factors above so they know what you’re getting into.
On the one hand, a smaller franchise may have more opportunities for growth because they’re not saturated in the market the way McDonald’s is. It could be well-suited for risk-takers seeking more entrepreneurial freedom and flexibility if the system is still in development. They don’t have it all “figured out” yet and may rely on the first franchisees to help establish processes and systems. On the other hand, a smaller franchise might not be ideal for those craving structure in a well-established organization. However, one can’t assume that just because a brand is large that they’re successful at the franchise level.
Ultimately, in addition to researching a potential franchise thoroughly, talking to existing franchisees about their experience can help in the decision making process. As a franchisor, the more you can communicate with franchisees and support their experience of business ownership, the more satisfied and successful they are likely to be.