Swahili is a language used throughout eastern Africa. It is a lingua franca - a language used to make communication possible among people not sharing a common mother tongue. Some of the Swahili vocabulary derived from Arabic and European languages over many centuries of contact with traders, empire builders, and others. It was the only way commerce could be done without lots of miscommunication that lead to mistakes. While its origin traces back to a single tribe, today it is used by more than 140 million people across many countries.
What does this have to do with franchising? Franchising has many constituencies inside and outside of the actual execution of the business model. We are all familiar with those operating inside the business model. Some of those trying to communicate about franchising from outside the business model include the media and legislative officials. Unfortunately, many of the constituencies on both sides of the business model speak different dialects. Ask someone to define what a failure is or what an area developer is for a particular franchise system. Absent a common set of definitions, we are causing ourselves a considerable amount of confusion and often discomfort.
Is it time for franchising to learn from history and tackle this problem? I think the answer is that we have to for the good of the business model. Take what is perhaps the single most important topic of franchisee success or failure. Even though the media and legislators argue about and use data to support their positions regarding franchise success/failure, no one seems to know what the definitions should be, let alone the right data to use to assess such outcomes. Some say franchised small businesses are more successful than non-franchised businesses. Others say the opposite. They both can't be right.
Census data on small businesses in general show that less than half were still alive after five years, whether the definition was "new establishments" or "new firms". If that is the bar used to define relative success, franchising shines as an effective business model. Unfortunately, that just isn't a very good bar to use for both definitional and performance reasons.
In franchising, should we talk about the success of a unit, success of a franchisee entity, or success of the owners of the franchised business (after all, we tend to think of franchisees as people)? How we measure success also needs to be considered. If a unit or franchisee entity "survives" for a sufficiently long period of time, is that success? If the owner remains the owner for a period of time, is that success? Then we get into the nuances. If a single unit closes for whatever reason but the multi-unit franchisee entity survives, is that still successful? What about the opposite, when a unit exists for many years but during that time one franchisee entity failed and another succeeded?
There's no perfect definition for some franchising terms on which everyone will agree. There really doesn't have to be. What there does need to be is a common definition that is backed by accurate data reflecting that definition. For too long we have tried to contort the information that is contained in an FDD into things it wasn't intended to do and does very poorly. That is most evident when it comes to an understanding of success/failure in a franchise system. Lenders mostly gave up on doing so, turning instead to SBA statistics, only to learn of the inaccuracies of that data. That led to the development of FRUNS and Bank Credit Reports. Continuity is a new term defined for the purpose of understanding success rates. Failure also is specifically defined in BCRs and failure is defined at the unit level with comparative performance built across franchise brands from that definition. The beginning of a lingua franca for franchising is under way.
Going beyond banking applications, what about defining a term that relates the training program a franchisor conducts with the time it takes a franchisee to get a unit to a defined level of performance? Call that the training success ratio. What about relating the initial screening and discovery process with the longevity of franchisee owners in a franchise system? Call that the selection process index. If we can just free ourselves from the self-imposed chains of FDD language that itself is poorly defined, we can approach franchisee development and performance benchmarking within and across brands in common sense ways.
Rather than accept stakeholders talking different dialects or being frustrated with not being able to come up with the "ideal" definition for terms that influence how we operate franchise systems and how those outside the business model perceive our performance, why not create reasonable definitions and support those definitions with good data? For the banking community, that's exactly what FRANdata is doing with BCRs. We are extending the concept of creating definitions for important franchise concepts and supporting them with data into operational performance areas. That's what Arab traders did through more than twelve centuries and European traders did over the course of the last five centuries. And that's what we are going to do in the 21st century.
Darrell Johnson is CEO of FRANdata, an independent research company supplying information and analysis for the franchising sector since 1989. He can be reached at 703-740-4700 or email@example.com.