Reassessing Franchise Development from the Ground Up

By: Art Coley
Published: June 5th, 2017

This column, which first appeared in Franchise Update magazine (Q2 2017), is the first of an ongoing series by Art Coley on what's wrong with franchise development - and how to fix it.

I subscribe to the Stockdale Paradox, which Jim Collins made famous in his bestselling book Good to Great. Here it is:

"You must never confuse faith that you will prevail in the end -- which you can never afford to lose -- with the discipline to confront the most brutal facts of your current reality, whatever they might be."

In development, we are great with the "faith" and "prevail in the end" parts of the quote. However, the "confront the most brutal facts of your current reality" part is another story. The proof is in the data collected each year in Franchise Update's Annual Franchise Development Report (AFDR) regarding lead generation, signings, mystery shops, conversion rates, and other aspects of franchise development.

I think we can do better. That's why I'm honored Therese Thilgen and Franchise Update magazine have asked me to join the team with a regular column focusing on the "brutal facts" and "current reality" of franchise development -- and solutions for the challenges we face. Let's start with a basic outline of the process and results we want:

1. Targeted lead generation of qualified candidates.
2. An efficient and sustainable discovery process.
3. Secure targeted number of franchise agreements.
4. Successfully on-board new franchisees.
5. Repeat steps 1-4.

If these five steps are what "prevail in the end" looks like, we know that for most brands this is not the "current reality." There is a development challenge for many brands and it's chronic. It's systemic. It's deep and not easy to face or solve. Yes, we have a problem, but one that is worth addressing and conquering because your brand's future depends on it.

So, what is it we face? Here are some areas to consider:

• Not understanding true development. Development is the timeline from planning to lead generation through at least the first 12 months of new franchisee on-boarding.
• Wrong metrics. Development is more than the number of leads and cost per lead. Through this column, we are going to look at the critical metrics of development and how you can track and measure what's really happening, and even forecast the upcoming months.
• Lead generation. I'm going to show you how to get it right, including how to efficiently and effectively implement a "multi-channel cross-media integrated marketing strategy." (I know, it sounds fancy, but I'll explain why it's critical, what you need, and a simple way to implement it.)
• Initial fees approach is old school. Today's quality candidates must understand these fees and why they are paying them.
• Recruitment as a profit center. "How much money can we make from 'selling' franchises?" is the wrong question. Focus should be on the unit economics and royalty created with a successful new franchisee.
• Many best practices are failed practices. Lots of preaching and regurgitation of practices that do not work or are outdated. We must be willing to challenge our way of thinking... and that's what I pledge to do through this column.
• All the "reward money" is at the signing. Big fees to brokers, commissions, celebrations, etc. all happen around signings, all while the franchisee is terrified about starting a business. We'll definitely dig deeper on this topic.
• Goals and budgets not aligned. The board and CEO want 40 signings while the budget is set for 10.
• Referral industry. We know the data: franchise brokers, coaches, and consultants, known together as the franchise referral industry, send over names of individuals who account for approximately 50 percent of all individual signings annually. They play an important role. But the quality, consistency, and fees are all over the place. There is no standardization, and for many brands it's not the right solution.
• Outsourcing the franchise development team. There is nothing wrong with outsourcing, but leaving recruitment of future franchisees entirely to a third-party group is a mistake.
• Development executives are not prepared. Though willing and eager to succeed, many chief development officers and VPs of development have not been properly trained with the right skill sets and knowledge to deliver what is needed.
• No existing business strategy (EBS). EBS (what I've named it) targets non-franchised independents in your industry and consists of conversions, tuck-in acquisitions, acquire-and-converts, and/or bolt-ons. The big idea to implement an EBS usually fizzles when it becomes obvious how different it is from traditional development. It's not for every brand, but for those where it is a fit, an EBS can create a quantum leap with unit count, system sales, and royalty. But it's hard.

With each issue of Franchise Update I will climb into these areas and more. My mission is to help you improve your development results. Why? Because franchising is the greatest invention for small-business ownership -- and each of us who has the privilege to work in this great industry owes it to those from the past and those in the future to keep pursuing a standard of excellence. Let's leave it better than we found it.

Most of all, we owe it to the millions of individuals who reach out to us wanting to better their lives through small-business ownership in a franchise. And their journey starts with a development team.

Let's go to work!

Art Coley is CEO of CGI, a recruitment and on-boarding firm that helps franchisors maximize their recruitment and development. He also is CDO of InXpress, a shipping and logistics company with nearly 100 franchisees. Contact him at 254-239-5411 or acoley@cgifranchise.com.

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