Keeping Up with the Changes: Constant Vigilance Maintains Your Competitive Edge
To stand out among the 3,000 franchise opportunities in today's uncertain economy, aggressive concepts are courting prospects with special incentive and stimulus packages--such as Papa John's, Cafe2U, Budget Blinds, Kitchen TuneUp, Red Mango, and Discover Rental Purchase.
More than ever, franchisors are asking themselves, "How attractive is my franchise opportunity now? Does it still deliver what it takes? In what areas do I offer distinct advantages competitors can't match?" Today's challenges are a good wake-up call. The go-go years may not return as soon as we'd like, and our franchise programs must continue providing the sizzle and power of an attractive business concept--for both existing and prospective owners. History provides lessons, so let's examine what has affected franchisors through the peaks and valleys of their growth.
Response to market demands
"Tired brand," "dated concept," "no legs," and "industry disaster" all are fatal labels for a franchise brand. Unfortunately, we all have watched systems erode to shells of their former glory days. The need to adapt to a changing environment is illustrated in the stories of two franchises, one that overcame an unsettling period of negative growth; and another that ignored danger signs that toppled their market dominance overnight.
Losing touch invites disaster
Always watch your backside, even if you currently "own the market." Unfortunately, one automotive franchise ignored this principle and paid dearly for it. First to market with a product innovation, the company was the buzz of the service growth sector. Franchise recruitment soared as buyers lined up to secure their piece of the action. The first years were fabulous, with no real competition. Rather than evolving its program beyond any "me too" companies that were springing up, the franchisor did nothing. The fall came hard as competitors developed similar services with more attractive offerings to buyers. The company stubbornly resisted the reality. As their out-of-touch franchise recruiter blindly gasped, "We created the industry, we're the original deal! These guys are all knockoffs! Why would anyone buy their programs?"
Household brands re-engineer themselves
Let's take a look at another franchise system that also hit rough development waters in the 1990s. This time growth challenges had struck the legendary Radio Shack brand. Leonard Clegg was a longtime operations executive with Radio Shack, a household brand that had faced flat franchise growth for the past several years. The franchise model was becoming tired, with any forward progress offset by backward steps. Len Roberts, the new CEO, was impressed with Leonard's reputation and performance in operations and appointed him to "do what it takes" to turn up the dial and revitalize franchise expansion.
Clegg went to work, taking dramatic measures to build a new Radio Shack opportunity that was ideal for smaller markets, where the company was struggling to establish more presence. He trimmed the store model to 600 square feet, slashing inventory to the top 20 percent of merchandise that was driving 80 percent of store sales. He repackaged his opportunity for a new audience: successful owners of hardware stores, home improvement centers, and other complementary retail environments.
The "Mini-Shack" he created offered a $60,000 start-up program, with a one-year satisfaction guarantee. Should a franchisee for any reason decide to leave the system during their first year of operation, Radio Shack would buy back all of the existing inventory. Growth exploded for Radio Shack, as the brand's trimmed-down, refocused franchises populated smaller communities. Buyers applauded the chance to bring a powerful, customer-building, national brand into their localities.
Keys to building a robust franchise program
Think beyond the box when examining your franchise opportunity. Don't fall into the trap of automatically structuring your franchise to follow traditional business models. Attorneys counsel you to use these benchmarks for your franchise formula, as they should. It isn't their role to consider creative alternatives. But it is your job to challenge yourself as you design and periodically assess your franchise system. Consider nothing sacred, and dispel all preconceived notions. Free up your ideas and you just may discover epiphanies that can work for your program:
- Recognize that unexpected crises can occur during the life of your franchise system, and be aware that how you respond and adapt to these events will determine the level of success and longevity of your system.
- Challenge yourself. Consider alternative growth models. Is traditional single-unit development the best way for you to grow, or is there a place for expansion through conversions, master franchises, area development, or multi-unit programs for experienced franchisees? What about international development?
- Rules were made to be broken, so are standard royalty fees necessary for your revenue stream? Should you charge successful, high income-producing owners additional franchise fees to open more units? What if new franchisees designed their own territories based on your guidelines and approval? How about co-branding or express versions of your concept? However "out there" these thoughts may seem, they have worked with certain concepts. Keep the doors open and think beyond the walls of tradition.
- Earnings claims (financial performance representations) provide a competitive edge, helping buyers evaluate franchise opportunities that could satisfy their financial goals. Yet nearly 70 percent of franchisors still won't provide them.
Ready, set, grow!
Updating a franchise concept is scary, exciting, exasperating, disruptive, expensive, and exhilarating. Nobody ever said this is easy. Careful planning, research, collective system input, and a clear strategic rollout will make the difference in re-energizing growth!
This article is an excerpt from Grow to Greatness: How To Build a World-Class Franchise System Faster by Steve Olson. For ordering information, go to www.franchiseupdate.com/gtg.
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