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Education alone may not be
a determinant of business success, but it can be an essential element in the
overall combination of factors that come together to plan, launch and sustain a
profitable financial enterprise. Not surprisingly then, a commitment to ongoing
professional development and educational qualifications are commonly used by
franchisors as selection criteria to assess the likely future chances of
success of potential franchisees.
But by the same token, why should franchisees invest in franchisors that aren't prepared to invest in themselves?
Many highly successful
entrepreneurs who start franchise systems have little or no formal educational
qualifications. However just because they might not have been to university
doesn’t mean they aren’t continually learning, and prefer instead to attend
short courses and workshops, and read books written by other successful
business people. Furthermore, as their business develops, such entrepreneurs
often surround themselves with highly-qualified talent because they are savvy
enough to realize the limitations of their own skills and hire staff with the
smarts to fill the gaps.
But equally, the use of
education and professional development as selection criteria for franchisees could
also be used by potential franchisees to assess what franchisors are worthy of
their investment.
Studies in both the United States and United Kingdom indicate that
failure rates among start-up franchisors can be as high as 75% over 10 years –
a business mortality rate not too dissimilar from commonly understood failure
rates for independent small businesses (which is commonly understood to be approximately
85% in five years).
This potential failure
rate, combined with the severe consequences of system failure on its
franchisees who lose a large portion of their investment, if not their entire
business, would suggest that education on sound franchising principles and
techniques is necessary for franchisors prior to and during the use of
franchising to expand.
Yet all too often it is the
case that business owners start franchising their concept, and then realize
after they receive complaints from franchisees and problems emerge in the
network that they don’t have the answers for everything and need to learn more
about the business of franchising. For example, important franchisor processes
such as field support, site selection, financial benchmarking of individual and
group performance, and franchisee selection are just a few areas where
franchisors can flounder.
For those franchisor
personnel with previous work experience in, and an understanding of the
operations of large company-owned chains, a passing familiarity with these
concepts overlooks the one key difference between corporate and franchised
chains – the franchisee who has invested in the brand and expects to get a
return on their investment. Managing and supporting franchisees is a world
apart from managing and supporting employees in a company-owned chain.
It should be understood
that franchising is not a business by itself, but a way of doing business that
transcends the boundaries of business type and industry. Therefore a
fundamental knowledge of the principles of franchising is essential for
franchisors to be effective in their role of leading and growing their
organization, in addition to the specific industry-knowledge particular to
their business.
An assessment of these two
types of knowledge and proficiency is important for a franchisee to determine
the viability of a long-term commercial partnership with a franchisor. Not only
should franchisees be encouraged to ask for more detail about the business
qualifications and franchising experience of officers named in a company’s
disclosure document, but they should also be considering the wider context.
For example:
- What is the franchisor’s professional
development policy for its staff?
- In the last 12 months, what training programs (including
conferences) have been attended by franchisor personnel who will be
involved in supporting the franchisee’s business?
- Were these internal or external programs?
- If externally presented, what training
organization was used? If internally presented, what are the
qualifications of the trainer?
- What relevance do these training programs have
in supporting a franchisee’s business?
- Were the staff tested for competency at the
end of the training program, and if so, did they pass?
- What induction training (if any) are franchisor
staff required to undertake prior to working with franchisees?
- What qualifications and franchising experience
do franchise support personnel have? (Given that officers of the
franchisor are required to disclose their business qualifications and
experience in the disclosure document, yet franchisees will most likely
have a closer working relationship with other personnel in the business,
this should not be an unreasonable question).
- What ongoing professional development is
required of franchisor staff, particularly those in direct contact with
franchisees?
Caught up in the excitement
of becoming their own boss, a potential franchisee can easily view a franchisor
through rose-coloured glasses, however asking some serious questions about the
franchisor’s knowledge of franchising, and their commitment to learning can be
highly revealing.
Questions of this nature
will be particularly useful to help distinguish one franchise opportunity above
another if the business concept, investment level and other factors are
similar. Many franchisees shop around for the franchise that suits them best,
and often narrow their search to two or three businesses that may operate in
the same market and be direct competitors of one another.
A franchisor’s demonstrated
commitment to continual improvement through ongoing professional development
might make all the difference between a potential franchisee applying for one
system in preference to another. (And for that matter, if a potential
franchisee is thinking about their business investment in this kind of detail
in advance, it may actually make them a more appealing candidate to a
franchisor as it demonstrates a thorough and planned approach to starting their
business).
Not only can a commitment
to ongoing education and professional development make a franchisor more
appealing to potential franchisees, it can also improve its long-term chances
of survival and extend competitive advantages over its rivals.
Perfection in franchising
is a journey, not a destination. Ongoing education of franchisor personnel
makes that journey safer and more sustainable for both franchisee and
franchisor.
Jason
Gehrke is a director of the Franchise Advisory Centre and
has been involved in franchising for 18 years at franchisee, franchisor and
advisor level. He provides consulting services to both franchisors and
franchisees, and conducts franchise
education programs throughout Australia. He has been awarded for
his franchise achievements, and publishes Franchise News
& Events, Australia’s
only fortnightly electronic news bulletin on franchising issues. In his spare
time, Jason is a passionate collector of military antiques.
Copyright © Jason Gehrke,
2008.
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