What does franchising have to do with Isaac Newton?
I’ve been hanging out in the franchise community for over 20 years. Fourteen years as a franchisor and the past couple of years as a quiet observer. Interestingly enough I haven’t seen a lot of positive change in the general public’s more often negative attitude to franchising. And yet, not withstanding a generally negative attitude, franchising in Australia turned over an estimated $146 billion in 2016 and continues to grow. (Read the Source)
When I speak to business owners about using the franchise model to grow or expand their business I’m met with a myriad of reasons of why franchising ‘is not for them’. Why they see the role of the franchisor as that of a dictator and that the inevitable pain and suffering of franchisees is always related to the franchisor’s inability to provide a worthwhile investment opportunity or effective support.
As I mused over the reasons why franchising might still be working to overcome this seemingly negative perception I began to wonder if there was some kind of factual basis for a continued ‘distaste’ for franchising. Or, if it was a generalized perception carried over from the bad old days. And, what is it about the franchisee/franchisor relationship that seems to more often be the basis of dispute rather than any particular wrongdoing or misrepresentation by either party.
To start, I’d like to propose that business growth is inherently a force in motion. It includes the premise of a ‘thing’ that’s initiated, continuing and has an intentional yet possibly non-specific destination can be seen to be ‘in motion’. And so, being set on a pathway of growth, the trajectory or direction of the business can be viewed by examining its performance graphically.
Because of this, I turned to Newton’s First Law of Motion in an attempt to understand what happens in franchising.
Newton’s first law of motion states that an object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force. So can franchisees and franchisors be considered to be ‘objects in motion’? And, is it possible to apply a this law to business?
When a business begins the development of a franchise model, it puts in motion a series of activities that will without ‘interruption’ pursue a direction to a particular, yet possibly unquantified, end place. Capital is released and resources developed in order to launch with the expectation the end place will meet a particular set of probabilities. This includes number of outlets and a range of positive financial outcomes including a reasonable return to investors.
In a reasonably similar mindset a franchisee begins the process of pursuing a business opportunity. The set of outcome probabilities are similar to a franchisor in that they determine a set of positive financial factors preceded by the release of capital. This however, is where the similarities end. Pointing out the differences between the two infers that franchisees do not release capital in order to develop resources they release capital to buy them. Further, their focus is not usually the number of outlets but the initiation of a singular entity.
So here we begin to see a set of differences in the direction of movement of both the franchisor and the franchisee. So whilst we may believe that the franchisor and franchisee should be in, at least a parallel motion, they clearly are not. Firstly, their expectations around the resources differ. And secondly, the exponential growth probabilities, a factor in the franchisor’s destination, are of little or no interest to a franchisee who is more inclined, but not always, likely to see the destination as the thing they ‘purchased’. That is, when the contracts are delivered and cooling off periods elapsed there is an unintentional presumption of completeness.
So the franchisee uses language like ‘I’m buying a franchise’: ‘I’m starting a business’: I’m opening a shop’: and potentially develops a mindset around the execution of those things being the end place. Whereas, a franchisor sees the appointment of a franchisee as a single step in the execution of the overall growth probability. Consequently, while the motion of the franchisor continues uninterrupted, the new franchisee is coming to terms with what is ostensibly a new beginning.
Healthy strong franchisors understand this and manage the divergence of expectations with a degree of expertise and skill. Healthy strong franchisees also understand the gap exists. For this reason they are more likely to be successful in their franchise endeavor than franchisees who are unprepared or lack sufficient commercial acumen. These franchisees and franchisors expect and accept the commercial progression must differ.
Regulators and legislators have spent a lot of time considering how to manage this expectation gap. With the implementation of the mandatory Franchising Code of Conduct and its subsequent amendments, there’s been the probability that franchisees will be less likely to enter into a business arrangement with an unscrupulous franchisor. And, to this end ‘the code’ has provided a large degree of cleansing in an industry with inauspicious beginnings.
So, we have a thriving franchising community that provides successful outcomes for most franchisees. We have strong healthy franchisees and franchisors utilising the franchise business model to create satisfactory financial outcomes. We have regulations and controls in place to provide protections for all parties who enter into a franchise agreement. And, yet it appears that franchising still has a faint but unpleasant whiff about it.
I’d expect this whiff to have been dispersed by the cleansing breeze of opportunity. However, I’m left holding the knowledge that we’re still not hitting the mark. Too many franchisees are failing to maximize their opportunity not because the opportunity is erroneous but because the expectation gap exists. A gap that contains all the usual business variables along with variables unique to each franchisee. It’s in this gap that franchisors (and franchisees) can (albeit inadvertently) create their own dysfunction.
This is where Newton’s first law of motion becomes visible within the network. Sitting in between all the operation manuals, style guides, group meetings, marketing programs and support is the unbalanced force. Humanity. (No, I’m not referring to franchisees as ‘unbalanced’.) I am suggesting however, that the single variable franchisors cannot plan for are the characteristics carried by the individual. This includes the people they appoint to provide franchisee support.
We all know the success of franchising is embedded in the franchisor’s ability to create a replicable way of distributing products or services. It’s an easy business model that should be easy to control. And, if the concept is robust, the development of the network should be constant. The challenge however, is how to manage the unbalanced forces that will inevitably intersect with both the franchisor and franchisee expectations.
Ostensibly, equivalent opportunities offered to two different franchisees could have vastly differing outcomes.
The question is: who’s responsible for humanity in the context of mutual expectation?
A franchisor can manage many things within the network. It can manage to build and develop a worthwhile business opportunity with all the brand development, documentation and disclosures necessary in a well-regulated industry. It can provide a plethora of support personnel and programs designed to facilitate the expectations formed by a franchisee during the discovery and recruitment phase. However, it cannot provide the impartiality required to manage each franchisee’s contribution to their own success. And whilst we may be able to rely on what psychology has taught us about generalised human behaviour it will never be enough to perfectly balance the forces between partners in franchise relationship.
Frankly, no dissatisfied franchisee will sacrifice their own good over the good of the network or in fact the good of the franchisor. Once we accept that, we can begin to understand that a franchisor’s unrelenting reliance on its systems and procedures to maintain franchisee expectations, can be a folly. Many franchisees need more than an operation manual to help maintain forward motion.
Along with the franchisor’s personnel, franchisees (as individuals) are the most likely ‘unbalanced force’ in Newton’s theory to collide. If those collisions do not deflect the franchisee’s motion in a positive direction then franchisors are left to continue aiming unbalanced objects in order to (hopefully) positively realign a franchisee’s motion.
Preserving the commercial motion and success probabilities for franchisees means franchisors need to understand 3 important factors:
1. How to utilise the natural momentum a franchisee brings into the network;
2. How to manage early and inevitable ‘collisions’ in order to teach franchisees how to remain focused on positive commercial outcomes; and
3. Teaching franchisees how to really utilise the system resources in order to maximize the business opportunity.
Understanding that franchisees are people before they’re franchisees will make franchising a more collaborative and less confrontational model. Notwithstanding, we must all consider that whilst we humans are involved there will invariably be moments worthy of regret. However, once we can begin to understand our weaknesses and the weaknesses in others we’re better placed to work together to expose each others strengths.
We may never completely remove the whiff created by franchising’s past but we can continue to provide positive commercial outcomes which will be franchising’s future.
Copyright 2017 deb shugg
Deb Shugg is a recognised and awarded businesswoman and managing director of Australian Business Experts
BRW Top 50 Female Entrepreneur
SmartCompany To 50 Business.
Franchise Council Franchise Woman of the Year
BRW Fastest Growing B2B Franchise