The Nine Elements of Franchise Success

Some people liken franchising to "taking a fast train": franchisors achieve low-cost and rapid expansion with the franchisee's funds, outlets, and brand management; The express train of mode, the achievement of low-risk entrepreneurial dream.

A failed case

However, the road to franchising is not all paved with flowers. Irregular development, operation, and management have led to many franchise companies encountering "Waterloo" ". The rise and fall of an old restaurant in Hong Kong is an example.

From the late 1930s to the early 1970s, there was a long-established restaurant in Hong Kong that became famous locally for the unique flavor of its signature dishes. The boss decided to take advantage of this east wind to open more branches. At the beginning, there were not many branches, the head office had better control over the branches, and the restaurant became more and more famous.

However, the partners of the restaurant have limited funds, and they have more than enough resources to expand rapidly. After negotiation, they adopted the method of franchise investment to expand. This signature restaurant quickly blossomed in Hong Kong, as many investors wanted to profit from the brand.

But the good times didn't last long, and the restaurants that were engaged in joining the franchise began to decline, and the branches they opened closed down one by one, which is very regrettable. The reason for its downfall lies in the very popular headquarters itself. Due to the indiscriminate recruitment of franchisees, as long as they have funds, they will be recognized, and the quality of franchisees cannot be guaranteed at all; at the same time, the headquarters is insufficiently prepared for the large number of franchise stores, and management and support cannot keep up, resulting in the product and service level of each branch plummeting. , and finally smashed the signboard.

Analyzing this case, it is not difficult to find that franchisors have problems in formulating franchise expansion strategies, providing training support, recruiting franchisees, and controlling franchise outlets. Disregarding the value of the brand, or selling the signboard at a low price for immediate benefit will only end in failure.

Potential Risks for Franchisees

The greatest risk a franchisor faces is in the relationship with the franchisee. The main problem is:

*franchisees desire for independence

This is the biggest and most common problem in franchising. Usually franchisees will make some achievements and achieve certain success after joining for a period of time. After they have mastered the operating skills, they will ask to leave the franchise network and no longer pay the relevant fees to the franchisor in order to obtain more profits. This is especially true in the service category or in franchises with fewer franchising elements.

*Take the risk of damaging your brand's reputation

When selecting franchisees, set and maintain high standards and use scientific evaluation methods wherever possible. This is closely related to the reputation of the brand, because if the franchisee is selected blindly or lowers the standard only based on the financial ability, the franchisor will face the crisis that the bad behavior of the individual franchisee will affect the reputation of the entire brand.

*Restrictions are weakened

Compared with branch companies, it is very difficult for franchisors to ask franchisees what business strategies they should adopt, because franchisees are legally and financially independent . Although the franchisee must follow a series of operating terms stipulated by the franchisor, he has the right to operate in the way he thinks best.

*Difficulties in coordinating other supply systems. Franchisees generally control the supply chain of franchise chains for reasons of quality, and prohibit the use of other possible supply channels for products or services. If the franchisee refuses to do so, it will lead to contradictions between the two parties, or even the rupture of the relationship.

9 Elements of Success

As a franchisor, what are the elements of a successful franchise operation? After extensive research on successful franchising cases, Umbopuya Consulting found that they have nine success factors:

Brand and know-how franchising is a form of intellectual property trading, corporate trademarks and product brands are Maintain the bond between franchisors and franchisees. As a franchisor, to expand the franchise system, there is no doubt that it must have a relatively well-known trademark. In addition to this, having teachable know-how is also one of the essential elements of franchising.

Prior to the opening of the franchise store, the franchisee shall be able to fully and accurately reproduce the detailed information of the franchisee's business model, including the technical methods and process management that can make the franchisee's operation profitable. This practical knowledge is the result of franchisor's experience and model shop practice, and is called proprietary technology.

Model Stores It is important to note that a franchising program can only be successful if each franchisee replicates the same operating conditions as the model store trial results. Therefore, a basic role of the model store is to verify the feasibility of the business model that will be taught to the entire franchise system, and to revise the areas that need to be improved.

At the same time, the model store also plays an important role in stable operation at different stages, such as serving as a training center for new franchisees, as a laboratory for new operating systems, new products and new services. Therefore, the greater the number of sample stores tested under different circumstances, and the longer the time, the less risk the franchisee has to take on failure.

Required Text The next step to consider is how to prepare for franchising. Although many franchising systems are developed on the basis of years of formal franchising at the headquarters, franchising is different from other operating systems after all. Accordingly, new requirements for adjustment are put forward.

In the establishment of the organizational structure, the franchisor should consider the following basic functions: franchise system development function, procurement and supply function, commodity and service development function, training and guidance function, promotion function, information function, management control function Wait.

Franchisees should prepare some necessary documents before starting a franchise business, including franchise contracts, disclosure documents to potential franchisees, franchise brochures, and franchising as know-how. Operation manual (including quality management manual, relationship management manual, product management manual and process management manual), VI/CI design manual, franchise store construction manual, etc.

Franchise fee system The setting of the franchise fee is a very critical issue, which will directly affect the smooth development of the franchise business. Because investors are usually quite sensitive in terms of fees, the fees are set too high, which may block some potential high-quality franchisees from the threshold. system development.

If the fee is too low, the franchisor's revenue will be damaged, and the franchisor's revenue will not be compensated for the cost of the service provided. Franchisees often charge franchisees one or more of the following fees, including franchise fees, advertising fees (marketing funds), royalties, etc.

After the franchise development strategy is the basic work, the next step to consider is how to carry out the franchising business and store opening strategy. Different franchisors may adopt different development strategies at different stages, either scattered stores or centralized store opening strategies of regional carpet bombing, in order to achieve different expected goals.

In addition, the lessons of Hong Kong restaurants have revealed to us that if franchisees are far beyond the management and supply capabilities of the headquarters, they will fail to operate due to lack of strong support and timely supply from the headquarters. In this way, the franchisor will not only be hasty, but will also seriously affect his brand reputation and affect the future development of the franchise business in this region.

When a franchisee recruits to start a franchise business in a new region, publicity and promotion activities are the first and foremost link. Unlike other business types, the promotion and communication of franchisees is not only to attract the attention of consumers, but also to attract Purpose of potential franchisees.

The ideal franchisee should be a neutral between the following two extremes: one has a clear business concept, strong initiative, and is rarely subject to prescribed terms; the other extreme is a person with employees Concepts, with an attitude of nothing to do with oneself, have no basic enthusiasm for things within the scope of their only authority.

Between these two extremes is: having a certain level of initiative, taking responsibility for day-to-day operations through one's own experience and market knowledge, but based on not compromising the business model taught by the franchisor . This is the rare ideal franchisee. Therefore, determining the most suitable type of franchisee and setting selection criteria is one of the things that all franchisors must determine in advance.

Training, Guidance Support Once the selection of franchisees is completed, support and guidance for franchisees should begin, that is, initial training, including training from business theory to practice and on-site guidance during opening. The training for franchisees should not only be the initial training before and during the opening, but also the training of modification and update of business methods to adapt to the ever-changing market needs in daily operations, which we call continuous training.

Franchisees should receive regular recurring courses or mentoring that enhance their ability to perform day-to-day business activities. These trainings cover many areas: how to sell, how to treat customers, how to run a business, how to work as a team, and more. Of course, it should also include follow-up training to better adapt to the operating system or to study the effects of introducing new products or services.

Although franchisors actively implement training to avoid problems in their day-to-day business activities, there are still problems of one kind or another, or unexpected situations occur that hinder business activities. Therefore, in addition to training, franchisors should provide knowledge and experience support to solve problems when franchisees encounter problems, and should help them avoid problems. This type of support involves a wide range of content. From the content of support, it can be seen that the franchisor should focus on areas for improvement, such as marketing, advertising communications, or how to have a good business operation and interoperability within the franchise network. system.

Franchise monitoring After combining your own trademarks, business methods, know-how, etc. into a set of verified and effective business models and licensing them to franchisees, don't think that everything is all right, just wait to reap the profits. In order for the franchise store to operate successfully, a key element is to implement strict supervision and management of the franchise store. Control of the operating network, such as franchise store inspections, arranging mystery shoppers, etc., is not so much the franchisor's obligation as his right. This will make a lot of sense to ensure the necessary level and improvement of the entire franchise system.

The importance of this right lies in the fact that the franchisor can verify whether the franchisee has truly grasped the business policy of the enterprise, and operates according to the basic business terms taught by himself, so as to avoid the situation that affects the brand reputation. Of course, we must not forget that franchisees are obliged to monitor, which is conducive to franchisees operating in accordance with the requirements of the system, and can also discover behaviors that do not operate in accordance with regulations and solve problems in a timely manner.

Therefore, the purpose of monitoring is not so much to punish the problems that may be found, but to prevent the occurrence of problems. At the same time, it is also a way of communication between franchisors and franchisees. By asking for solutions, Franchisees can make suggestions and comments on all aspects related to franchise store operations.

All successful franchisors have the same path to success, and they seem to be reading a common secret to success; while all failed franchisors have different reasons for their failures, but a detailed analysis , there must be a problem at one or more of the nine factors. To join the franchising, you need to be well prepared.

The author Yang Xiaolan works as a business development manager for Umbopura Franchise Consulting (Shanghai) Company.