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THE COMINGS AND GOINGS OF FRANCHISORS You have probably read about franchising being a growth industry, have seen or heard of successes and failures in franchising, but there is very little hard evidence to support exactly what is going on in franchise land. As a franchise consultant who has been both analyzing and participating in the development of franchising for the last twenty four years, I have seen a lot of new franchisors trumpeting their virtues only to quietly, or not so quietly, disappear in subsequent years. As one of the ‘firsts’ in franchising, I decided back in 1984 to produce Australia’s first franchise directory in an attempt to assist people contemplating buying a franchise to review a variety of franchise offers in the one place. You may be amused to learn that when I started contacting franchisors, in most cases we had a hell of a job convincing them to give us specific details of their offer, let alone agree they were franchising. The confusion that surrounded franchising in 1984, I believe, is very much in evidence today, 18 years later. We have tried to keep on top of exactly who is franchising in Australia and believe me it would be easier to keep track of a can of worms. The truth is no one knows who is franchising and very few people could tell you how to tell a professional franchisor from the cowboys. At this time there is no law that says you have to register with the government, either state of federal, to say you have decided to franchise your business. Therefore, it is very difficult to find out who is franchising unless you read all the advertisements from businesses that are seeking franchisees. And just to compound the problem, some businesses confuse themselves and the inquiring public by labeling their business opportunity as a license or type of exclusive distributorship. However, our simple and time tested rule of a franchise system is - if they are charging an initial fee for the marketing rights and there is some form of contractual obligations on both parties to the business arrangement it is a franchise! We have been accumulating a database, with changes almost every day, which currently stands at over 1250 business format franchisors. So just for the hell of it, I sat down and pulled out the original Franchise Directory I compiled and published back in 1984 and compared the listings of those franchisors against the names in the last published directory in 2000. I had 260 franchisors listed in the 1984 Directory and the Year 2000 Directory listed 290. The really interesting outcome of my comparison was that only 53 franchisors or 20% of the originals listed are still operating! That doesn’t say much for the longevity of franchisors, let alone the success rate of franchisees or in fact the real growth of franchising in general. The Australian Bureau of Statistics in 1994 decided to have a go finding out who was franchising and without consulting the old hands and franchise specialists, came up with an ‘official number’ of 555 franchisors. How did they get the numbers? They studied the franchisor advertisements in the National papers for a couple of months! I wonder how many of those 555 franchisors are still around today? Most of the 1250 business format franchisors we are aware of have not done a professional job of building their franchise systems and our defunct franchisors file would outnumber the current franchisors by six to one! What is the Problem? Most of the franchise systems we examine in our work with either people contemplating buying a franchise or who have bought one and now have problems, have taken short cuts and perhaps failed to understand that the decision to franchise means the franchisor is in two businesses. By that we mean they are in the business of selling whatever their particular product or service is and also they are in the business of franchising. They must be treated as two different businesses and the franchisor must acquire new management skills to be a long-term success. A franchisor has to be a leader, mentor, career counsellor and friend of their franchisees. Too many franchisors see their franchisees solely as dollar signs! Most of our consulting time is taken up in explaining to businesses considering their franchisor options that the key to professional franchising is the selection of the right franchisees. In the United States the franchise studies there have shown conclusively that a franchisor should expect a ratio of 50 inquiries to 1 franchise granted. Nobody knows what the equivalent statistics are in Australia, but I’m prepared to bet my 24 years specialist consulting experience that it’s more like 3 to 1, or in other words Australian franchisors are selling the offer to a potential franchisee whereas the Americans are granting. It’s no secret that McDonalds take up to 9 months in their intense training programme to determine if a potential franchisee is going to be suitable. So why do most Australian franchisors fall into the trap of taking the first people who come along with the right sized cheque book? What’s the future hold for franchising? Are the economists right? Phil Ruthven of IBIS is often quoted as saying franchising is the way of the future, Michael Gerber the author of E Myth insists a business should build itself as if it were a franchise system and Nesbitt, the American author of Mega Trends promotes franchising as the way to go. I sit in my office and do the real sums and say ‘phooey’ to my critics who say ‘Williamson looks at the glass and says it’s half empty’. The guys who tell the facts generally don’t win popularity contests, particularly when the media have discovered franchising as a new advertising source. But if you have a business or are in charge of running one, don’t you think the marketing dynamics franchising can deliver to your bottom line are at least worth a look? Don’t ask your accountant, he will crunch numbers. Don’t ask your lawyer, he will talk legal protection. Look at yourself in the mirror and ask yourself these questions: * Do you consider yourself a leader? * Are you a good teacher? * Do you currently operate a successful business (however modest that business may be)? * Are you currently frustrated with staff and have growth opportunities where you are limited by available capital? * Your business is not a fad and has a long term future? * Do you believe there should be a sign in your office that say’s “Do as I do NOT Do as I say”? The profits you business currently generate are big enough to be shared between a franchisor (you) and your franchisees? Then call people who are experts and then decide if franchising can solve your business problems. My congratulations to the franchisors that treat their franchisees as ‘members of the family’. Where the franchisor has won, the franchisees are winning and the customers definitely notice the difference in dealing with the owner/operator (franchisee). We also believe franchising has a big future, but we need more businesses to take a serious look at their franchise options and clear away the persistent and often misleading perceptions franchising has created in the minds of far too many people. Garry Williamson
THE
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