In the second part of this article, I discussed some basic similarities and differences between franchises and traditional companies.
5 Ways Businesses Should Be More Like Franchises
Companies that want to emulate in their own way the best parts of the franchise model should:
1. Treat employees as if they have a real stake in the business - instead of being disposable “resources.”
To be sure, typical corporate employees are not independent business people who have invested in the company’s business system, as franchisees do. But management would do well to try to act as if they were. Employees who show commitment to the company and the potential to become its leaders should have the opportunity to critique its strategy and plans, the way franchisees do. They should be encouraged to speak up about how to improve the business. Their enthusiasm for the company’s future should be as important to management as a franchisee’s is to the franchisor.
2. Build scale centrally.
Too many companies grow haphazardly, failing to find the right balance between centralizing key functions while giving rein to local initiative. They often allow low value-add processes to proliferate haphazardly in different parts of the company instead of requiring that they be rationalized, automated and scaled centrally. Companies can often benefit by emulating what franchisors excel at: defining marketing and product development centrally, while building in leeway to adapt the strategy to local markets.
3. Define your business model - then replicate it.
The franchise model reinforces creation and continuous modification of a well thought-out, meticulously defined business system. As noted in the previous article, franchises today are perfecting the art of rationalizing and scaling business models--even services-based models, which require more decentralized decision making than product-based models. Successful franchises excel at creating a customer experience that is consistent across locations.
Many traditional companies have trouble sustaining the focus required to help employees really understand how the business is supposed to work. Management may change priorities too often. Or they simply assume that employees understand the logic of the business and the customer experience they are supposed to create.
Many companies could benefit by forcing themselves to define their business model to their employees as rigorously as if they were contracting with franchisees to implement it. They might consider new ways to document and explain their business model so employees can internalize it as a step-by-step process, consisting of:
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Unit economics
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Brand strategy
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Product quality/price
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Higher expectations and a drive to improve continuously
As companies grow, they need to apply the same discipline that successful franchisors apply in creating a consistent offer and experience to the customer. They should emulate the practice of successful franchisors in “training the trainer”--to help employees understand and apply the business strategy, defining the scope within which middle managers and staff can experiment to address local market variations.
4. Sustain marketing and advertising effort despite fluctuations in the business.
In tougher market conditions, traditional companies are often incentivized to reduce marketing and advertising in order to maintain bottom line quarterly performance. Most franchise contracts require spending either a flat dollar amount of marketing/advertising or at least a fixed percentage of revenues. Franchise executives may feel the same pressure all companies feel to manage to the bottom-line—but its marketing and advertising spend is contractually reinforced. This “inflexibility” can be very beneficial, serving to mitigate revenue volatility. Traditional companies can benefit by applying the same principle of holding spending on marketing and advertising relatively constant. The same goes for other key activities (like training) that corporate headquarters provides to the front-line.
5. Keep the culture flat.
A franchisor has strong incentives to create multiple channels of communication with its franchisees. The lack of hierarchical barriers leads franchisees, who are responsible for executing the strategy, to demand more from its franchisor leadership. A CEO and top executive team who worry about what employees think and are open to well-informed feedback will be able to count on a better motivated work force.
Franchising is likely to remain a distinct, dynamic sector of the economy. Other companies would do well to heed and apply the practices that make the franchise model successful - to create a more motivated, capable work force and a more scalable business model.
About the Author
Mark Street’s executive experience includes extensive background in an industry that offers great opportunity to entrepreneurs: franchising. Contact or learn more about Mark here.
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