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Beware Franchise Friction

Saturday, April 1, 2006 - 07:54

What could possibly go wrong whilst managing a franchise of a proven brand or service? Plenty. Chris Sheedy discovers that success is all about having the right attitude.

Gary Harley would love to employ male aerobics instructors at his three Fernwood Women's Health Clubs in Victoria, but the franchisee is not able to do so as the franchisor's rules of compliance don't permit this. It's a small blip in an otherwise harmonious relationship between him and his franchisor, but Harley believes it's an example of one of the major issues facing franchisees.

"The skill of the franchisor is to say, 'I have views, but what does the customer think?'," Harley says. "They should seek information from franchisees on customer behaviour and desire. Taking male aerobics instructors out of classes sounds sensible for a ladies-only gym, but the truth is the customers want the males to take their classes because the males push them a bit harder. Are we a club for women or a club of women?"

The most frustrating issue in the world of franchising, which employs around 600,000 Australians in over 64,000 workplaces, is the thorny matter of compliance. It's an issue that comes up again and again during discussions with franchisees and franchisors. The original business model - including all of its systems processes, products and even the physical appearance of its outlets - must be perfectly reproduced, leading to masses of rules and restrictions for a budding franchisee.

Harley says these rules of compliance stem from the fact that franchisors are often people who have a tremendous passion for a product or service and therefore want to take it to the world as the exact image of the original. He says these people are going on a crusade to spread the word. The franchisee, on the other hand, is simply embarking on an adventure.

"You're just tagging along on somebody else's crusade as a bit of a spectator, picking off the good bits and not getting into the war at all," he explains. "You're better off following the franchisor's line even if you disagree, simply because that's the line they want to take. And most of the time they're so bloody committed they'll pull it off!

"The franchisor sees compliance as all-important and all-encompassing. Somebody is taking their recipe and therefore must stick to it 100 per cent," Harley continues. "We know in real life that doesn't happen, and it's frustrating for a franchisee."

Perhaps Harley is at the "adolescent" stage of his business - as defined by Alex Dobrin, joint CEO of Howard's Storage World. With 45 stores in Australia, of which 42 are franchised, as well as other franchises in Dubai, Singapore and more opening soon in New Zealand and Spain, Dobrin has had his fair share of experience dealing with franchisees, and he says they tend to follow the same pattern.

In the infancy of their business the franchisee listens to and learns from the franchisor, as a child does with its parents - they do everything they're advised and taught. But then come the terrible teenage years.

"When they reach adolescence they tend to rebel," Dobrin says, "and in some cases a franchisee business reaches adolescence quite quickly. They develop an attitude of 'What do you know? We know better'. In that situation, like parents we take a back seat and simply make sure the child doesn't fall over and get hurt. We let them learn for themselves whilst keeping an eye out for them. This stage can last two weeks or two years. Then they reach maturity and realise mum and dad really do know best, and that's when their business starts to flourish."

Managing by motivating

It's not an "us and them" relationship, Dobrin is quick to point out. Howard's Storage World has a product advisory committee in place, as well as regular, open-forum meetings, in order to take feedback from their franchisees. The Howard's management team prefers to manage by motivation.

"In a non-franchised company structure, when things get difficult a manager can lay down the law. We don't adopt that strategy with our franchisees. These people have their own stores and that alone should be the motivation for them to work hard towards a common goal," Dobrin says. "Although we [the franchisor] have the ultimate power, we don't want to wield that power. We manage by encouragement, motivation, negotiation and inspiration."

In the majority of cases Howard's Storage World have no issues with their store owners. The small percentage who become a problem, Dobrin says, do so because of an attitude that they know better, and it's a dilemma that dogs the entire franchising industry.

Just who are the top franchise operations? Gloria Jean's Coffees was awarded Franchisor of the Year 2005 in the PricewaterhouseCoopers Excellence in Franchising Awards announced in October last year.

Part of Australia's $80 billion franchise sector, Gloria Jean's Coffees now has 165 stores nationwide.

Hairhouse Warehouse franchisee Emad Nayef was recognised as the 2005 Franchisee of the Year. Nayef has been part of the Hairhouse Warehouse group in Victoria since 1998 and now owns three salons.

International mobile dog washing service Aussie Pooch was also recognised through the achievements of Queensland founder and CEO Christine Taylor.

Taylor took out the 2005 Franchise Woman of the Year staving off competition from Boost Juice and Ella Baché.

Other awards included Franchise Export Award of the Year 2005, taken out by Cartridge World, and Franchise Media Campaign of the Year 2005, awarded to bookseller Dymocks.

Peter Graham is CEO of Allied Brands, which owns the Australian master licence for Baskin Robbins, the world's largest retail ice-cream chain franchise. Baskin Robbins boasts over 5000 stores in over 50 countries - 80 of these stores are in Australia, with a target of 100 by December this year. Graham reckons success in the world of franchising is all about attitude.

"People who go into franchising with the right attitude, and use head office as the tool for which it is designed, do very well," he says. "Those people who come in with the view that they know how to do it better inevitably have problems. We've had experience of both varieties.

"Franchisees are business people in their own right. Sometimes they have methods that are, in their view, better than the franchisor dictates. We've got a mechanism where they can feed these ideas back to us, for us to test and to review. Any of the ideas that are good are then propagated throughout the franchise network."

Revenue the key

Beyond the problems involved with not following the system, Graham says the biggest mistake made by franchisees is spending too much time behind the counter. Franchisees put serving customers, and saving the cost of another salary, ahead of looking at the business through the customers' eyes. Rather than cutting costs and holding the business back, the franchise manager should be looking at the big picture and helping the business thrive through increased revenue.

"All you do when you cut costs like that is inevitably shrink the business," Graham explains. "We also find franchisees sometimes take the line of least resistance in selling to a customer. Instead of up-selling they simply make the easiest sale, which is often the cheapest ice-cream."

Harley agrees. "A franchisor who has all that passion and emotion for their product will extend themselves and extend the people they work with. A franchisee left on their own will usually take the soft line and won't extend themselves."

The management skills and the personal incentives of the brand owner can be just as important as those of the franchisee, Harley reckons. It's vital for a potential franchisee to look for a franchisor who is both passionate about the brand and interested in building wealth for their company.

"To really succeed you've got to go beyond your comfort zone, and a passionate franchisor will help you do that," Harley says. "If you pick the wrong franchisor then you could be left to do it all yourself. A lot of people get into franchising and think it's all going to happen for them, but they can't get out of their comfort zone and rise above employment to become an absolute individual business owner. That's the biggest stumbling block."

Tackling the workload

One final problem for new franchisees, Graham reckons, is the workload. For those who have been full time employees, the amount of time one must dedicate to one's own small business can come as a rude shock.

"Franchisees often underestimate the amount of time they have to put into the business initially," Graham says. "They need to be there six to seven days a week for the first six to 12 months so they absolutely understand every aspect of the business - everything from staffing requirements to seasonal patterns to managing stock. Everybody who is in business on his or her own does that sort of work. You're building the business up and when you sell the business you recoup your effort."

But of course, a franchisee is buying a business for which they don't have to worry about negotiating with suppliers, or coming up with marketing concepts, or product testing and product innovation. They can put their hand up at any time and receive immediate, expert advice if they feel they need assistance. Their risk levels are arguably a lot less than those of a non-franchised small business owner. They have a fantastic network and they don't need to be pioneers in their field - in fact they're taking on a brand that, in most cases, is already well known and respected. So it's not all doom and gloom... just don't mention compliance.