Understanding the Franchise Experience

2011-07-21T16:56:00.000-04:00

Introduction to White Paper by Author

Putting the Internet to Work was published in the Spring of 1997. Today, 14 years later, this White Paper remains both current and relevant. More than anything, the passage of time shows that while technology may continue to advance, basic business principles do not change. Looking back from today, it is surprising how long it takes society to adapt to these technological changes.

Other than slight changes to current terminology and references to companies no longer in existence, this White Paper could have been written today. Back then there was a battle between “push” and “pull” technologies for distributing news. While the technology for distributing news is no longer in flux, it remains unclear just who will survive in this new era and who will bear the ongoing costs of gathering the news. Companies that were giants of their day, such as America Online (AOL), are now shadows of their former selves while new entrants such as Google, Facebook, LinkedIn, Twitter and Groupon are all working to ensure that they do not suffer the same fate as earlier Internet casualties. While all these companies appear to be commercial successes today, most have yet to prove they serve a viable long term purpose for which individuals (or businesses) will continue to pay for access.

Throughout my career, I have worked with many different businesses in multiple industries. A couple of these businesses warrant mention as being successful at utilizing Internet technology. I am particularly proud to have led the team that envisioned, developed and implemented the business model for distributing press releases online. This model, first introduced by Canadian Corporate News (now Marketwire) in 1996 has since been adopted by other newswire companies throughout North America. Other information companies that have been successful at transitioning their services to the Internet include Lexis-Nexis, CCH, Reed Elsevier and Thompson Reuters, to name just a few. What these companies have in common is that all have adapted to the Internet without devaluing their content. The success of these companies should be studied. It contrasts with the experience of the newspaper industry which continues to see declining revenues resulting from how they first decided to use the Internet more than fifteen years ago.

Of all the companies I have worked with during my career, the one that has most impressed me with their longevity and ongoing viability is Inquiry Management Systems (IMS). This business provides support services to the publishing industry. Throughout my 20+ year relationship with this company, I have seen the benefits of their long term commitment to understanding and utilizing the Internet throughout its business operations. To my knowledge, they have never focused on Internet fads that are of questionable value. A low tech data gathering operation when it first started in 1979, IMS invested the time and resources to figure out the best way to integrate computer and Internet technologies to improve their internal operations and as a delivery mechanism for their clients. Their continued success is a testament to this strategy. Had I written this White Paper today, it probably would have focused on how IMS has embraced these technologies.

This White Paper continues to present a current look at how companies can make effective use of the Internet. While the Internet of 2011 is a vastly different mechanism than in 1997, it is clear that many businesses have been slow to understand how they can utilize this technology as an integral part of their internal operations, marketing strategy and for customer service.

There is an important lesson here for franchisors. The Internet is far more than an advertising medium or mechanism for bringing customers through the doors of their franchised businesses. I consider this to be the low hanging fruit for those that fail to understand the true potential of the Internet. It provides a short term justification for “embracing” the Internet without really understanding the true value of this medium. Advertising may even be effective for some businesses. However, the more valuable benefits of “embracing” the Internet require more effort. Improved internal operations, better internal communications and enhanced customer relations are all more likely to lead to long term success than short term advertising initiatives. Those that invest in these opportunities are more likely to succeed even if the Internet is found not to be an effective advertising medium for their businesses.

I have chosen to republish this White Paper through the FranchiseFacts web site as an aid to franchisors in understanding how the Internet can be better utilized within their businesses.

Perry Shoom

FranchiseFacts

Putting the Internet to Work

A Model for Business - Consumer Relations

using the Internet

written by: Perry Shoom,

Information Retrieval Systems

Initial Publication: Spring 1997

Republished without revision: July 2011

Introduction

Consider the Internet---not the constant hype but something far more practical. Sending computer files and messages around the world is now as easy as making a telephone call. We now have “noncompatible” computer systems working together to provide seamless data communication which is less costly than voice communications. Just four years ago, this was not within the realm of discussion.

Despite these developments, we seem to have lost our focus. We are forever waiting for the next technological breakthrough, be it newer browser features, Java, full motion video, or greater bandwidth. In a rush to have the latest and greatest, we seem to have forgotten why we need the Internet.

The Promise

Instantaneous data communication has been a long sought after goal. From postal delivery to private courier to fax machines, daily business communication has become both faster and easier. The Internet now provides a reliable, inexpensive and fast delivery mechanism for information which exists in an electronic form. Since most information originates or resides on a computer, the Internet can reliably support over 90% of the country’s non voice communication.

But the Internet is capable of much more. It allows for what I describe as dynamic interaction. Unlike television, radio and print media, the Internet offers the capability for two way communication. From sales, marketing and advertising to customer service, research and database marketing, businesses constantly strive to communicate with the customer. The Internet simplifies these communications while providing a mechanism for direct feedback. The technology is here. It is inexpensive and accessible to businesses of all sizes. We must learn to use it.

Perhaps technology has advanced too quickly. Security and data privacy, Internet vs. intranet, fee based services, and other distractions make it difficult to focus on the real issues.

To be fair, there are a handful of success stories; Netscape, Amazon.com, Yahoo, Lycos, inquiry.com to name a few. Most organizations, however, do not yet understand the Internet, particularly what it can accomplish for them. Websites are often developed because of some vague understanding of potential benefits rather than a sound communication plan. These Websites emulate the familiar. Most often, corporate Internets exist for the sole purpose of putting out an electronic version of a corporate “brochure”. Other Websites attempt to generate income through the placement of advertisements. Both approaches assume that consumers and businesses respond to what they see on the Internet much as they would a printed brochure or an advertisement in a magazine or newspaper.

These approaches fail to recognize two important differences. First, advertising through non-Internet channels is usually unintrusive and without cost to the recipient. On the Internet, individuals pay for time spent on-line. Many are justifiably sensitive to unsolicited advertising which slows down their access to a Website and the information they seek, and to unsolicited e-mail transmissions. Websites that are simply advertisements for a company or its products are inappropriate in this business climate. The lack of business success on the Internet is detailed in a paper titled “Hope, Hype or Happening” by Dan J. Wasserman, Interactive Insights: A Multimedia Compendium, NAB’97. This paper clearly identifies the vested interests behind the current Internet hype, and provides evidence questioning the true dollar valuation of Internet-based revenues.

Building on where “Hope, Hype or Happening” leaves off, this paper presents a practical business model for sustainable implementation of Internet technology. The model is presented in the form of a case study for a fictional company named “Shoom-Mart”. Shoom-Mart is a retailer, perhaps a supermarket or department store. The shopping and purchasing habits of “Sharon Shopper”, a hypothetical consumer, are analyzed as she makes use of the Shoom-Mart Website. The second part of this model reflects how Shoom-Mart’s Internet successes are brought in-house in the form of an intranet. The lessons learned from Shoom-Mart are relevant to most business organizations, more so to service organizations and those developing Internet-based businesses.

Shoom-Mart earns the business of Sharon Shopper

Sharon Shopper visits the Website for Shoom-Mart. She may have learned of Shoom-Mart’s Website from an Internet search engine, a hyperlink listing at another Website or from Shoom-Mart’s own marketing efforts.

Sharon likely has a good reason for visiting Shoom-Mart’s Website. Perhaps she wants to contact the company, or a specific individual, and prefers to do so via the Internet. She may want to get a store address or its hours. To many, this is preferable to dealing with sophisticated corporate telephone systems and their often extended wait times. Sharon may find the Internet faster and more economical than the telephone. Perhaps Sharon has no pressing need for information and inadvertently found the Website while surfing. Regardless, Shoom-Mart now has an opportunity to assist Sharon, encourage a sale and perhaps gain some valuable information that can aid in future contact with her.

Better still, Shoom-Mart can do all this in a productive manner which reduces its own costs. No long distance charges are incurred by either party while assisting Sharon, and no staff time is required.

Assuming Sharon finds what she needs (which should be easy to do on a well designed Website), Shoom- Mart may also have reduced its print and postage charges plus the manpower required to prepare any mailing. In sufficient volume, these benefits are justification enough for Shoom-Mart’s Website. But this is just the beginning of a long term, mutually beneficial relationship with Sharon.

Shoom-Mart desires to be Sharon’s primary destination for products it carries. Its business is not about entertainment, and it has no interest in Internet surfers disinterested in its products. As such, Shoom- Mart has developed a Website which is practical, provides information often requested by telephone and mail, and is devoid of contests, games and “freebies”. The company has been most successful by focusing on bringing people into its stores. Once there, product selection, store layout and shelf presentation sell the products. Shoom-Mart’s experience is that consumers are unwilling to purchase products through other channels. Past catalog and telephone sales efforts have not been effective. Consequently, the Shoom-Mart Website does not attempt to sell any products or services through the Website.

Shoom-Mart has found that ongoing promotion of special offers is extremely popular, and has chosen to maintain this strategy on the Internet. It also views the Internet as a possible solution to one problem exposed during recent market research; consumer frustration at finding sale items out of stock. Shoom-Mart’s Website is designed to increase store traffic and assist consumers by identifying out of stock items. Sharon, or anyone visiting Shoom-Mart’s Website, can register for a weekly e-mail service providing information on discounted products for the coming week. Since hundreds of items may be discounted in any given week, each registrant can select those product types of interest to them. A second service allows visitors to determine if the product(s) they require are in stock at the store location of their choice. After selecting a product category (from the list), then the product in question and store location, they are informed if the product is presently available or out of stock. If unavailable, an estimated availability date is provided along with a list of alternate store locations with the product in stock.

Shoom-Mart also wants to know more about Sharon. Making use of the weekly e-mail service involves a registration process. Sharon is required to answer a series of questions including basic demographic information, her product type interests, and her opinions on Shoom-Mart and its products. Sharon agrees to provide this information in order to receive the weekly e-mail notifications. Other than her e-mail address, Sharon remains unidentified. Sharon also agrees to allow Shoom-Mart to send her periodic email messages about special offers.

Shoom-Mart makes good use of this information. Each week, Sharon receives an electronic flyer, or “eflyer”, detailing product specials in her region for the coming week. The items in her custom e-flyer are limited to product types listed in Sharon’s custom profile. Periodically, Shoom-Mart will notify Sharon of special offers in those stores within her city. Sometimes, Sharon will receive discount coupons redeemable at her local store. Shoom-Mart also works closely with its suppliers. Product manufacturers allow Shoom-Mart to inform Sharon of special manufacturer discounts for those product types listed in Sharon’s custom profile. Unlike a typical direct mail list, Sharon retains full control over this process. She can change her product interests, or discontinue the service, at any time.

It’s absolutely amazing. This Website has turned into a strategic competitive advantage for Shoom-Mart. With little more than 30 minutes of additional manpower each week and no other expenses, Shoom-Mart is able to attract Sharon Shopper and thousands of other people into their stores. No added advertising or marketing costs. Just better use of pre-existing information from their databases. Shoom-Mart’s competition, which either sees no value in having an Internet Website, or has developed an ineffective Website, sees Shoom-Mart growing at their expense and is unable to determine the reason for its success.

Table one describes some rather unique Internet services offered by real corporations.

Table 1 Unique Internet Services
Company and Feature	Comments
USAir offers seat sales to select destinations. Amazon.com sells books. PeaPod offers Internet grocery shopping and delivery to the home inquiry.com integrates lead generation efforts by IT companies with information management requirements of IT customers. Revenue is earned from placing listings and forwarding qualified leads to vendors. PointCast provides free access to category-based news and information. Service includes an innovative screen saver display carrying paid advertising. Quote.com sells access to current news and financial information from multiple sources.	A great way to fill excess capacity. Free to consumers. Greater selection than bookstores at lower cost. Likelihood of survival: excellent Many food products are purchased on impulse and presentation. Non Internet food shopping services have had limited success. Likelihood of survival: poor Services an existing need more effectively than paper based lead generation services. Ideally suited to users of technology. Likelihood of survival: excellent Advertisers may find a low response rate to advertisements on PointCast. Likelihood of survival: poor Most consumers are probably satisfied with current sources for this information. Corporations and serious investors may have an interest in this up-to-the-minute information. Likelihood of survival: good

From Internet to Intranet

More recently, intranets have received considerable press. Shoom-Mart began to wonder if their Internet technology could aid in internal communication. After some research and discussion, it implemented firewall technology so that internal materials could not be accessed through the Internet, and allowed individual departments to launch intranet initiatives. Five departments either introduced or became dependent on intranet services over the following six months. Table two summarizes each department’s use of the intranet.

Table 2 Internal intranet Applications
Human Resources Staff Directories Corporate Policy Manuals Sales and Marketing Product and Company Information Inventory and Price Lists Delivery Schedules	Investor and Media Relations Financial Statements Annual Reports News/Press Releases Analyst Reports

Human Resources introduced an electronic staff directory including telephone extensions and e-mail addresses, electronic versions of two large documents; the company policies manual and health plan documentation. Once a week, the department posts a list of staff training sessions including locations and times. Updating a document or directory on the intranet normally takes no more than 20 minutes. Before these materials were placed on the intranet, even minor modifications meant that complete manuals and staff lists had to be reprinted. Printing costs are now much lower. And productivity savings in the form of reduced administrative hours have allowed this department to implement an expanded staff training program.

Operations maintains inventory schedules. Each store can look at the schedule to see when they receive their next delivery, and what items are to be delivered. Schedules are updated daily. Errors are corrected prior to shipping. Courier and shipping costs have dropped since this application went live. The budget for temporary help required to address shipping errors has dropped by 90%.

Category Managers make use of inventory schedules and the out of stock feature to determine which products are most in demand. This assists them in planning changes to product offerings and purchase volumes. As a result, inventory turnover has increased and product shortages are less common. Suppliers find they now ship larger volumes of popular products, and have fewer product returns from Shoom-Mart.

Investor Relations is a time consuming task. As a publicly listed company, Shoom-Mart must maintain ongoing communications with investors, industry analysts and the media. The Investor Relations area serves as liaison between these interest groups and the company’s senior management. Since placing the company’s financial information on the intranet, these materials have been made available to all through the Internet. This has resulted in a reduced volume of telephone inquiries. Mailing and print costs have also dropped off. Furthermore, inquiries to and from senior management and outside interest groups are now handled within hours rather than days.

Retail Sales Staff also have access to inventory schedules. They are able to advise customers when out of stock items will be delivered. They can also use the Internet out of stock feature to assist in securing items that are in stock at another store. In the future, they plan to assist customers by placing special orders through the Internet. Customers will also be able to check the status of their orders through the Internet. Staff report less customer frustration in relation to product availability.

Summary

Though Shoom-Mart is a fictional organization, its internal and external communication requirements are real. The company’s use of Internet technology to optimize its relationships among staff, customers and suppliers illustrates what can be achieved in today’s competitive marketplace.

Table 3 Ten Reasons Why Websites Fail

1. Lack of strategic planning involving corporate visionaries

2. Emphasis on technology over practicality

3. Website not valued as a strategic asset

4. Control of Website residing in the company’s technology or MIS department(s).

5. Assuming that technology will market itself

6. Use of “bleeding edge” technology limits usefulness & value

7. Emphasis on appearance over functionality

8. Graphic intensive Websites too large for today’s technology

9. Use of existing company literature instead of re-writing for the Internet

10. Lack of accountability for maintaining/updating Website

Two major challenges face organizations wishing to address complex communications issues through the use of Internet technology. The first is defining in concrete terms what it wants to achieve. In Shoom-Mart’s case, for example, one goal was to develop a database of customer interests and preferences so that its marketing initiatives are more targeted. This goal was achieved by incorporating a customer registration form on the Website.

The second challenge is involving the right people in the project. In my work, I find that most organizations assign the task of developing an Internet Website solely to the department handling technology/MIS issues. The resulting product often looks good but is ineffective. (Table three provides the ten main reasons why Websites fail.) While technology specialists bring valuable skills to the table, they may not be in tune with the issues driving a business. Designing an Internet/intranet Website like that of Shoom-Mart requires a cross-disciplinary project team, e.g. marketing, customer service, operations, technology, and a clear understanding of the organization’s goals.

About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes a Report incorporating the results from its National Franchisee Survey. The 2010 Annual Report, and the Franchisee Survey that is currently in progress, can both be found at www.FranchiseFactsUSA.com. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

At the time this paper was written, Perry Shoom was an Internet and Business Consultant operating under the name of Information Retrieval Systems. Perry continues to provide business and information management services as an independent consultant at this time.

How the Franchise Industry misused the Internet - Part 5 of 5

2011-05-09T17:48:00.002-04:00

This is the fifth and final article that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.

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The problems outlined in this paper have been twenty years in the making. They are the result of decisions made by tens of thousands of individual business owners. As a group, these business owners have not fully understood the implications of their decisions to utilize Internet communications in the way that they have chosen. It is now up to this same group to move forward in a more effective way. While some may find it convenient to blame current problems on unscrupulous franchisors, the franchisors should not be faulted for continuing to do business while franchisees have changed the way in which they operate. It is the franchisee institutions that have degraded and need to be rebuilt.
Changing the current status quo can only take place with a concerted effort by franchisees, and this change will take time. It took more than twenty years of steady decline to reach this point. It may take another decade before significant changes in the other direction are evident.

Here are three steps that franchisees can take to help restore balance in the franchisee/franchisor relationship.

1. Encourage and Support Independent Franchisee Associations

Where a franchise has an existing Independent Franchisee Association, support it as a paying member. Consider the association to be a long term investment to protect your interests when major changes to your franchise are being considered. Allow the association to serve as the voice of franchisees for all franchisee initiatives. Do not assume that a Franchisee Association financially supported by the franchisor will be looking out for your interests.

Where an Independent Franchisee Association does not exist, work to create one for your franchise. You can contact the International Association for Franchisees & Dealers (IAFD - www.Franchise-Info.ca) for information on how to begin the process.

When evaluating the value of an Independent Franchisee Association, do not be focused on short term considerations. Its true value is not in providing new vendors, creating new products/services or distributing a monthly newsletter. It is essential when a franchise is considering changes to a franchise agreement, new pricing models, technology initiatives and other long term determinations. These situations do not come up frequently. When they do come up, it is essential that your Independent Franchisee Association is fully funded and operational so that it can quickly marshal the expertise and resources necessary to evaluate, and then respond to, these opportunities or threats on your behalf.

2. Educate Yourself

Do not rely on information provided by a franchisor and do not assume that someone else is looking out for your welfare. Develop a broader perspective on your industry and the franchise industry in general.

Blue MauMau (www.BlueMauMau.org) is a great site for franchise industry news and information. Read their articles, participate on the discussion boards and share your knowledge with the community.

FranchiseFacts (www.FranchiseFactsUSA.com) runs a National Franchisee Survey each year and publishes an Annual Report. Participate in the survey, review the Annual Report.

These businesses are providing services that used to be provided by Franchisee Associations in the past. They are evolving as they determine the best way to support the Franchise Industry as it adapts to the technological changes outlined in this paper. With your support, these newer institutions will continue to develop.

3. Be Professional in all your Public Communications

Any group is only as strong as its weakest link. Unfortunately, too many weak links present themselves on the Internet. Individuals who would never write a proper letter will draft a short message in support of or opposed to something that has been published on a web site. For whatever reason, online posters seem comfortable with making statements they would never make to someone in person. Many of these messages are not grammatically correct, contain numerous spelling and/or factual errors, make slanderous accusations and include all types of outlandish comments. The vast majority of these individuals choose to remain anonymous. Some feel that they are doing a service to others by stating what they feel has been left unsaid. What many of these posters fail to recognize is that the content, presentation and tone of their message discredits the vast majority of franchisees in the eyes of those reading such a message. It is entirely likely that franchisors monitor many of the public discussion boards as one method of determining the pulse of their own franchisees. These poorly considered messages are unlikely to sway a franchisor nor are they likely to be considered reliable by other readers.

Three Suggestions to Improve your Online Posts

Identify Yourself - If you are uncomfortable with disclosing your identity, perhaps what you are saying needs to be reconsidered or presented differently. Don't use anonymity in place of preparing a more thoughtful and considered message. Anonymous posts are not and should not be considered to be credible. Instead of serving to advance dialog, anonymous posts more often result in a less than professional discussion of the topic at hand. Traditional print media learned long ago that the best way to promote thoughtful comment is to only publish those letters from an identifiable individual. In the online world, this lesson has yet to be enforced.

Read your message three times before posting - Is your message grammatically correct? Is the spelling correct? Have you completed your thoughts? Can portions of your message be interpreted differently due to lack of clarity? Does your message add to the discussion or are you simply repeating something that has already been said? You only have one opportunity to present your message before it is seen by the world. Be sure to give the right impression.

Do not criticize or complain without offering an alternative - It is much too easy to criticize or complain than to provide a more considered option. Yet it is quite common for online posters to make a complex topic appear much simpler by ignoring facts that may be inconvenient for them. In this way, the Internet has become the chosen venue for those opposed to virtually anything. Anonymity, false claims and repeat postings by individuals, or one individual pretending to be many, seek to misrepresent a reality that some prefer to ignore. Requiring individuals to follow some basic rules in order to have their opinion heard is not an unreasonable stipulation to facilitate discussion.

Demanding the same discipline for online postings as required for publication in traditional media would be an admirable goal. At the very least, these standards would lead to a more supportive environment where thought leaders are more likely to participate and, possibly, thrive. The net effect would be to present the franchisee community as a more professional, knowledgeable and authoritative group.

Conclusion

Franchisees, like most small business owners, are an independent lot. Many have succeeded where larger corporations have failed. They do so by understanding their own businesses to the minutest detail, by doing much on their own, making most decisions independently and having confidence in their own abilities.
Admirable as these traits are, however, there are limits to one's knowledge and capabilities. There is an old adage - a person who represents himself has a fool for a client. This was meant to describe someone choosing not to employ separate legal counsel at a criminal trial. Perhaps the same can be said about someone who thinks they can successfully oppose a large corporation without a comparable organization. Many in franchising have tried. Few have succeeded.

Unfortunately, the Internet has become a tool for the handyman lacking proper expertise. They have all this information available to them yet lack the ability to distinguish among good and bad information, and have even less ability to effectively use this information. It wasn't always this way and there is no need for the current situation to continue.

Franchisees need to acknowledge their individual limitations, recognize and support the development of institutions that compensate for these limitations, and allow these institutions to represent them in their dealings with franchisors.

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About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at http://www.franchisefactsusa.com/. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

How the Franchise Industry misused the Internet - Part 4 of 5

2011-05-02T17:40:00.000-04:00

This is the fourth of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at www.FranchiseFactsUSA.com.

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The Internet has had a significant impact on the Franchise Industry as a whole. There are many ways in which the Internet has facilitated communications within the industry, increased sales, improved customer service and even resulted in new products/services. Nevertheless, this industry has had to adapt as it has lost many of its institutions while those that remain are less effective. This has negatively affected both franchisor and franchisee in ways that are not often considered.

Individual franchisees have become more empowered. They have greater access to more information, vendors and services. Many no longer rely on their associations (institutions) for direction, services or support. There is, however, a negative aspect to these changes that is not often considered. While not entirely comprehensive, here are some of the ways in which the Franchise Industry has been negatively impacted by the growth of the Internet.

Franchisees are now better able to obtain information on their own through the Internet but are often incapable of distinguishing good information from bad. In the past, this was a role served by Franchisee Associations. Today, franchisees lack access to those better able to critically review and comment on a wide array of topics from proposed changes in a Franchise Agreement to new legal documents they may be required to sign, new product or service offerings that are mandated by a franchisor or a new pricing structure. More often than not, I think that the main source of comment on these types of issues now comes from the franchisor. Franchisees lack the expertise to critically evaluate the impact of proposed changes that may have been drafted by attorneys or business professionals. They also lack their own research in support or opposition to changes that are being considered. Finally, franchisees lack the financial resources to obtain representation or guidance from professionals better versed in these matters. The lack of an effective Franchisee Association results in a reduced ability to make positive recommendations to a franchisor, and to oppose changes or an approach that may not be in the best interest of franchisees.

Franchisees are most often small business owners who lack the skills, time and desire to analyze the impact of macro events on their local business operation. Their focus tends to be on the day to day issues surrounding the survival of their business and overall profitability. Franchisees often make a determination that supporting a Franchisee Association is of no benefit to them because there appears to be no short term return on their investment. The problem with this approach occurs in the future when franchisees find their livelihood is threatened. Perhaps the franchisee has signed an amendment to their Franchise Agreement that they did not fully understand and which may have relinquished control over pricing or product offerings. The amendment may involve higher payments to the franchisor for infrastructure (such as a new store signage, a menu board or technology support) or services newly deemed necessary by the franchisor. By the time franchisees fully understand the implications of what they have signed, the damage is done. The time to enact change is prior to signing such an agreement. At these times it is essential that the infrastructure of a Franchisee Association exist and be fully operational in order to combat these threats at the time that they are presented.

Ongoing research is often deemed an unnecessary expenditure. I would argue that the lack of ongoing research is exactly the reason why franchisees often complain about their franchisor. While there is often anecdotal evidence within a large franchise, solid information on any one area of the business (or of the franchise network) is often lacking. While a franchisor may undertake their own research regarding initiatives that are of interest to them, franchisees lack the information to support their own interests. Franchisees often have little knowledge of thoughts and opinions of other franchisees, their financial situation or other information that may be needed to support any particular business perspective. Yet that is exactly what is needed when confronted with an urgent business threat or opportunity. Lacking this information, franchisees have no alternative but to rely on research that may have been provided by their franchisor, and any interpretation of this information that may have been provided. There are times when this information may be incomplete or designed to improve corporate revenues at the expense of franchisees. While some argue that it is the franchisor's role to look out for their franchisees, the reality is that a franchisor has to strike a balance between the needs of multiple interest groups. Without a Franchisee Association taking on this research role, essential decision making resources are unavailable to the franchisee community when they are needed.

Both franchisee and franchisor suffer from the changes identified here. As the weaker party in the business relationship, franchisees must work together to if they desire to have an impact on the decisions made by their franchisor. And without a Franchisee Association to represent them, franchisees are normally unable to present a united front to combat business threats or to exploit business opportunities. The loss of a single voice and combined resources of an organized group, once provided through the Franchisee Association, also makes it more difficult for a franchisor to engage in dialog with franchisees. Decisions must still be made but with less effective input from franchisees. As a result, more of these decisions are likely to benefit the franchisor simply because franchisees do not see the value of supporting their own institutions.

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About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at http://www.franchisefactsusa.com/. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

How the Franchise Industry misused the Internet - Part 3 of 5

2011-04-25T10:19:00.001-04:00

This is the third of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.

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To best understand how the Internet has impacted on the institutions within the Franchise Industry, one must first understand the scope of this industry and the role of its institutions.

The Franchise Industry is a $624B industry. It is larger than the entire durable goods industry which includes automobiles, computers, trucks and airplanes. It creates nearly 10 million jobs and generates approximately $229 B in payroll. Overall, it accounts for an estimated 7.4% of all private sector jobs. (Source: Economic Impact of Franchised Businesses, A Study for the International Franchise Association Educational Foundation; PriceWaterhouseCoopers, 2004)

The Franchise Industry is comprised of two distinct groups, franchisees and franchisors. Franchisees own local businesses and generate revenues by selling products/services to the ultimate consumer. Franchisors provide support services to franchisees in return for various payments. Each of these groups have different goals. Franchisees desire to maximize their profits by limiting their payments to their franchisor while receiving as many support services as possible. For the Franchisor, the goal is the exact opposite. Franchisors desire to maximize their revenues from franchisees while spending as little as possible on the services they provide. This is a symbiotic relationship where both parties are dependent on the other for survival yet compete to maximize their benefit in this relationship.

When an individual franchisee needs to communicate with their franchisor, for good or bad, they can be at a disadvantage when dealing with a large organization. It is for this reason that the Franchisee Association exists. Franchisee Associations provide many services to franchisees including educational programs, informational newsletters, facilitating communications with franchisors, developing or supporting business development initiatives, educating franchisees and conducting proprietary research.

While all these services are important to ongoing franchise relations, it is research that is least understood and (arguably) of most importance. There are times when franchisor and franchisee look at opportunities or challenges from a different perspective. Perhaps franchisees feel that a particular product is priced too low or that advertising is ineffective. Alternatively, franchisees may feel that vendor product or pricing is too high. In order to justify a change these types of changes, solid documentation is often necessary. It is this ongoing research that provides franchisee groups with the supporting evidence and/or documentation to support this franchisee perspective, or to quantify the negative impact of what may currently be a bad business policy. The need for this documentation is particularly important when the franchisor perspective is in conflict with the franchisee perspective.

Out of necessity, Franchisee Associations have morphed into two types. In the absence of Franchisee Associations paid for and supported by the franchisee community, franchisors have created similar organizations and provided them with funding. Where both forms of association exist, those supported through funding by the franchisor tend to dominate because they have the ear of the franchisor and also the financial resources to undertake initiatives. Unfortunately, these franchisor supported groups can be in conflict with franchisee interests. Their dependence on the franchisor for funding and support services limits their ability to fully represent the franchisees. To cite just one example, there is no reason for a franchisor to support and fund research by a Franchisee Association when the research results could conflict with their own corporate agenda.

The term Independent Franchisee Association refers to the franchisee association that is fully funded by franchisees with a sole purpose of representing franchisee views in all dealings with their franchisor. Because of its independence from the franchisor, this group tends to be better able to represent the franchisee perspective and support their interests.

Franchisee Associations also exist at more global level. These groups can provide a single voice for the numerous franchise specific associations when it comes to broader issues. These associations may serve as a lobby group to the government, for example, or to undertake research of or on behalf of the entire franchise industry. These associations may represent franchisors or franchisees.
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About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at http://www.franchisefactsusa.com/. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

How the Franchise Industry misused the Internet - Part 2 of 5

2011-04-25T10:15:00.002-04:00

This is the second of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion

At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.
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For over a century we have relied on print media to provide us with in depth and unbiased information about our society. The Internet is viewed as an improvement on our ability to communicate with each other and to access information.

Media has now moved to the online world. Magazines and newspapers have lost their traditional customer base - both advertisers and those who purchase the product. Media is challenged by convincing consumers to purchase their product(s) when they also distribute the same information for free on the Internet. And in today's society, people are too busy to read in depth articles on a particular subject. Most individuals prefer to listen to brief sound bytes or read short articles that summarize the information for us. In this environment, the market for print media is declining at a rapid pace.

The consequences of this are significant. We continue to lose the gatekeepers who were most capable of providing relevant information to us. The print media that remains today is much smaller and less capable of providing the quality information of the past. What remains is shorter in length, less effectively researched and more dependent on biased sources of information that is easily reproduced. Former reporters of the news were the first to migrate to the online world in order to replace the incomes they lost as their jobs disappeared. Through this transition, it was hoped that the tradition of effective and relevant print media would migrate to the Internet. It has not worked out this way. Most former print media writers found that they could no longer earn a living in a world where few would pay enough for their expertise. Yet this was only the beginning of the decline in media.

The online world quickly became overpopulated with individuals reporting or redistributing information. Individuals began to build their own personal online presence for many reasons - far too many to describe here. They often did so because there was no longer a significant cost to online communications. Simply start a inexpensive web site, blog or just reply to existing articles. Most felt they could earn a living by selling advertising yet very few have proven capable of doing so. There are now far too many information sites seeking advertising dollars in a world where few are willing to pay for content.

There is now an unrealistic consumer expectation that information should be available at no cost to the reader. I would argue that the fault for this lies entirely with the newspaper industry. They made a decision to put their content online for free despite the high cost of gathering this content. This has destroyed the perceived value of their product and had many unintended repercussions. Reporting news is costly. Without revenues to cover these costs, many jobs have been lost. Publications became smaller and less frequent. Many have disappeared. The information we now see in these publications is usually less effectively researched and dependent on less credible but easily available sources of information. The ripple effect of these events, however, is what this paper is attempting to address. Many necessary institutions that also depended on placing a value on information (and intellectual expertise) have been negatively affected by these events.

In place of these failing institutions we now have too many news websites, online newsletters, web sites and blogs. The belief that everyone could sustain their new businesses with advertising revenue was and remains impractical. To feed this growing expanse of sites that provide free distribution of information, we have seen an increase in communications directed to these sites - press releases, company announcements, government initiatives and privately contracted (or internally generated) surveys to support specific products/views. And the reporters of this information no longer have the desire or ability to focus on unbiased and relevant information while ignoring biased sources of information. In short, we have sacrificed quality of information for an increasing quantity of irrelevant or unreliable information. It is now up to the reader to decide what information is relevant and accurate, while also identifying what information may be false, incorrect, misrepresented or simply fabricated. And it is increasingly evident to me that most individuals are not up to this task.

None of these drawbacks to Internet communications are recent. As early as 1998, an article in a Chinese publication used the term "Internet junk" to describe "use of the Internet to disseminate ... product catalogues and advertisements." This article talks about the spread of a massive amount of "junk" at extremely low cost. This was combined with a "lack of regulations and standards ..... to produce any type of information - real and fake information, correct and wrong information, good and bad information - thus creating a flood of information online. The result is to make it easier to mislead people .... while increasing the difficulty and cost of searching and using valuable information, thus wasting considerable Internet resources and time." (Source: The Negative Impact of the Internet and Its Solutions by Ru Guangrong, The Chinese Defense Science and Technology Information Monthly, Issue 121, 1998)

Further adding to the destruction of informed reporting of information is a more recent phenomenon of allowing readers to comment on a particular article or posting. It is ironic that individuals who could not be bothered to write a letter on a topic think nothing of drafting a poorly thought out, nasty or otherwise inappropriate e-mail to anyone of their choosing. Unlike Letters to the Editor which are selected for publication based on content and awareness of the author, these online comments are often not controlled in any way. Posters can and often do hide their identity and choose not to disclose their reason(s) for posting. This anonymity and lack of disclosure often results in a less than professional discussion of the topic. Individuals who can contribute useful information on a subject are often less likely to participate in a public discussion that very often degenerates into a mean spirited distortion of the topic at hand.

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About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at http://www.franchisefactsusa.com/. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

How the Franchise Industry misused the Internet

2011-04-25T10:12:00.000-04:00

This is the first of five articles that comprise a White Paper titled The Internet and the Franchise Industry - How an industry misused the Internet. This paper describes the history of Internet communications in the Franchise Industry and suggests ways to improve the current situation.

Part 1 - Introduction
Part 2 - Internet Communications in our Society
Part 3 - Understanding Institutions that Support the Franchise Industry
Part 4 - Impact of the Internet on the Franchise Industry
Part 5 - What can be done in the Current Reality and Conclusion
At the conclusion of this series, the entire While Paper will be published on the FranchiseFacts web site at http://www.franchisefactsusa.com/.
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The Internet is now an accepted part of the way in which we all communicate. Low cost computers, cell phones and networks have allowed this technology to become ubiquitous. We access more information than ever before at lower (or no) cost. Industries and institutions have changed to embrace this technology. Yet our ability to manage and understand this information has not improved. In many ways, much of our society has lost the ability to critically evaluate information.
It has been nearly fifteen years since I wrote about technology. Back in the 1990s, I published approximately two dozen articles on how to best utilize technology for business and investing. My focus was on the use of the Internet and information technologies. I was also a public speaker on these same topics at technology conferences in Canada and the USA. Since 1998, I have been part of the franchise industry.
Today, I look back on how the Internet has developed over the past twenty years with disappointment. The Internet is, first and foremost, a mechanism for communication and the sharing of information. So how is it, in the Franchise Industry that I have been part of for more than a decade, that during this same time franchisees seem to have lost ground during a period when the ability to communicate among themselves has improved so dramatically? Why is it that franchisors are now perceived as being more ruthless in their dealings with franchisees than ever before? Is this perception correct? This paper documents the way in which I have come to understand what has happened these past twenty years. Through this process I have come to three conclusions.
A. Franchisors have not changed in the way they work with their franchisees. Franchisors have adapted, out of necessity, to changes that have been forced upon them by the franchisee community.
B. Internet technology was never envisioned as a way to destroy institutions that have existed for decades. Yet that is exactly what has and continues to occur in the Franchise Industry. This situation has come about by decisions made by a very significant proportion of individuals (franchisees) to no longer support their own institutions.

C. The necessary equilibrium in franchise relations has been disrupted. Franchisors no longer have the opportunity to work with franchisees speaking with a single voice. The organization tasked with this responsibility, when it exists, no longer has the financial resources and intellectual capital needed to fulfill this role.

This paper provides an overview of how the Internet has affected overall communications and flow/quality of information. It then addresses how these changes have become entrenched in the Franchise Industry. Finally, recommendations are provided for improving the current situation.

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About the Author

Perry Shoom is the founder of FranchiseFacts, a company that provides research services for the Franchise Industry. The company also publishes an Annual Report of the results from its National Franchisee Survey. The 2010 Annual Report, and the 2011 Franchisee Survey that is currently in progress, can both be found at www.FranchiseFactsUSA.com. The survey is open to all franchise owners and store managers. FranchiseFacts does not disclose identifying information that may be provided by survey respondents.

Critical Support Areas for New Franchisees (Embracing New Franchisees when Unhappy Franchisees Depart)

2011-03-24T16:42:00.000-04:00

There is considerable documentation through this report that many franchise owners are unhappy with their current situation and are contemplating changes to their career.

While some of this dissatisfaction can be attributed to a poor business climate, this report documents many areas that are more controllable. For example, many franchisees report dissatisfaction with most aspects of their relationship with their franchisor. Satisfaction ratings rarely exceed 55% and many rating categories receive satisfaction ratings in the teens. The exceptions to this are new store and pre-opening support, both of which are of short duration and received some of the best satisfaction ratings. It appears that many franchisors may be more effective at providing this shorter duration support to newer franchisees than they are at providing ongoing support.

A majority of respondents feel that the services provided by their franchisor are poor, and that the franchisor does not understand what it takes to be successful at the franchisee level. While there may be a valid difference of opinion on what is needed to be successful within a franchise, franchisors should take note that many of these franchisees would not be prepared to provide a positive franchise referral to prospective franchisees. When it comes to business generation through marketing, advertising, the Internet and in store materials, most respondents also gave their franchisor low ratings.

The bottom line is that many current franchisees appear to be contemplating or actively preparing for a career change. Only 16% of respondents anticipate continuing to operate their franchised business five years from now. While some of these individuals may choose to remain in franchising, we anticipate that the franchise industry will need to embark on a major recruitment drive to attract new recruits to the industry.

Regardless of the reason, an infusion of new franchisees will be a necessity simply to maintain the current industry infrastructure and revenues. Anything less will result in a contraction for affected companies within the industry. To prevent such a contraction within a specific franchise, there needs to be a focus on services most important to attracting and supporting newer franchisees.

Support requirements for new franchisees can be quite different than what is required by their more seasoned counterparts. More specifically, newer franchisees tend to require more (initial) training as they learn their new business. New franchisees rely on franchise newsletters (and other communications) to learn about industry best practices. They are learning new, and often proprietary, computer software. And new franchisees are cost conscious after investing significant sums of money to open a new business.

The accompanying table highlights types of ongoing support (as opposed to the shorter duration new franchisee support) from our survey that we feel are most important to the new franchisee.

This table shows that just 55% of respondents report receiving access to training manuals or tutorials. This does not mean that 45% of respondents do not receive training. It does mean that training may be less formal, possibly limited to verbal instruction, and most likely lacking in resources for future reference.

We have found that franchisees are dissatisfied with some types of ongoing support that we feel are most important to the new franchisee. Only 12% of respondents report that their franchise newsletter is a useful informational resource while 53% strongly disagree with the same statement. Overall, 21% of respondents feel that they received any form of training that helped them to be successful. Technology services are considered adequate by 27% of respondents and vendor programs are considered useful by 18% of respondents.

Franchisee support can vary widely among franchisors as can the fees paid by franchisees for this support. Franchisees paying higher fees are more likely to expect a greater level of support. Those who pay lower fees are more likely entitled to and receive lower levels of support. Regardless, lower levels of satisfaction with the support that is being provided is an indicator that some change is warranted.

As franchisors determine their need to recruit new franchisees to replace those leaving their system, it is the above mentioned areas that we feel will need to be addressed to best support these new business owners.

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This article is a reprint from FranchiseFacts' Franchisee Satisfaction Survey Annual Report 2010 - Survey Results and Analysis. Perry Shoom is the founder of FranchiseFacts - a research firm that conducts private and public research for the Franchise Industry. The 2011 Franchisee Survey is in progress at http://www.franchisefactsusa.com/. If you are a franchise owner or store manager, please participate. FranchiseFacts does not disclose identifying information that may be provided by survey respondents. Your participation in a FranchiseFacts survey means that you can honestly and openly communicate your responses without disclosing your identity to third parties. FranchiseFacts is an Approved Survey Vendor for IAFD

Gender Differences among Franchise Owners

2011-03-04T11:57:00.001-05:00

(How a weak economy is having a greater impact on female franchisees)

A perusal of the data would suggest that women are less successful in franchising than their male counterparts. A higher proportion of female franchise owners report having college or university degrees than their male counterparts. Women are less likely to have upper or middle management experience, while a higher percentage of female respondents report having no business experience at the time they opened their franchise.

When selecting a location for their business, women are more likely to locate in areas with a smaller population and less likely to locate in urban areas.

Once operating their business, female franchise owners are less likely to work the long hours needed to make their businesses successful. 18% of female respondents report working under 40 hours a week. This compares with 8% for their male counterparts.

In terms of success, women report taking much longer to achieve profitability in their business. While 50% of male respondents report achieving profitability in under three years, only 9% of women report achieving profitability during the same time. In total, 87% of female respondents report that their business is not yet profitable as compared with 37% of male respondents.

A closer look at this data, however, suggests that these differences have nothing to do with gender. Female respondents are much newer to franchising than their male counterparts. 61% of female respondents have owned their business for less than four years compared with 31% of male respondents. Having opened their franchised businesses much later in the business cycle, female owned businesses appear to have been more susceptible to the downturn in the economy as evidenced by the higher percentage of unprofitable businesses and lower percentage of those meeting their own financial expectations (9% for females, 21% for males.)

In the long run, women may be better tuned to the realities of business than their male counterparts. They seem to have more balance in that they are less likely to be working 50+ hours each week. This may explain why female respondents are more likely to give their local competition credit for running a good operation. While 55% of female respondents report that their operation is superior to the local competition, 78% of male respondents are of the same opinion.

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This article is a reprint from FranchiseFacts' Franchisee Satisfaction Survey Annual Report 2010 - Survey Results and Analysis. Perry Shoom is the founder of FranchiseFacts. The 2011 Franchisee Survey in progress at http://www.franchisefactsusa.com/. If you are a franchise owner or store manager, please participate. Please note that FranchiseFacts does not disclose identifying information that may be provided by survey respondents. Your participation in a FranchiseFacts survey means that you can honestly and openly communicate your responses without disclosing your identity to third parties.

Franchisee Satisfaction Indicators Suggest Contraction in Franchising

2011-02-18T15:05:00.000-05:00

If franchisee satisfaction is, as we believe, an important indicator of future actions, the next few years could be challenging for the franchise industry.

Future success for most franchisors is dependent on the renewal of existing franchises and the sale of new franchises. Current franchisees play an important role in this process. In addition to royalties and other payments to the franchisor, franchisees also serve as referral agents that impact on new sales. The thoughts and intentions of current franchisees is crucial intelligence for a franchisor that can aid in building their franchise network. Franchisors can improve their operations and growth by understanding current levels of franchisee satisfaction and its impact.

Franchisees have had an exceptionally difficult year - possibly the worst of their working lives. National Franchisee Survey respondents report that few are meeting their financial goals, seeing increased revenues/profits or would consider recommending their current franchise to a prospective franchisee. The vast majority do not expect to be with their current franchise in five years time. Yet a majority consider their operation to be superior to that of the competition.

The following table shows three leading indicators that are incorporated into our National Franchisee Survey.

What we see is troubling. By a wide margin, surveyed franchisees report that they would not provide a positive referral to a prospective franchisee. They also report that they would not have invested in their current franchise had they known what they now know. Since overall numbers can hide crucial differences such as those between newer and older franchisees, we also look at these indicators based on years in operation. We find similar results regardless of how long a franchisee has owned the business. This suggests that current concerns have existed for an extended period of time.

When asked about future plans, only 16% of respondents anticipate doing the same thing in five years. While only 14% anticipate retirement, 70% anticipate either owning a different business or being an employee for another business.

Should these patterns persist, many franchises will encounter significant challenges in the coming years. At the very least, a very large number of new franchisees will be needed to maintain the current infrastructure and revenues of the existing franchise networks. These new franchisees will be harder to find if current franchisees are not prepared to provide positive referrals. Some franchisors may choose to ignore these trends and could very well see a decline in their franchise network.

More enlightened franchisors will look inward to determine if the patterns we have identified are reflected within their network. Should these patterns be confirmed and reversed, short term benefits would likely include a reduction in costly internal litigation. Longer term trends would include a larger and growing franchise network plus a growing dominance within their respective industries.

This article is a reprint from FranchiseFacts' Franchisee Satisfaction Survey Annual Report 2010 - Survey Results and Analysis. The full report is available at www.franchisefactsusa.com/reports.php

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Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at http://www.franchisefactsusa.com/
If you are a franchise owner or store manager, please participate!

Please note that FranchiseFacts does not disclose identifying information that may be provided by survey respondents. Your participation in a FranchiseFacts survey means that you can honestly and openly communicate your responses without disclosing your identity to third parties.
Follow our Blog at franchisefactsusa.blogspot.com

Female Franchise Owners Most Affected by Weak Economy

2011-01-18T16:49:00.001-05:00

In an economy showing few signs of growth, 87% of female owned franchised businesses report they are not profitable. This compares with only 23% of male owned franchised businesses. 9% of female respondents report that their business became profitable within three years, as compared to 50% of male respondents. Other findings from the National Franchisee Survey suggest that women have more recently embraced franchised business ownership than their male counterparts. This suggests that the poor results for female business owners may be related to the currently weak economy. Opening a business much later in the business cycle, women owned businesses were less likely to have been profitable when the economy worsened.

These and other insights about franchisee owned businesses are provided in a new report by FranchiseFacts. The report, titled Franchisee Satisfaction Survey Annual Report 2010, is now available.

The findings come from FranchiseFacts’ 2010 National Franchisee Survey, a survey of franchise owners throughout the United States and Canada. The report explores all aspects of their business including franchisee satisfaction (relations with their franchisor), to current profitability, business development initiatives, business trends and future plans.

At over $600 B in annual revenues, the franchising industry is larger than the combined automobile, computer, truck and airplane industries. And it employs at least as many people. A better understanding of this industry is important to understanding the direction of our economy in terms of small business growth and new jobs.

This report provides numerous insights worthy of further research. For example, 66% of respondents report a decline in business over the past year while 45% anticipate a decline in the coming year. Also, 50% of respondents anticipate closing existing locations in the future.

This report is available, free of charge, at www.FranchiseFactsUSA.com.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com

Franchisee Survey Annual Report FREE to Respondents - Survey Period for 2010 National Franchisee Survey Ends October 31

2010-09-13T16:08:00.000-04:00

As a franchise owner, you are part of a $600B industry. This industry is larger than the automotive, computer and airline industries combined. While it is relatively easy to find information about the thousands of franchise companies (franchisors), very little accurate and objective information exists about the owners (franchisees) comprising this massive industry. FranchiseFacts is striving to fill this information gap by surveying franchisees about their experiences, and sharing our findings with the franchise community. Our goal is to present solid quantifiable information based on franchisee participation in our annual survey. We can only do this with your support.

The participation we require is not just from the few who regularly participate in franchise discussion boards. We need to hear from the silent majority of franchisees who do not participate in a vocal or identifiable manner. It is not uncommon for the vocal minority on the various social media sites to have opinions that may not be reflective of the majority, so we strive to obtain wider participation in the survey.

It often seems that far too many people are fed up with voluntary requests for information. Telemarketers and junk e-mail have taken a toll on our willingness to share information. Then there is the mistrust that many franchisees have with those that gather and report information. Far too many franchisors are perceived as not being interested in gathering reliable information, or selective reporting of survey findings to its own franchisees. Nevertheless, it is important that we recognize the importance of independent and unbiased information gathering. Without reliable information, most of which can only be gathered through surveying, both franchisor and franchisee bear the costs. The alternative to good information for making sound business decisions is increased financial expenditures, poor business decisions and internal conflict between franchisee and franchisor.

To cite just one example of what we can learn from this first survey period, the accompanying chart reports, based on survey responses, what franchisees hope to be doing five years from now. It is from this, and similar insights, that we have begun to think of the franchise industry as being in the early stages of an industry-wide contraction. This is just one of the topics that we will elaborate on in the upcoming Annual Report. Other articles (available at www.FranchiseFactsUSA.com) suggest how franchisors can try to reverse this trend.

Click to view accompanying chart.

The survey period for FranchiseFacts’ National Franchisee Survey closes on October 31. All survey responses received after this date will be incorporated into the 2011 survey period. The 2010 Annual Report will be available early in 2011. This report will, to the best of our ability, report the information you share with us in an unbiased and impartial manner.

These last few weeks are your final opportunity to contribute to the franchise community by participating in this comprehensive survey that maintains your confidentiality and is independent of franchisors and franchise associations. As a participant, you have the option of receiving the Annual Report and comparing our industry findings with that of your own business.

To be clear, FranchiseFacts does not sell franchises nor do we have an interest in making franchisors look bad. As such, we do not have a vested interest in the specific results or findings of our survey. That is a crucial difference between FranchiseFacts research and research funded by organizations that derive revenue from sources other than the research. We look at where the data leads and then try to explain the reasons for our findings.

As with the articles and preliminary findings I have reported to you throughout the year, it is likely that you will not agree with everything that we report. We do our best to understand and explain what may appear to be inconsistencies between the data we report and conventional thinking. It is our hope that the soon to be released Annual Report will encourage discussion and promote better understanding between franchisees and franchisors. To facilitate this, we will be providing an advance copy of this report to Blue MauMau and other major media so that they can conduct their own independent review of our findings.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com

Critical Support Areas for New Franchisees

2010-08-16T14:26:00.000-04:00

We are experiencing a dramatic increase in individuals reaching retirement age. As with other parts of the economy, it is our expectation that some segments of franchising will undergo dramatic changes as more people contemplate retirement. While some of these individuals may choose franchising as a second career, it is more likely that the franchise industry will need to embark on a major recruitment drive to attract younger blood to the industry.

My July article noted that 15% of respondents anticipate no longer owning their franchise in five years time simply due to anticipated retirement. Another 71% of respondents anticipated doing something different in five years time. Regardless of the reason, an infusion of new franchisees will be a necessity simply to maintain the current infrastructure and revenues. Anything less will result in a contraction for affected companies within the industry. To prevent such a contraction within a specific franchise, there needs to be a focus on services most important to attracting and supporting newer franchisees.

Support requirements for new franchisees can be quite different than what is required by their more seasoned counterparts. More specifically, newer franchisees tend to require more (initial) training as they learn their new business. New franchisees rely on franchise newsletters to learn about industry best practices. They are learning new, and often proprietary, computer software. And they are cost conscious after investing significant sums of money to open a new business.

FranchiseFact’s National Franchisee Survey incorporates aspects of franchisee support that we feel are most important to newer franchisees. Specifically, the survey asks respondents to state their agreement or disagreement with statements about the support they receive from their franchisor. Franchisee responses to these statements help us to understand how franchisor support is perceived by franchisees. The accompanying table highlights preliminary (mid survey) findings that we feel are most important to the new franchisee.

Click to view accompanying table.

What we found is that just 55% of respondents report receiving access to training manuals or tutorials. This does not mean that 45% of respondents do not receive training. It does mean that training may be less formal, possibly limited to verbal instruction, and most likely lacking in resources for future reference.

Generally, we found that franchisees are dissatisfied with the type of support that we feel is most important to the new franchisee. Only 14% of respondents report that their franchise newsletter is a useful informational resource while 56% strongly disagree with the same statement. Overall, 21% of respondents feel that they received any form of training that helped them to be successful. Technology services are considered adequate by 27% of respondents and vendor programs are considered useful by 17% of respondents.

Franchisee support can vary widely among franchisors as can the fees paid by franchisees for this support. Franchisees paying higher fees are more likely to expect a greater level of support. Those who pay lower fees are more likely entitled to and receive lower levels of support. Regardless, lower levels of satisfaction with the support that is being provided is an indicator that some change is warranted.

As franchisors determine their need to recruit new franchisees to replace those leaving their system, it is the above mentioned areas that we feel will need to be addressed to best support these new business owners.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com

Top Selling Periods for Franchised Businesses

2010-07-26T16:11:00.000-04:00

A business with consistent sales throughout the year is, more often than not, a more stable operation than one that relies on a couple of key months for the bulk of their profits. Consistent sales make it easier to plan, staff and budget. Costs are frequently lower and profit margins may be higher, partially due to reduced discounting. Nevertheless, certain times of the year remain important selling periods. These annual events represent periods when the consumer is more likely to purchase certain products or services. A prudent business operation needs to cater to these patterns. FranchiseFacts’ National Franchisee Survey has taken the first step at measuring the impact of key selling periods by asking survey respondents to identify those major holidays and events that have a positive impact on their business.

Major media reports sales revenues for large retail chains and, from this, we have come to understand the importance of the Thanksgiving to Christmas period to these larger retailers. For other businesses, however, this same period often represents a dramatic slowdown in sales.

Survey respondents are presented with a list of holidays and major events, and asked to select those items in the list which have a noticeable positive impact on their business. This list includes major sports and holidays, plus key spending periods such as weddings, moving and back to school.

Respondents report Christmas (18%) as being THE most important sales period, followed by Valentines Day (13%) and Mothers Day (13%). While these top sales periods may not come as a surprise to many, what we find surprising is that so few of the respondents identified these periods as having a positive impact on their business.

A second tier of important sales periods includes Easter (9%), Back to School (9%), Weddings (8%), Moving/Relocation (5%) and Halloween (5%).

The bottom tier of important sales periods includes major sports, Thanksgiving and Fathers Day which all received fewer than 5% of responses.

These percentages are likely to vary by industry, region of the country and also specific local events. A region hosting the NFL’s Super Bowl, for example, is likely to see a significant influx of visitors and spending in many sectors of the local economy. Likewise, homeowners in New England are more likely to decorate their homes and host parties for Halloween, making this holiday more important to sectors of their local economy. Businesses providing products to support Halloween events (parties, food, costumes, decorations, etc.) are likely to transact a much greater portion of their business during this period.

While Christmas does represent an important selling period for many in franchising, this group represents less than 20% of responses to this question. Perhaps the franchising industry, which is primarily comprised of small businesses, have a more balanced business model where revenues are more evenly spread out throughout the year. Alternatively, it may simply be that major holidays and events are less important to businesses than in prior years.

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Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Follow our Blog at franchisefactsusa.blogspot.com

Franchisee Satisfaction Indicators Suggest Contraction in Franchising

2010-07-12T11:20:00.000-04:00

We believe that it may be possible to predict, or change, future events by understanding franchisee satisfaction and its impact. This is contrary to the more typical utilization of franchisee satisfaction as a current or historical indicator. To aid in this, we have incorporated what we feel are leading indicators into our National Franchisee Survey and our satisfaction index. Through this index, we hope to be able to identify those franchises primed for growth.

Future success for most franchisors is dependent on the renewal of existing franchises and the sale of new franchises. Current franchisees play an important role in this process. In addition to royalties or other payments to the franchisor, franchisees also serve as referral agents that impact on new sales. The thoughts and intentions of current franchisees is crucial intelligence for a franchisor that can aid in building their franchise network. The accompanying table presents three leading indicators. All are part of the National Franchisee Survey and incorporated into the index that will be a part of our Annual Report at the end of this year.

When asked about future plans, only 15% of respondents anticipate doing the same thing in five years. While only 14% anticipate retirement, 70% anticipate either owning a different business or being an employee for another business.

Should these patterns persist, many franchises will encounter significant challenges in the coming years. At the very least, a very large number of new franchisees will be needed to maintain the current infrastructure and revenues. These new franchisees will be harder to find if current franchisees are not prepared to provide positive referrals. Some franchisors may choose to ignore these trends and could very well see a decline in their franchise network.

More enlightened franchisors will look inward to determine if the patterns we have identified are reflected within their network. Should these patterns be confirmed and reversed, short term benefits would likely include a reduction in costly internal litigation. Longer term trends would include a larger and growing franchise network plus a growing dominance within their respective industries.

One of the goals of the National Franchisee Survey is to identify many of the reasons for franchisee dissatisfaction within a franchise network. This is, as we see it, the first step to reversing negative trends within the industry.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com

Franchises Seen as Path to Financial Independence

2010-06-21T16:33:00.000-04:00

Franchisees have different reasons for getting involved in their business. Some believe that owning a franchise is a path to financial independence. Others feel they need more control in their lives and that owning a business provides this control. For others, it may be the need for greater flexibility. And yet others may feel that the new business is complementary to an existing business.

In an effort to better understand these reasons, the National Franchisee Survey asks respondents why they first got involved in franchising. We believe that the first step to understanding franchisee satisfaction is to understand the reasons for operating a franchise.

The most common response to this question, by far, is that individuals perceived franchising as a path to financial independence.

We looked closer at this by considering the number or years a franchise has been in operation, the gender of respondents, ethnicity, region of the country and other criteria. Regardless of the breakdown, financial independence remains the top response for each and every category of respondent.

The two tables presented here are typical of others that were reviewed for this article. In all instances, over 50% of respondents cite a desire for financial independence as a reason they first got involved in franchising. Depending on the correlating criteria (ethnicity, region of country, years in operation, etc.), the percentage of respondents citing a desire for financial independence exceeded 70%.

Looking deeper, there are some subtle differences noted by correlating data between two independent questions. These differences suggest possible trends that we hope to follow in the coming years. The responses we have seen suggest that there are differences between what men and women perceive to be important. More women, for example, state financial independence as being a reason for becoming involved in franchising. They also report flexibility as the second most important reason. In contrast, men are more likely to consider franchising as a solution to being unemployed or as a way of having greater control.

Looking at this information based on the number of years a franchisee has operated their business presents quite different information. Interesting, if not yet definitive, is that franchisees in operation for “1 to 4 years” and “10+ years” report similar percentages for three of the five reasons cited. These two time periods roughly correspond to the current and last economic slowdowns in the USA. It may also be relevant to note that franchisees in business the shortest period of time (under 4 years) are less likely to report either unemployment or greater control as reasons for getting involved in franchising. We anticipate reporting on this trend as the economic climate improves to determine if these similarities are consistent during contraction and growth periods in the economy.

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Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com

Time to Profitability Shorter in Less Rural, More Populated Areas

2010-06-08T16:13:00.001-04:00

Time to Profitability Shorter in Less Rural, More Populated Areas

(Newer franchisees taking longer to become profitable)

It is often said that the most important criteria in determining success for a local business is location. What this means, however, has always been subject to interpretation.

A downtown business may have lots of potential customers but also lots of competition, high rent and more staff to service these customers. A rural business may have fewer potential customers, less competition and fewer fixed costs such as rent. Success depends on how a business is able to balance its revenues and expenses to produce the single factor that defines viability – profit. While a successful business involves many qualitative factors not measured in the National Franchisee Survey , we are able to look closer at some demographic information.

For businesses in operation 10+ years, one third of respondents state that they reached profitability in less than one year. Over 50% state that they reached profitability in less than three years. This is a dramatic contrast to newer franchises where less than half report being profitable in the same period of time. The more recently a business has opened, the longer it appears to take for them to achieve profitability. As a basis for comparison, Table 1 includes the percentage of stores not yet profitable based on years in business. As expected, this percentage decreases over time.

Franchises located in population centers of 250,000+ (Table 2) report achieving profitability in a much shorter period than those in smaller population centers. Frequently, these larger population centers are more costly areas in which to operate and often have more competition. Nevertheless, these operations report a much faster time to profitability.

Likewise, we found that franchises located in rural areas (Table 3) had a longer time to profitability than their urban and suburban counterparts.

Despite what can be assumed to be higher operational costs and cash flow requirements, it appears that franchises located in more urban and higher population centers took considerably less time to become profitable than those located in smaller/rural areas.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com

Local Store Advertising – Yellow Pages Dominate, Internet Advertising Lags

2010-05-24T13:34:00.000-04:00

Yellow Pages remains the most common form of Local Store Marketing utilized by franchisees.

Yellow Pages advertising is utilized by 69% of respondents to the National Franchisee Survey , followed by Print advertising –newspapers (58%) and e-mail to an internal distribution list (57%.) Purchased e-mail lists (4%), Television (14%), Billboard (15%) and Website banner advertising (17%) are the least commonly utilized forms of local store advertising by franchisees.

Click to view accompanying table.

Looking at local store advertising correlated against number of years a local franchise has been in business presents what is, to me, a surprising pattern. Print Yellow Pages is utilized by 100% of respondents that have been in business for less than a year. Other forms of local advertising have almost no representation among these businesses during their first year of operation.

After a local franchise has been in operation for at least a year, we note significant usage of virtually all forms of local advertising. This appears to be a period when franchisees experiment with different forms of advertising during which Newspaper (69%) and Yellow Pages (62%) advertising are dominant. After four years in business, we begin to notice a reduction in the use of these other forms of advertising as noted by the increasing dominance of Yellow Pages advertising and a reduction in usage of all other forms of advertising. After ten years in business this migration appears to be complete. Local franchise owners once again rely on Yellow Pages advertising with 83% of respondents reporting its use. More notable, however, is the dramatic reduction in use of virtually all other forms of advertising.

If one looks at the most experienced store owners for guidance, it appears that they find Yellow Pages advertising to be most suitable for promoting their local businesses. While Internet advertising in all its forms retains a presence, the reduced use of these advertising methods suggests that Internet advertising may not yet produce the same measurable results as print media.

Despite the inroads made by the Internet, Social Media and other technologies, the responses we’ve received to date from the National Franchisee Survey suggest that local franchise owners are not yet comfortable with the use of new media. The most experienced store owners appear to rely on Yellow Pages advertising to the near exclusion of all other options.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com

Women in Franchising – Better Educated, Risk Averse

2010-05-04T16:03:00.000-04:00

Are women who own franchised businesses more or less successful than their male counterparts?

A recent NPR news item informed that women earn $0.77 for every dollar earned by men. That same day, an unrelated newspaper article described how women have a greater aversion to risk than men.

Li-Jun Ji, a professor at Queen’s University in Kingston Ontario, studies how decisions are made. According to Ms. Ji, men are “natural risk takers.” She suggests that “women tend not to get the same kick out of taking risks.”

“When it comes to a risky situation which usually involves some kind of uncertainty, women tend to perceive negative consequences to be more likely and perceive negative consequences to be more severe.”
Li-Jun Ji, professor, Queen’s University, Kingston, ON
Globe and Mail, April 24, 2010

Franchising, a risky business venture, falls into this category where Ms. Li suggests that women are more likely to “perceive negative consequences to be more severe.” Does this impact on those likely to get involved in franchising, and their relative success? Preliminary data from FranchiseFacts’ National Franchisee Survey (currently underway) was used to develop profiles for men and women who own a franchise.

Women, when opening a franchise, report as being more educated than their male counterparts but lacking a comparable level of prior business experience. These women are more likely than men to open their franchised business in a smaller population center (under 250,000 people) that is rural or suburban.

As franchisees, the vast majority (61%) of these women have owned their business for no more than four years whereas 70% of men have owned their franchised business for more than five years. Women also work fewer hours in their business.

	Women (46% of respondents)	Men (54% of respondents)
Age	40-64 yrs -- 82%	40-64 yrs -- 78%
Education	College/University or Higher - 84% High School - 0%	College/University or Higher - 81% High School - 4%
Years to Profitability	Not yet profitable - 89%	Under 1 yr - 25% 1-3 yrs - 27% Not yet profitable - 25%
Prior Business Experience	None - 11% Bus Exp / No Mgmnt exp - 27% Middle Management - 39% Upper Management - 23%	None - 8% Bus Exp / No Mgmnt exp - 14% Middle Management - 39% Upper Management - 39%
Years in Operation	1-4 yrs - 61% 5-10 yrs - 25% 10+ yrs - 9%	1-4 yrs - 29% 5-10 yrs - 41% 10+ yrs - 29%
Hours Worked	Under 40 hrs/week - 18% 45+ hrs/week - 75%	Under 40 hrs/week - 10% 45+ hrs/week - 78%
Meeting Financial Expectations	Meeting Expectations - 7% Below Expectations - 93%	Meeting Expectations - 15% Below Expectations - 77%
Investment of Money/Time greater than expected	Agree - 57%	Agree - 56%
Optimistic about long term growth of the business	Agree - 11%	Agree - 33%
My operation is superior to the local competition	Agree - 52%	Agree - 78%
Profitability	Unprofitable - 81%	Unprofitable - 31%
Local Population	Small centers (under 250k) - 68%	Large centers (250k+) - 66%
Density	Urban - 32% Suburban - 55% Rural - 14%	Urban - 39% Suburban - 51% Rural - 10%

Women report as having a different perception of their business as compared to their male counterparts. Women are more likely to feel that their business does not meet their own financial expectations. They are also less optimistic about the long term growth potential of their business. Finally, women participating in the survey are less likely to believe that their own business is superior to that of their competition.

Being more risk averse, one might expect women to incur less debt and have lower business expenses. They would also be less likely to gamble on future growth. In a poor economy, these actions should result in a mitigation of business losses and possibly higher profits. The data I’ve reviewed suggests otherwise. More than 81% of women report that their business is not yet profitable, as compared with 31% of men. Possibly related to this, 61% of female respondents owned their business for less than four years. Their male counterparts report operating their business for a much longer period of time. Perhaps women entered franchising much later in the business cycle and, consequently, far more of them had not yet achieved profitability by 2009. If correct, one would expect the above statistics to look more favorable for women in 2011 and beyond.

The responses we’ve received to date from the National Franchisee Survey do suggest that Ms. Ji’s findings are consistent with what occurs in franchising if one considers some of the demographic results. Smaller population centers, and rural and suburban areas, are usually less costly areas to open a business and are more consistent with an aversion to risk. As more data becomes available, and covering more years, I hope to revisit this topic and rebuild the above profiles.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com

Dunkin Donuts, Meineke rank highest in Franchisee Satisfaction

2010-04-19T11:28:00.009-04:00

FranchiseFacts’ Index (FFI) is a comparative rating created to measure franchisee satisfaction with their business and their franchisor. This index is designed to allow us to evaluate franchises in different industries using a standard criteria. We believe that, over time, relative changes to this rating should correspond to changes in franchisee satisfaction.

The FFI is a weighted average calculation based on responses to ten specific questions in the National Franchisee Survey. Each question addresses, specifically or indirectly, factors that we believe impact on a franchisee’s level of satisfaction with their business and/or their franchisor. The maximum rating available is 105 points. (This is not a percentage calculation and should not be evaluated as such.)

While the survey is in progress, we provide this peek at the current index ranking for the top and bottom franchisees based on responses to date.

The FranchiseFacts Index can be correlated against demographic information to evaluate specific franchises. For example, an FFI rating can utilized to determine if franchisee satisfaction levels vary by sex, ethnicity, education level, overall profitability or other factors. The FFI can also be used to determine if franchisee satisfaction is improving over time. Looking at this information for a specific franchise could help to target franchise sales efforts with an eye toward increased profitability for both franchisor and franchisee.

This is the first publication of information utilizing the FFI. I look forward to hearing from the industry (franchisors, franchisees and others) with comments or suggestions regarding the compilation and use of the index. The remainder of this article explains how the FranchiseFacts Index is derived.

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Following are the specific questions in FranchiseFacts’ National Franchisee Survey comprising the FranchiseFacts Index (FFI) and their numeric contribution to the index.

Some factors in this index, such as financial success and future prospects, are at least partially dependent on the overall economy. Other factors, such as franchisee relationship with their franchisor, are directly impacted by the franchisor. The index blends these factors to develop a single rating that we believe to be measurable at a specific point in time and also over a period of time.

We remain open to comments about the derivation of this index. When the current National Franchisee Survey is closed later this year, FFI results will be included in the Franchisee Satisfaction Report that will be available.

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Perry Shoom, FranchiseFacts
Capturing the franchise experience!
Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!
Follow our Blog at franchisefactsusa.blogspot.com
e-mail: FranchiseFacts1@gmail.com

Profit (or lack of it) in Multi Unit Franchisee Operations

2010-04-05T15:33:00.001-04:00

Is multi store ownership a path to increased profitability? While FranchiseFacts’ National Franchisee Survey provides some support to this belief, our preliminary results suggest that multi store operations may be riskier, and result in a greater likelihood of business losses. Put differently, these preliminary results suggest that multi store ownership leads to either higher profitability or no profitability. There does not appear to be a middle ground here.

For a multi store operation to be successful, two factors should be considered. First, the business must be one where tasks and knowledge requirements are sufficiently straightforward so that training of staff is simple. Second, the franchisee must have above average business and organizational skills. Operating more than one location requires that the owner’s expertise be split among multiple locations. In some instances, the owner lacks the skills to make this work. In other instances, the skills that make a single operation successful are not in sufficient supply to support multiple operations. When both factors are in place, the franchisee is likely to be extremely successful in operating their multi unit operation. When one or both of these factors are lacking, the result appears more likely to be failure. Dunkin Donuts is just one example of a major franchise that I think has been quite successful with their multi store ownership business model. The tasks needed to service one customer are relatively simple. And an employee normally services one customer at a time. Other franchises, such as The UPS Store, require a higher level of knowledge, experience and organizational skills that I don’t think are conducive to a multi unit franchisee operation.

The FranchiseFacts survey asks respondents to provide their profitability for the prior calendar year. Later in the survey, respondents report on the number of locations owned. This article considers the correlation between these two questions.

Not surprisingly, single location operations account for 86% of all respondents with declining percentages for multiple store operations. To better evaluate the profitability of multi store operations, the table below separates single unit franchisees from multi unit franchisees.

	All Respondents	1 Location	2-3 Locations	4-5 Locations
		86% of reporting franchisees	9% of reporting franchisees	5% of reporting franchisees
$100,000+	3%			3%
$75k-$100k	6%	6%
$50k-$75k	6%	6%
$35k-$50k	5%	5%
$20k-$35k	3%	2%	2%
Under $20k	17%	17%
Not profitable	61%	52%	8%	2%

Percentages subject to rounding

It can reasonably be assumed that franchisees who own more units have invested more money in the hope of greater profitability. That is, opening four locations costs more than opening a single location and should result in higher overall profits. However, there is also the risk of greater financial losses since success is never guaranteed. This is consistent with our preliminary findings. Franchisees with four or five units (the highest level reported) were the only ones to report in excess of $100,000 in total profitability and accounted for 60% of all responses in this category. However, 40% of those franchisees with four or five units report being unprofitable. There was no middle ground. Reporting suggests either high profitability or no profitability.

At the other extreme, single location franchisees account for 86% of survey respondents. They report a wider range of incomes with 17% reporting income in the range of $35,000 to $100,000.

Most surprising are the results from franchisees owning two or three locations. None reported profitability in excess of $35,000 for the most recent calendar year and a disproportionate percentage report being unprofitable during the same period of time.

Note: When reading the accompanying table, the “All Respondents” column adds up to 100%. Likewise, the three Location columns combine to reflect 100% of respondents (subject to rounding.) For example, franchisees owning 4-5 Locations AND reporting $100,000+ in profitability last year reflect 3% of all respondents.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at
www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at
franchisefactsusa.blogspot.com

Average Franchisee Reported Earnings -- $149k+ or under $50k?

2010-03-22T14:18:00.006-04:00

"He uses statistics as a drunken man uses lamp-posts... for support rather than illumination." - Andrew Lang (1844-1912)

To me, one of the more frustrating franchise statistics repeatedly quoted is average income. Inevitably, this statistic always suggests that the typical franchisee earns $100,000+ per year. To cite one example, the USA Franchisee Statistics page on www.franchiseseek.com states that “In 2000 …. over 30% of franchisees earn over $149,000 per year.” I recently read a press release citing a similar figure for 2009.

It is my opinion that such a high figure falls into the “too good to be true” category. In a country where the average income is under $50,000 a year and the unemployment rate is in the 10% to 20% range, this figure just doesn’t sound right. Even in good times, such a high average income sounds exceptionally good. If we are in a recession, as I believe we are, is it possible that franchised business operations are a safe haven offering a guaranteed substantial income during these difficult economic times?

The National Franchisee Survey asks respondents to report if their business was profitable and, if profitable, their profitability over the most recent calendar year (2009). Our preliminary findings are that only 3% of respondents earned more than $100,000 over the past calendar year and only 15% claimed to earn in excess of $50,000 a year. This is quite a contrast to the $149,000 figure cited above. Being in the early days of the survey, which will run for most of the calendar year, it is difficult to determine if these percentages will remain consistent. At the other extreme, 61% of respondents state that their business is not profitable.

2010-03-15 FranchiseFactsUSA Past Year Profitablity

To be clear, none of this is suggestive of problems in the franchise industry. The economy has ended an overheated phase where too many people paid far too much for businesses. They financed their businesses rather than starting slow and building through natural growth. Overly optimistic revenue projections were used to justify high purchase prices, opening expenses and operational expenses. These businesses, and their owners, now are saddled with financial obligations that many are unable to pay out of current revenues. Consolidations (closures) are inevitable.

To further put these percentages in perspective, it is generally accepted that most small businesses do not survive their first ten years. And we have gone through a period of approximately ten years during which the economy expanded to a point where it is no longer sustainable. This leads me to assume that a higher percentage of small businesses are operating at reduced profitability than at any other point in my lifetime.

FranchiseFacts explores franchisee profitability in detail as part of its National Franchisee Survey. In the coming months, we will attempt to provide a more detailed understanding of this topic. The insights we provide will remain preliminary since the survey is currently in progress. Results reported in this blog are subject to change as more surveys are received throughout the year. Once the survey is closed, our final report will make this information available in its totality.

In the coming months, this blog will look closer at some of the attributes and demographics of profitable franchises.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at
www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at
franchisefactsusa.blogspot.com

Resolving Franchisee and Franchisor Conflict

2010-03-08T17:37:00.013-05:00

FranchiseFacts was created for the sole purpose of improving communications between franchisor and franchisee. We believe that is best addressed through Franchisee Satisfaction reporting.

As discussed in my previous posting, the source of many franchisor/franchisee conflicts can often be reduced to a disagreement on how profitability is determined. The challenge, however, is to find a better way of communicating between both parties.

Larger corporations have a different way of gathering and analyzing information than smaller operations. For this reason the larger corporations can be seen as slower to react and slow at decision making. Franchisors must make decisions that support many different franchisees with different situations and priorities. What is good for one franchisee may not be good for others. Regardless of what programs are introduced or not introduced by a franchisor, many are likely to disagree.

What FranchiseFacts does is gather information that results in a better understanding of the franchisee perspective. Put differently, we report on Customer Satisfaction (or Franchisee Satisfaction) for the franchising industry. This information is then communicated to the franchise community through our reports.

In the coming months and years, we plan on providing information that addresses diverse topics such as;

• The makeup of franchisees by gender and ethnicity
• Overall franchisee profitability by industry, region and other criteria
• Franchisee satisfaction with existing franchisor relationship by product/service and department
• Perceived quality of services provided by franchisor
• Perceived effectiveness of advertising and marketing efforts by franchisor
• Developing linkages between local store revenues and key holidays/major events
• Understanding which advertising venues are most popular among franchisees

Our survey(s) will evolve over time to reflect changes in the economy and suggestions from franchisees, franchisors and other interest groups.

Beginning with my next posting, we will take a peek inside the current survey and present some of our preliminary findings.

I encourage you to participate in the survey at http://www.FranchiseFactsUSA.com and also to submit your own suggestions for changes to our survey or methodology.

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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

Understanding the Franchise Experience blog can be found at franchisefactsusa.blogspot.com

How does a franchise define profitability?

2010-02-22T11:01:00.000-05:00

To most franchise owners, profitability is THE single definition of success. The greater the profits, the greater the success.

It has been my experience that nearly all franchisee/franchisor conflicts revolve around profitability. Franchisors have developed a business model that they believe should be successful for a local franchisee. The local franchisee is obligated by contract to follow various standards, purchase certain equipment and sell certain products or services. Over time, conditions change and the franchisor has the right to change some or all of these franchisee obligations. This should not be a problem, in theory, since everyone is seeking to maximize profitability.

So where is the problem?

To me, the problem is in the definition of profitability.

A franchise owner sells product or provides service in return for compensation from the consumer. After paying all bills, any remaining monies are the profit for the franchise owner. The franchisor, however, has a different revenue stream.

A franchisor derives revenue primarily through royalty payments (along with sales of franchise licenses and some other activities.)

There are times when a franchisor can undertake logical actions that increase their revenue stream through royalties – which are based on franchisee revenues – while also negatively impacting on local store profitability. Perhaps a franchisor attempts to increase store traffic through couponing or free offers that franchisees perceive as being too aggressive. Alternatively, a franchisor may end up competing with franchisees through Internet web sites or direct accounts with larger customers. Some recent examples of disagreement are restaurant franchisees who complain about what they believe to be money losing products or promotions.

Some would suggest that the franchisor pay more attention to franchisee profitability, sometimes by basing royalty payments on this determination. The franchisor, however, may argue differently. After all, the franchisor does not have control over local store operations. A poorly operated franchise could suffer from excessive expenses due to poor local management. Furthermore, an operation where the franchise owner chooses to have only a limited involvement is less likely to be successful. Finally, the franchisor normally does not have control over how funds are dispensed for a local franchise. From this perspective, it makes no sense for the franchisor to derive their revenue stream from anything but top line revenues.

By defining profitability differently for a franchisor and franchisee, it is easy to understand the reason for these conflicting priorities. It can also explain disagreements as to the interpretation of a franchise agreement that most likely appeared to be reasonable when it was signed many years ago. The risk of disagreement on a wide range of business issues will increase, as does internal conflict, as the definition of profitability diverges between franchisor and franchisee.

The FranchiseFacts survey, at http://www.FranchiseFactsUSA.com, looks at franchisee profitability in detail. To us, profitability is not one number that can be presented as indicative of the industry. Our Franchisee Satisfaction reports should be able to correlate profitability with diverse factors such as number of locations, rural vs. urban, education and other criteria. It is our intent to delve into the factors that most impact on profitability. Survey participants are assured that their individual responses will always remain anonymous.

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Next posting: Resolving Franchisee and Franchisor Conflict
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FranchiseFacts – Capturing the franchise experience

Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at http://www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

e-mail: FranchiseFacts1@gmail.com

What is a Franchise?

2010-02-08T11:31:00.001-05:00

Dictionary.com defines a franchise as “the right or license granted by a company to an individual or group to market its products or services in a specific territory.” So a franchise, by definition, is “a store, restaurant, or other business operating under such a license.”

Many people, if not most, use the term “franchise” without understanding its meaning. A single franchise may choose to operate under different business models depending on their corporate goals. Some franchised operations (an estimated 70% or more) are independently owned and operated. Others are corporate owned. Yet others operate via multiple layers of ownership whereby a regional license is given to a group that is responsible for opening or selling franchises within a selected territory.

These differences are important to the way franchises choose to operate. Stores owned by a corporate franchise are easier to control because store managers will more easily take direction from a corporate office. Independently owned businesses, however, require that conflicting goals be resolved. Independent operators are directly responsible for business losses and have ownership of all profits. As a result, they tend to scrutinize more closely, and be more critical of, company wide initiatives that they feel do not add to bottom line profitability and/or their own personal success.

Our goal is to improve the communication process between franchisees and franchisors so that conflicts are minimized or eliminated. However, we can only succeed at this with your help. We need store owners and managers to participate in our survey at www.FranchiseFactsUSA.com. The information you provide will allow us to understand what works and what does not work within the franchise community. Only then can we report this information to the benefit of the industry.

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Next posting: Defining success for a franchisee and for a franchisor
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Welcome to the FranchiseFacts Blog!

2010-01-25T10:56:00.002-05:00

Having spent ten years operating a franchised business, I’ve had first hand experience dealing with the day to day challenges of working with a franchisor that has some level of control over how my local business operates. It has been my experience that most conflicts between franchisee and franchisor can be explained by a breakdown in communication. Both parties often speak a slightly different language, have different measures of success and conflicting priorities.

One of the businesses I most admire is JD Power. This business was based on a single individual’s belief that customer satisfaction is THE most important criteria for success. Understanding what motivates the customer, and then finding ways to best service them is the key to success. He convinced one auto company to work with him to measure customer satisfaction levels and used this information to increase the overall profitability of his client (Toyota.) This approach was then adopted by the entire auto industry and has since spread to many different industries.

The impetus for FranchiseFacts was the problem outlined in paragraph one. The JD Power business model was utilized to develop a solution. Franchising is unique in that the customer to a franchisor is the franchisee rather than the ultimate consumer. This adds a level of complexity and confusion that prevented the JD Powers business model from being embraced within the franchising community.

After two years of planning, we believe we have developed a model for measuring franchisee satisfaction throughout the entire franchise industry. This is significant if it can help both franchisees and franchisors to operate more effectively and increase overall profits through cost reduction AND revenue generation. Given the size of the franchising industry, our goal is to help a very large number of individuals and businesses. At over $600 B, franchising is larger than the automobile, computer, truck and airplane industries COMBINED. And it employs as many people as these industries COMBINED. An estimated 75% of all franchises are owner operated (the remainder being corporate owned.)

Our slogan, Capturing the franchise experience, describes our purpose. Through our surveys we have begun gathering information from franchise owners and store managers. This information will be used to convey franchisee satisfaction levels throughout the franchise community. More about the importance of measuring satisfaction levels will appear in my next posting.

FranchiseFacts can only succeed with your help. We can report results to the community but we need Franchise Owners and Store Mangers to step up and participate in the surveys we post. Only by working together can we all benefit. So I encourage everyone to dedicate 20 minutes (at most) to participating in the survey at www.FranchiseFactsUSA.com. All survey participants will have the option of receiving survey results directly via e-mail.

This blog will share select insights from our surveys as appropriate, with more detailed results being provided to those who have participated in the survey.

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Next posting: What exactly is a franchise?
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Perry Shoom, FranchiseFacts
Capturing the franchise experience!

Franchisee Survey in progress at www.FranchiseFactsUSA.com
If you are a franchise owner or store manager, please participate!

e-mail: FranchiseFacts1@gmail.com