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Habits or Systems?

Category: Franchise Law Small Business Publish on Aug 25 2017

I’ve seen a lot of new franchise systems fail. In almost every case, their underlying businesses were wildly successful, with a well-identified market and solid revenues.  Their owners and management teams were typically motivated, dynamic people. Their brands were strong and their marketing proven and effective.

What went wrong?

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I’ve seen a lot of new franchise systems fail. In almost every case, their underlying businesses were wildly successful, with a well-identified market and solid revenues.  Their owners and management teams were typically motivated, dynamic people. Their brands were strong and their marketing proven and effective.

What went wrong?

Every business is different, of course. And, every failure is flavored with its own unique blend of spices – lack of capital, poor franchise sales efforts, unrealistic projections, lack of focus, etc. But, the one consistent factor that distinguishes a successful new franchise system from a failure is: systems. Successful franchise systems have strong systems. Weak systems lead to failure.

What do I mean by “systems?” I mean that every critical process in the business has been reduced to a straight-forward, written and universal set of instructions that can be applied by every business in the franchise system. A “system” could be software, the way a customer is greeted, how to fix a cell phone, the recipe for a special mayonnaise, the layout of a retail store, inventory management and supply chain processes, or process that makes the business easier for a franchisee to run.

This is why people buy franchises. They figure that the franchisor has already worked out the kinks so that they won’t have to. This also isn’t news. I have been telling clients this for 20 years and just about every lawyer, consultant, manual writer, software vendor and salesperson I have ever met in franchising have told anyone who will listen that systems are key. 

So, why do new franchise systems continue to fail to develop strong systems?

Many new franchisors simply haven’t gotten around to it. They have been so busy running their businesses that they haven’t taken the time to step back and break down their processes. They may assume that because they have been able to maintain consistency in their two or three-unit business, their processes are easy or obvious. Many say that they’ll get around to it before their first franchisee comes in for training. (I call these folks the fake-it-‘til-you-make-it crowd.) Worse still, some new franchisors say they have their systems written down and that they follow them, but their manual (1) has been sitting on a shelf for 4 or 5 years, (2) isn’t actually used in their own business, (3) wasn’t very good to begin with, (4) has been changed verbally over time, (5) is riddled with exceptions and special cases that destroy any hope for simplicity or consistency, and (6) have huge gaps in areas that differentiate company-owned operations from franchisee-owned operations. A franchisor that starts franchising like this is setting themselves and their franchisees up for failure.

Some new franchisors don’t even realize that they have systems. They have developed ways of doing things that have become so second nature that they don’t even realize they do them; they are habits. Good habits need to be identified, memorialized and communicated to franchisees so they can benefit from them, too. Bad habits need to be identified, eliminated and replaced with something better.

What’s the solution? That’s easy, hire somebody! I strongly encourage every new franchisor to hire a consultant to write, help write or – at least – review their franchise operations manual. There is an entire industry full of people that do this for a living and the best ones will add tremendous value by helping franchisors hone their existing processes and identifying blind spots that ought to be addressed. 

For prospective franchisees, the advice is also easy. Talk to existing franchisees. Even when franchisees don’t have full freedom to talk to prospects, their response to “Have you been impressed by the quality of the operations manual?” will tell you a lot.