November 2014 Archives

I don't know whether genetically modified potatoes are a good idea or not.

But, given the recent divergence of views, it is worthwhile remembering how we got the frozen french fry.

Ray Kroc and the McDonald's executives from the 1960's -1980's are rightly praised for their brilliance in selecting McDonald's managers, franchisees and suppliers.

But today, Kroc's vision about the importance of suppliers is overwhelmed with legal talk of franchisor's standards.

Kroc understood that the supplier community was not a source of rebates, but rather an active partner with the franchise system in bringing about rationalization and change to the supply chain for the betterment of the brand.

The best example of this is the "simple" french fry and Simplot Foods.
 
For those of a certain age, the magic of McDonald's was its French Fry.  Even the best home cooks could not match McDonald's.  And I know - my mother who is an excellent cook would allow my father to buy the family "chips" from McDonalds.
 
But in the early 60's, McDonald's had consistency problems, in part because the supply chain consisted of several hundred local suppliers, some who shipped potatoes of lower quality than the specified Russets.
 
Simplot convinced Kroc that moving to frozen fries would allow better consistency and control over their potato supply.
 
And, in 1960, the usual method of creating frozen french fries, blanching, freezing, and finish frying, produced fries that were not crisp or flavorful.
 
So, Simplot invested $3.5 million for an experimental process to produce frozen french fries - all on a Ray Kroc handshake with no guarantee of success.
 
Yet, Simplot took the risk, and was richly rewarded for the success.  (Even though today, McDonalds and Simplot are at odds about Simplot's new genetically modified potato.)
 
So, If you want to be a franchise supplier or consultant, find solutions to the problems that the franchise system faces and implement them.  On a handshake.
 

Get the Real Stars on TV

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Nobody doubts that a professional athlete has superior skills.  They are stars.

The average employee working at McDonalds doesn't have it.  They are not stars.

But, here is a surprise, as related by Jerry Newman in his My Secret Life on the McJob: Lessons from Behind the Counter Guaranteed to Supersize Any Management Style : that major leaguer might have a hard time keeping up with the skill players at McDonalds.

"The McJob ain't easy".

Here is Jerry's full description.

"It's my third day at Krystal, and James the store manager, wants me to learn how to assemble and wrap the different menu items.

He points to an item, on the point-of-sale (POS) screen that looks to me like "s. gr. scrams."

He then whips out a cup and starts putting ingredients in -following a prescribed order that I know I should try to pick up.

Eureka!

It's got sausage, gravy, and eggs.  I'll bet those words on the POS screen mean "sausage, gravy scrambler".

Before I can pat myself on the back, James is on to the next item.  For the next 10 minutes a whirlwind of activity produces half a dozen different items, some assembled multiple times, others only once.

James then says, "Jerry, why don't you try the next one?".  I can read the disappointment on his fact when I grab for the wrong cup, open the wrong warmer bing, and generally mess up the order. If you give me 10 minutes to learn 6 different things by watching rather doing by watching rather than doing, I guarantee I will fail.  In retrospect, I attribute the failure to poor training, but I suspect more than a few newbies wonder what is wrong with them.

Yet even for those new employees who learned quickly, there is little ego gratification.  After all, they should have done well.  The job is McEasy, isn't it?"

So, here is my suggestion.

Those lovely new menu boards which have TV's in them & play commercials, let's put them to good use.

Cut to the real pros in the preparation area once in a while - give those sandwich artists their due.

Cue applause & buy Jerry's book for more great insights. My Secret Life on the McJob: Lessons from Behind the Counter Guaranteed to Supersize Any Management Style  

As most of you are aware, all the stories we share with you at our onsite programs and in our newsletters, blogs, etc., are 'true.' Nothing is made up. They either happened to me personally, I witnessed them, or I verified the information if I am going to share it. Credibility is key to Telephone Doctor.

We don't make anything up. That being said, I want to share a story that happened to me the other weekend.

It's a clear example of WHY we don't need to agree with the customer all the time.

I went into my bank prepared to make some minor changes to a few accounts. It was a Saturday and the only other folks in the bank were the teller and the one lady (who never gave me her name and had no badge) who tried to help me.

I say 'tried' because it was a comedy of errors. Now, please know, just because I'm the Telephone Doctor I do not make a big deal out of poor service. I don't try and teach the person what to do on the spot when I don't agree. If they've done something not customer friendly I usually spank them with my wallet and go elsewhere. Very few people appreciate on the spot training. So I just take notes.

Anyway, after many faux pas in her service I get up to leave. I turned around to her and said (with a smile), "Oh, by the way, you're online banking stinks. It's not very user friendly."

Drum roll please.

Without missing a beat she says to me, "Oh yes, we hear that a lot." (Almost as though she was proud of it.)

All I could muster up was a blank stare. I released my shock and said, "OK, have a nice day." I got the same back.

While I didn't tell her what to say, I will tell you, our readers.

  • She never introduced herself. (I should have asked, but I waited to see if she would.)
  • She didn't ask for my name; just my account number.
  • She rarely smiled.
  • At the end when I asked, "I wonder, could I have done this over the phone?" She nicely said, "Sure you could have." (Why didn't she tell me that first?)

So again, I didn't try and 'fix' her on these points. But when I told her how bad the online banking was and have her tell me, "Yes, we hear that a lot." That floored me.

Where was: "Oh my goodness, tell me what happened."

Where was a pen and paper to jot my notes down as I told her my concerns about their online banking so she might share with whatever department to fix it?

Where was some sympathy? Had she ever had the same problems?

Why didn't she let me know, if this ever happens again, we can make it easier for you on the phone. You wouldn't need to make a special trip.

Where was her training?

Sorry folks, this is basic Customer Service 101.

Let's hear your own stories.

The 'BEST,' or shall we say, the worst will win a set of three (3) Telephone Doctor books.

Reminder: Listen to the customer. They aren't always looking for you to agree with them; sometimes they just need you to help them; to hear them; to see them; to listen to them.

Nancy Friedman , president of Telephone Doctor Customer Service Training, is a featured keynote speaker, and subject matter expert on customer service and communications skills, at franchise, association and corporate meetings. She has appeared on OPRAH, Today Show, CNN, FOX News, Good Morning America, CBS This Morning and hundreds of other radio and TV shows. She has been published in Wall Street Journal with her column, "Don't Strike Out with Your Customers. Nancy is the author of eight books on sales, communications skills and customer service. She is the spokesperson in the popular Telephone Doctor customer service training programs.

For a demo and full keynote speaking packet of Nancy call 314.291.1012 or visit www.nancyfriedman.com.

To download our Ebook, click here

Love to get your feedback. [email protected] 

Growing your brand through franchising is a demanding and exacting proposition.

You need to mindful of all the franchising rules, regulations and administration requirements.  

And you have to have a great plan with a talented franchise sales leader working the program.

Here are 3 huge errors CEOs make when hiring a VP of Franchise Sales -

  1. You expect the VP of Franchise Sales to rely on their rolodex for leads. Assuming that could work. What do you do after they run through their contacts. Were you hiring a franchise sales professional or hiring their rolodex?
  2. You want to sell multi-unit deals to established and proven operators and you think all your VP of Franchise Sales needs to do is cold-call multi-unit franchise owners and sell them on your concept. You can't explain to anyone how this works. And there isn't anymore to this plan than an executive order to smile and dial. Here's what happens. Your VP of Franchise Sales will do it and give up or pretend to do it and tell you he is. In either case this won't work.
  3. You will pay a market rate for an experienced VP of Sales. But invest little to no money in franchise recruitment marketing to reach potential franchise operators. Instead you'll rely on VP of Marketing's consumer marketing to build interest in the brand's franchise offering. Despite the fact the consumer messaging is about your products and franchise sales messaging is about the franchise investment. 

Now if you made any or all of these mistakes it's not too late to right the ship.

They will require some concentrated effort on your part and thoughtful collaboration with your VP of Franchise Sales.

Get over item number 1 and then take items 2 and 3 one by one and fix them.

If you need help with righting your franchising program give me a call at 443.502.2636 and we can work on this together. 

I have been fortunate to meet with over 3,000 businesses over the last ten years - from start-up restaurants with big dreams, to mature chains facing tough decisions. No matter what stage a company is in, payroll is constant; it is that big number that you have to hit 26 times a year.

These days, margins are getting pinched and cash flow is tighter.

Here a few reasons why using a service company may help you sleep better.

1. Peace of Mind - You are paying two important groups of people that frown upon mistakes - The IRS and your Employees. A service bureau takes full liability and responsibility for calculating, depositing, and filing all payroll taxes. If there is ever a payroll-related tax penalty or you get a love letter from the IRS, you are protected.


2. Back-up/Support - If you or your payroll clerk are out, sick, on vacation, etc. - you know you'll have an on-time, accurate payroll with no special arrangements. Also, by outsourcing, you're putting a tax and human resources expert on staff - protecting you from a broke government and a litigious society.
 

3. Cash Flow - By ACHing the funds for you directly to the IRS, you spread out your tax payments equally throughout the year. No surprises at quarter or year-end.
 

4. Time - Printing and signing checks, making multiple tax deposits, filing quarterlies, accurately preparing W-2's and other time-eaters. All non-revenue producing tasks - tangible hours that can instead go toward growing your business.
 

5. Other Features - Once the payroll engine is in place, you open up possibilities for direct deposit, time and attendance/POS integration, human resources assistance, pay-as-you-go workers compensation, archived electronic reports and pay-stubs and much more.

In the end, not only can you focus on what you do best, you can shift energy toward learning and embracing new revenue-producing tools such as social media, that brings money in, so you're ready for when it's time to send it back out.

When a C-corporation sells an asset and the corporation's owner goes to work for the buyer, there may be an incentive for the parties to pay the owner a higher salary than the market will bear, as disguised payments for the asset. That's because the purchaser can currently deduct salary, but must capitalize any purchase payments.

At the same time, there may be a trap: if the payments are found to be in substance purchase payments to the selling C-corporation, the payments will face double taxation, once at the corporate level and again upon distribution as dividends.

In H&M, Inc. v. Commissioner, T.C. Memo 2012-290 (October 15, 2012), H&M, Inc. agreed to sell its insurance business to a local bank and competitor. Under the purchase agreement, H&M agreed to sell "all files, customer lists, insurance agency or brokerage contracts, the name of [the insurance business], and all the goodwill of [the insurance business]" for $20,000.

The deal was contingent upon the agreement by H&M's owner - Mr. Schmeets - to work for the buyer for six-years and also enter into a covenant not-to-compete for a period of 15 years. Under these latter agreements, Schmeets would receive over $600,000 during the six years. The agreement was later modified, so that some of the compensation would be deferred, would earn interest, and would be payable to Schmeets' estate in the event that Schmeets died.

The Court found that there had been no appraisal of H&M's assets prior to entering into the agreement. In fact, the buyer didn't even examine H&M's financial records. In addition, prior to the sale, H&M had paid Schmeets a salary of about $29,000 per year.

The IRS argued that Schmeets' wages were actually disguised payments to H&M for the sale of the business and urged the Court to apply the "substance-over-form doctrine" to recharacterize the transaction.

While lamenting the parties' failure to adequately document the transaction, the Tax Court rejected the IRS' position. To demonstrate that the business was worth more than $20,000, the IRS would need to show that the assets were undervalued. But the only intangible that the IRS pointed to as being undervalued was the goodwill of the business.

Generally, there is no salable goodwill where the business depends upon the personal relationships of a key individual, unless there is an agreement that prevents that individual from taking his relationships, reputation and skills elsewhere.

Here, "there was convincing testimony that . . . . no one knew insurance better than Schmeets." Furthermore, Schmeets had no agreement with H&M (of which he was the sole owner, incidentally) that would have prevented him from going to work elsewhere. Thus, the business' goodwill had no value.

The Court also gave "no weight" to the opinion of the IRS' expert, who opined that Schmeets' new salary was excessive, since the expert ignored Schmeets' particular skills and level of experience.

Finally, the Court noted that, in negotiating the sale and related agreements, there was "virtually no discussion" about the tax consequences of the transaction.

The employment relationship was motivated by Schmeets' desire for guaranteed employment and the buyer's desire to harness his skills, not for "massaging the paperwork for its tax consequences."

For the 5 Most Fascinating Stories in Franchising, a weekly report, click here & sign up.

Here's a conversation I've had more than once with clients and CEOs of franchising companies. It's about upfront franchise fees.

The conversation typically starts with the C-level executive saying: "We make our real money on royalties & not on franchise fees."

And I oblige them with a quizzical response of: "Wow how does that work or what do you mean?"

I then hear something on the order of well, if we had 50 (or pick a number) highly qualified franchise candidates a year, we would give the franchise fee away to them in favor of making all that royalty revenue.

And on its face this sounds logical and even attractive. What franchisor wouldn't want to do this? They could even have the CFO dream up a great Excel spreadsheet showing obscene profits from royalties to convince the board of directors that this is a good idea.

Here's the reality.

Unless you are a franchisor with an unlimited and inexhaustible supply of qualified candidates you don't have 50 great prospective franchisees to give away your franchise fee to.

I almost always ask the franchising executive - okay do you have 50?

And of course you already know the answer to that question!

So, I ask them: "How much would you pay for that list?  How would you finance it?  Maybe ... with franchise fees?"

 

Even McDonald's who does have a waiting list for franchises charges a franchise fee.

Here's my list of what you need your franchise fee to cover.

  1. Franchise salespeople are assets and you need franchise fee revenue to pay for the best.
  2. A great franchise sales, recruitment and selection process requires resources to ensure you get the results you want.
  3. Having a low fee or no franchise fee won't sell more of your franchises and it may sell less.
  4. Great franchise owners are recruited. You need a budget to market to your target audience of potential franchise investors.
  5. Franchise buyers look at the total development cost and do their own calculation of return on investment. And if your franchise fee doesn't support an attractve franchise investment you don't have a franchise fee problem. You have a unit economics problem.

If you need help looking at your franchise fee structure and competitiveness call me at 443.502.2636 - [email protected]

Businesses promote "free" for the promise of greater revenues. Presumably those taking advantage of "free" will purchase other items at the time or revisit an establishment in the future. In practice, however, the intended or desired consumer behavior often differs from the reality.

A free slice of pizza or drink will certainly increase business. After all, there is unlimited demand for "free".

Most businesses simply assume that those taking advantage of "free" are likely to purchase other items either now or in the future. These businesses do not consider that it is more likely those who frequent a business because of "free" do not do so because of anything other than price.

As such, they are more likely to simply seek out the next "free" or lowest cost offer. Within some industries there is a constant battle among local businesses to one up each other in offering free or cheap. To these operations "free" becomes a cost of doing business rather than a way to build business. A race to the bottom, in terms of price, rarely provides positive results for any of the participants.

Another approach, often utilized by operations which offer higher cost products and services, is to offer a significant dollar or percentage discount for new business.

While the intent of this may be to attract new customers, such an approach could easily alienate regular customers who feel that newer customers are receiving a better deal. The end result is more likely to be a loss of business from past customers upon which success of the operation is dependent.

Successful businesses tend to increase traffic in other ways. McDonalds, for example, may reduce prices on select items (sometimes through couponing) but does not simply give away their product. Starbucks rarely discounts. They do, however, provide patrons with product samples in order to stimulate sales of certain items.

Many businesses lack the management control systems to understand the actual cost of "free" and also to track and evaluate the results of their marketing efforts.

Investing in good management control systems is the foundation upon which successful businesses are built.

This foundation allows businesses to better understand what marketing efforts result in improved results as opposed to costly giveaways that do not result in improved profits or sales.

For the 5 Most Fascinating Stories in Franchising, a weekly report, click here & sign up.

Changing things for the better requires an element of risk.

After a large reorganization of a major QSR franchisor I worked for, I ended up with greater responsibility and not enough resources.

We had a  set way of doing things - lots of procedures & steps. And that was fine when we had more people.  But not now.

I also had a new boss.

He wasn't actually new to me. Reporting to him was new.

(My old boss took an "early retirement" as part of the reorganization.)

I had been with the QSR just over two years.

The new responsibilities were a bit of a shock.  However,  I did have some new ideas on how to make things work and sell some  more franchises. 

So I got to work.

High Rick Image.jpg

One of my first ideas was to change how we processed incoming leads. Very basic but important stuff on how we answered the phone.  Yes, leads in the early 1990s came in mostly by telephone & we screened and qualified inquiries.

My small team of three developed a plan. I wrote the plan up and then scheduled time with my boss to see what he thought. It wasn't a major change and so he approved it.

The second thing I wanted to do was to change some of our lead generation plans. I wasn't changing the budget but I was rebalancing the allocations.  I went to my boss presented the plan and got it approved, too.

Now I had great boss. He was open to new ways of doing things and wanted the new franchise development to be successful. 

I had a big job to do and more improvements planned.

But, when I brought to my boss my third idea for his blessing he stopped me dead in my tracks and asked me a question?

"When are you going to take some risks and stop asking for permission on everything you think is best to do?"

He didn't need to spend more time listening to my explanations.

He told me he would know if it was a good idea down the road when the franchise results for the year were accounted for.

So I took some risks, without asking for permission first.  Made a lot of sales that way. Sales to some great franchise operators!

When you need for your franchise sales process, don't ask for permssion, just contact us & we'll get started right away.

As you look back over your sales process and the numerous calls you made on prospects (albeit many were just suspects) how often did you say 'no' to the prospect?

Whether it's price or other concessions, it's so much easier to say yes in the hopes of getting the sale. Unfortunately, hopes and wishes is where it ends all too often in these sales scenarios. Your intuition, instincts and gut tell you to say no or abort the sales process but you just can't seem to pull the trigger and you hang onto hopes and wishes.

It's a tough pill for a salesperson to swallow, but many times its the right medicine for a successful outcome. Be it Won or Lost, it's a win!

If hopes and wishes is an acceptable sales forecast and making a good living is not a priority, keep doing what your'e doing. If not, then lets look at the benefits of saying 'No':

  • Being honest with yourself and your prospect insures that character, integrity and ethics are embodied in the sales relationship

  • Honesty makes it possible, even more comfortable for your prospects to be honest with you

  • Your behavior earns you the right for honesty and integrity from your prospects

  • A big one: you will be able to invest your effort in sales pursuits with an opportunity for successful outcomes versus investing in losing propositions.

  • Say NO is unexpected behavior and establishes a foundation to be closer to making the sale

Your goal is:

Learn how to say no when it makes sense to do so.

It's the only way you can arrive at a true win for both you and your prospect while earning their trust.

This should be the case regardless if you have a full pipeline of qualified prospects (it's a little easier then!) or if you have none.

Let me hear you say 'NO'!

For the 5 Most Fascinating Stories in Franchising, a weekly report, click here & sign up.

My last article ("Site Selection Basics") focused on the importance of distinguishing between your trade area (geography, demographics, mixed uses) and site attributes (such as type of shopping center, access, parking and co-tenancy).

How do you develop your customer profile so that you locate your business in a trade area with a significant number of your customers? 

If you're buying a franchise, you'll be given the customer profile so that you can target the right trade area as well as the most desirable site characteristics for that type of franchise.

There are franchises that focus on attracting customers during particular day parts. For example, fast-casual restaurants that cater to customers in early morning and during lunch will recommend locating in trade areas with a nice mix of residential and employment centers. 

They will recommend picking sites that are perceived as convenient by the target customer, such as being within a short distance (due to time constraints such as a limited lunch hour), good access and sufficient parking.

Some uses are "mass market" businesses. By definition, a mass market business is one where the majority of people in the trade area are potential customers, such as fast food establishments or florists.

And while some demographic segments might provide more customers than others, these businesses depend on being in areas with a lot of activity to bring customers to their door. Here the trade area demographics might be less important than the quality and number of competitors and the particular site location characteristics.

A franchisor will (or should) provide you with both a customer/demographic profile as well as recommended trade areas, types of shopping centers that are better for the franchise, recommended site characteristics and space requirements (size, dimensions of the space, required utilities, etc). 

 If you're buying into a franchise that has other national competitors (and most do), go online and research what the competition is recommending with regard to trade area and site requirements. It's often listed under "real estate" or "submit a site" sections on their website. 

Compare it to what you're being told by your franchisor and ask questions if the requirements differ. A franchisor should be able to explain differences, and this will be a good double check on the quality of the franchise concept.

Franchisors will often have a few franchisees (likely the most successful and happy franchisees in the system) that they refer to prospective franchisees as examples of the business operation, location and potential. 

It's good to spend time looking at a few of the higher volume locations for a variety of reasons:

(1) Talking to an experienced franchisee who's willing to discuss the pros and cons of their business is always worthwhile
(2) It will give you an opportunity to review their trade area and site characteristics so you can see how it conforms (or differs) from the franchisor's recommendations
(3) You can then take what you learned and apply it to your target trade areas.

It's good to visit at least one average store and one poor performing store so you can see what those look like as well. Sometimes you'll notice weak operations (spend some time observing, on different days and at different times), or you might observe problems with the site (such as limited parking) or other issues with their trade areas. This will be time well spent.

If your franchisor doesn't provide trade area, site and space checklists, develop them for yourself using the information from the franchisor as well as other tips you've learned from the competition. 

When looking at different locations, it's easy to get confused so making notes and using a checklist will allow you to keep track of your observations so you can review them later. 

And it goes without saying that reviewing the sites of your potential competitors is critical. Be honest with yourself regarding their strengths and note their weaknesses. This will help you to position you franchise business for success.

It is understandable why so many franchises fight wage increases, benefits increases, etc.

They have established a competitive landscape and business model that depends on low, low wages.

I read an article last week that in Denmark, the average pay at Burger King is $20/hr with full health benefits. So, people pay more for burgers.

That is true across all the food franchises, so there is no competitive disadvantage to paying employees a living wage.

I have also wondered at times if in the US a lot of the franchisor pressure against health care is really a concern about royalties.

If the franchisee pays more for employee health care that means they may have less available to pay royalties. There is no way to know what is motivating HQ folks, but I wonder if that has a lot to do with things.

Franchising is a great business model. It can work even when employees aren't paid the minimum wage, and even when franchisees are treated more transparently.

Australia recently made changes to its Franchise code that should reduce some abuse of franchisors. I read a lot of submissions by people to the Franchise-Info columns. I appreciate they are stuck within a mental framework requiring pay and transparency must fall to the lowest common denominator.

If people opened up to different possibilities the industry could still thrive and would have a better reputation with potentially less conflicts.

Stu Levin, founder of the Franchise Wealth Academy, helps franchise owners to stop the financial bleeding and regain control of their lives by helping them decide, usually in 30 days or less, whether to fix the franchise or find a more personally profitable path.

A recent email we received below gave us some good ammunition for this blog.

 

While the industry, as you can see, is in the legal profession, believe me, it can happen in every industry.

It's from an attorney, and Mike Webster tells me that this is par for the course.

 

1. Around 1:00 p.m. today I returned opposing counsel's telephone call from this morning.

2. The first person that answered the phone took my name and asked me to hold while he checked to see if she was back from lunch.

3. After a short hold, he came back on the line and transferred my call.

4. Now, at this point opposing counsel's assistant answered the phone.

5. She had to take  my name for the second time and then put me back on hold.

6. After holding a couple of minutes, opposing counsel's assistant came back on the line and asked if I could call back in twenty minutes!

7. I am sure that her assistant told opposing counsel that I am a jerk because I answered, "No, I am calling her back now."

 

How many .1 of an hour were billed for this non-communication do you think?

What Never to Say to Your Franchise Operator

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We all have said it at some point. Many of us have even used the phrase frequently. And, if you have not said it, you definitely have heard it. In most cases, it comes from the purest of intentions. The bottom line is that we want franchisees to succeed and we believe that these words somehow have the magic power to turn around the performance of a struggling or disgruntled franchisee. Other times we use it because we seek to protect the integrity of the brand and the investment of all franchisees. The fact is that many of us use these words almost like a mantra.

YOU ARE NOT FOLLOWING THE SYSTEM!!!

Intuitively, from a franchise relationship angle, many of us know that these words are not very effective; in fact, the word 'compliance' which is implied in the above statement hurts more than it helps our relationships with franchisees. However, these words and their message are ingrained in franchising to the point of being used automatically and without thought of their consequences.  The danger is that from a brain science perspective these are the worst words we can use because they produce exactly the opposite results we seek. Let's explore why.

The Short Answer Is FEAR

The sentence: "You are not following the System" is one of the most fear-producing phrases a franchisee can hear. Think about it. What does it mean? It is an accusation more than a statement of fact; and franchisees, consciously or unconsciously, hear different messages. Here are some examples of the possible interpretations franchisees may give to those words:

  • I'm a failure.
  • I will never get this right.
  • I'm a disgrace to my family and my peers.
  • I will lose everything... all of my savings and my investment-all that I have worked so hard to get will be gone. My franchisor will take it all away from me.
  • Can I be so dense? I thought I was following the system. What do they mean? What am I doing wrong?
  • The franchisor is out to get me. They want me out. They want to resell my territory.

The Science

Our brains are designed to constantly scan for danger. We are always in survival mode.  That's how we are wired to protect our lives. However, the dangers we encounter today are no longer the beasts we had to fight thousands of years ago. Instead these dangerous creatures have been replaced by things we interpret as threats to what we hold most dear. To franchisees, losing their franchise means they will lose their investment, livelihood and social status; in their eyes, they won't be able to survive such a catastrophe. Facing such a possibility, their brains think they will die. They signed an agreement and thus they know that not following the system gives the franchisor legal standing to take away their franchise rights. This is very scary; and fear is the worst motivator to use in franchising.

Additionally, when franchisees hear these words applied to their performance, they feel that their reputation and social standing within the organization is also threatened. Research has shown that such a threat activates similar networks as the threat to one's life (1).

Moreover, when we use these words without giving specific examples of where a franchisee may not be following the system, the phrase is construed, rightly so, as unfair. Research also shows that we seem to have a happiness reaction when we process experiences as fair and a disgust or protest response to unfairness (2).

The Technical (Geeky) Stuff

The limbic system of the brain is composed of structures that process emotions such as anger, happiness or pleasure, as well as fear.  The Amygdala is one of these structures and it's often called the fear center. When this portion of the brain gets activated, it prevents the engagement of our prefrontal cortex where our cognitive functions reside--it highjacks our ability to reason.

The job of the amygdala is to prepare the body for emergency situations. And, as such, it has a three-pronged reaction to a threat: flight, fight or freeze. When a real or perceived threat is encountered, energy is diverted to that part of the brain that needs to get us ready to deal with the threat and danger in order to save our lives. This means that there is very little energy going to the prefrontal cortex. In other words, in a state of fear, the orchestration between thought and action, planning, problem solving, complex thought, goal-centered mind activities, and the ability to respond in a logical and cool manner all escape us. 

When we use the words "You are not following the system" we send franchisees into a fear response. They will react by getting angry (fight), avoiding us or the issue (flight), or simply by not doing anything different (freeze). In essence, these words activate their amygdalae and the consequence is that they take away, or at the very least, highly diminish the franchisees' cognitive ability to implement the franchise system. The result: we achieve the exact opposite of what we wanted.

Why do we use these words in franchising?

There are many reasons why we have come to use this phrase so often in franchising. And, most of these motives are well meaning, even when misguided. For example:

  • We may believe that this phrase has the magical power to produce franchise success.
  • We may believe that non-compliant franchisees make a conscious choice and act like teenagers by rebelling against the system, and thus we use the phrase in an assumed paternal role to scold or punish them.
  • We may believe that these words will create the awareness franchisees need to make the necessary corrections and to change their behavior and their results.
  • We may believe that not following the system is the only reason a franchisee doesn't achieve the results he or she seeks.
  • We may believe that our most important role as franchisors is to protect the integrity of the franchise system and the investment of all franchisees, and furthermore we may believe that these words will help us accomplish that.
  • We may believe that our attorney's insistence on system compliance is so critical to our success that we create an organization where the franchise relationship is solely defined and upheld by the legal agreement and not by the values of the company; or
  • We may believe we have not followed our own system, and thus feel guilty and ashamed. 

Yet, perhaps, just perhaps, our own fear center is triggered when franchisees fail. Perhaps we make their struggle mean that we have completely failed or that what we have created or have faith in (i.e., the franchise system) may not be as effective as we once thought. Perhaps we use these words to point the finger in the other direction because our brains have gone into a fight mode.

Why don't franchisees follow the system?

There are many possible reasons that cause a franchisee not to follow the system. They include: lack of understanding, lack of clear instructions and procedures, lack of a coherent message and directions across the company, weak training programs and/or support systems, level of difficulty or required change in the way a franchisee thinks and/or behaves.

From a brain science perspective, a franchisee engages in, or disengages from, the franchise system according to his or her perception of whether the system is rewarding or threating. Assuming that the franchisor provides strong training and support programs, clear messages and directions and a safe environment for learning to take place, a franchisee who does not follow the system basically has encountered something in the system that is a threat to him or her.

An Example

A franchisee of a fast food restaurant may decide to change a recipe to reduce the amount of the most expensive ingredient. Upon examination you find that the franchisee believed that her profit margin would be significantly reduced. This may be a true fact; but the franchisee is most likely unaware that her decision was led not by that fact but by her fear that a lower profit margin was going to jeopardize her ability to make a decent living for her family. It's this fear that is leading the decision and interfering with her reasoning abilities. She is focusing so much on a single indicator and what she is making it mean that she can't see the consequences of her decision. The fact that she soon will start losing customers because her quality has decreased eludes her. She can't see that her fears permeate all she does and her entire business, or that it will result in exactly what she fears most. If her franchisor's representative were to tell her: "You are not following the system" her fear and thus her inability to solve her problem will just get worse.

So, what can we do?

  • Think before you speak!
  • Create a safe space where you can have honest communication.
  • Don't use blame or guilt tactics.
  • Know that each franchisee is different and so is the meaning they attach to the world; therefore there is not one answer that applies to all struggling franchisees.
  • Help your franchisees discover what meaning they are attaching to the part of the system from which they have disengaged.
  • Explain to them how the brain works and how it can help us and also how some portions of our brains can highjack our ability to solve problems and use reason.

You don't have to get technical or geeky; a general explanation suffices. When people understand what's happening to them, what's prompting their behavior, when they realize that this is how we humans are wired and that is not them personally, they can start to make changes. Awareness is a key; in addition, repetition and coherence are also critical to make the change sustainable.

 References

(1) David Rock, Your Brain at Work

(2) Melanie Greenberg, The Mindful Self Expression

The post What's the WORST Thing You Can Say to Your Franchisees appeared first on InFraSu.

I remember the time I got a call from a hot prospect in a market we were targeting.

We'll call him Charlie since that happens to be his first name.

Charlie really sounded like he knew what he was doing.

But, I'd only been selling franchises for about 14 months. I was greener than green.

As a potential franchise buyer Charlie asked great questions like:

How much does it cost to develop this franchise?

What are the real estate and site requirements?

How long did it take to build the franchise?

I answered all his questions respectfully and carefully.

And then I took the opportunity to ask him some qualifying questions.

I wanted to know if he met or exceeded out financial requirements.

Charlie surprisingly answered that his net worth was about $5 million with 80% in real estate and he had cash or cash equivalents of about $1 million.

Now Charlie already had me excited with his questions at the outset! And now he had told me his financial profile which exceeded our requirements.

Charlie was my kind of guy and we were having such a great call.

It was now time to get Charlie approved. Send him a NextDay UPS franchise information packet with an application and instructions on how to fill it out (back in early 1990s that's how you did it).

Charlie said that would be terrific!

At this point Charlie and I were like family. 

And then Charlie said to me -

"You know Joe I've got this piece of land that I think will make a great QSR restaurant site and I'd like to build one of yours on it. Do you think you could have one of your real estate guys come take a look at it before we go any further? I'd really appreciate that, Joe. You'd be doing me a big favor and we'd both be moving this process along faster."

Now I had a dilemma we didn't pre-approve sites before a franchise candidate had been approved to be a franchisee.

But Charlie was perfect and so easy to talk to. I told Charlie I'd have to check and get back with him the next day.

Then I looked at the Director of Real Estate's schedule and saw that he could be in that market next week if he stayed out in the field another day. My real estate guy said he'd do it if I thought that Charlie was that good of a candidate.

I called Charlie back the next day with the good news. And he thought it was fantastic that we would break with our franchise sales process for him.

Well the week goes by and the Director of Real Estate is back in the office with good news that from a preliminary look at the market, demographics and competition the site was acceptable.

I was delighted!

So, I phoned Charlie back with the good news about his location --and now it was time to get his application in to us and get him approved. Charlie said would get right on it and that I'd have it faxed in within 3- 5 days.

After to waiting the 5 days and one more day for good measure I called up Charlie to check on the status of his application. No answer so I left a voice message. I thought for sure that I'd get a returned call straightaway from Charlie.

But I didn't.

I dutifully called Charlie for the next 4 weeks until one evening late in the office I gave Charlie a call and he picked up. Charlie apologized for not getting back to me sooner but assured me that he'd like to see one of our restaurants on his piece of land.

I said okay when do you think you could get you franchise application in?

And then Charlie said -

"About the application, I've been talking to my real estate guy here in town and he says that some of your big competitors have been sniffing around at sites around town including mine. I was thinking Joe that I might be better off as a landlord on this location and I'm wondering if you've got any franchisees who like to be in our town or maybe you'd want to put one of your company units in here".

I asked Charlie just to be clear you no longer want to be a franchisee? His answer as you would expect at this point in the  in the story was a resounding No.

I'd been duped. As you might suspect Charlie was never interested in being our franchisee. He was selling a real estate deal. And I was providing the validation and possibly the tenant.

We never did a deal with Charlie.

And my very experienced Director of Real Estate would in a nice way ask me from time to time how I was doing with my Uncle Charlie.

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Like most trainers, I frequently engage participants in interactive activities that hopefully shift their paradigms. With one such activity, I give participants a list of like-hotels in a location they've never been to, and then have them each place a group sales or reservations inquiry call. Afterwards, each participant reports back to the overall group on their experiences and observations.

Recently, while training the reservations team of a four-star hotel, the results were especially interesting when two participants in particular described their call experiences.

The first participant had a glowing report for the agent she'd spoken with, and raved about how he was so enthusiastic and hospitable that the participant actually felt bad about not booking with him!

Interestingly, the second participant reported the polar opposite experience in calling another four-star hotel in the same area, as her agent did little more than check dates, quote rates and described rooms as being "your basic hotel room with one or two beds."

It is interesting to see how two different hotels within the same location, serving the same hotel market segment, recruiting from the same labor pool, and probably paying about the same base wages can have such extraordinarily different levels of hospitality and guest service.

How was it that these two employees of similar hotels performed so differently that day? Was it luck? Did we just happen to catch their best employee at their best time of day? Or was it a factor of the choices the employees made that day?

Two alarm clocks went off at approximately the same time of morning. Two employees woke up and readied themselves for their workday. Both traveled about the same distance, to work about the same shift, for about the same pay. Yet one employee made the choice of delivering hospitality excellence to the best of their ability in every guest interaction that day. The other made the choice to do their job exactly as it is outlined in their job description; doing nothing more and nothing less.

So why is it that associates at some properties make the choice of hospitality excellence while employees elsewhere choose to be average, or to put it another way at the risk of being blunt - mediocre?

Is it that one hotel has a better luck of the draw when hiring new staff? Do they have a better applicant screening process complete with pre-employment testing and peer interviewing? Or is it more a factor of the overall culture that starts with ownership and executive level management and is reinforced daily at the supervisory level?

Based on my observations as a hospitality industry trainer, it is more than a mere coincidence that some hotels can succeed in even the toughest labor markets, while others squander in mediocrity even where the unemployment languishes in double digits. Instead, hotel guest service teams that make "extraordinary" guest services experiences an "ordinary" and daily event tend to have:

  1. Owners who are willing to invest in the physical product and the technology systems necessary to facilitate service efficiency. It is hard to deliver hospitality knowing you are about to sell a guest a sub-standard accommodation, and just about impossible to satisfy guest needs without the proper systems support.
  2. Engaged, involved leaders who lead by example under the tightest of scrutiny. Real-world operational standards don't exist in training manuals; they are set by managers who can be observed in action themselves creating hospitality excellence daily! Interestingly, these same managers treat both employees as well as their guests with authentic warmth and generosity, the hallmarks of hospitality. They know that hospitality starts in the heart of the house when they greet their first staffer in the back hallway upon entering the building.
  3. Managers and supervisors who coach versus command. Great hotels have supervisors that closely observe each employee transaction, and who know the job well enough to help each staff member tweak, revise, and maximize their performance. Even the greatest so-called "superstars" all need continuous coaching to maintain hospitality excellence.
  4. Visionary leaders who see the actual level of hospitality and guest service as it really is being delivered daily in the lobby. They don't relay on the opinions of one quarterly mystery shopper inspection report, nor post-departure guest surveys, nor TripAdvisor reviews alone, nor any one metric to tell them where service is at. They observe firsthand how guests are treated and how efficiently things are working (or not).
  5. Managers and supervisors who pitch-in during inevitable bottle-necks. The best managers always seem to appear at just the right moment when the staff is nearly overwhelmed; they not only provide that extra set of hands to get you caught up but help you gain confidence that things will work out. I can still recall how over two decades ago as a bellman of a golf resort I greeted the PGA Senior's Tour Bus only to watch all the famous golfers parade off the bus and directly into their rooms, leaving the absolute biggest pile of luggage and golf bags imaginable for our team of just two bellmen. Minutes later there was our Resident Manager taking off his suit jacket and humbly asking our bell captain "How can I help you guys get through this?"
  6. Leaders who honor and understand the frontline perspective. You can always distinguish visionary leaders in the field of hospitality by the way they talk about their frontline employees. Those who appreciate them the most speak with respect, admiration, and appreciation. Those who don't just complain about how hard it is to find good people these days, and that "Millennials just aren't motivated."

Indeed, it is a thin line - a razor thin line - between hospitality excellence and mediocrity that employees in our industry traverse every day. In the end the same number of hours are worked, the same number of calories are burned, and the same wages are received. Yet those who choose to walk the path of hospitality excellence are rewarded daily as well.

While their counterparts elsewhere go home each night complaining about how many rude and nasty guests there are out there these days, those who make the choice of hospitality excellence enjoy their work everyday, and mostly go home raving about how many nice, interesting, and appreciative guests they met that very same day in the very same area as the competitor down the road.

This has been a guest post by Doug Kennedy. Doug Kennedy is President of the Kennedy Training Network, Inc. a leading provider of customized training programs and telephone mystery shopping services for the lodging and hospitality industry.

Doug continues to be a fixture on the industry's conference circuit for hotel companies, brands and associations, as he been for over two decades.

 

Ordering via tablets is making its way into restaurants and the quick serve industry, and it has proven successful.

Panera is one that a tablet was recently spotted - after watching customers, it seemed that customers were receptive to the concept and turned to the tablet to place orders versus waiting in line.

The system allows customers to place their order without waiting in line. After their meal, the receipt is sent to the customer via email, and a quick feedback survey consisting of three questions is included. This is a great example of how Panera is making the most of the tablet technology.

In sit down restaurants, the increased sales and tips are being realized.

According to a recent study, the use of tablet ordering cuts the meal time by seven minutes - not only is this more efficient for guests, but it also allows for tables to be turned over more quickly.

For servers, that is good news: more tables can result in higher tips.

tip.png

To add to the increased efficiency and resulting guest satisfaction, tablet based ordering can take things to the next level with restaurant guests, if tablet based consoles are used to their maximum potential.

For example, the Customer Engagement Console allows for a robust program that can incorporate customer feedback, encouragement to sign up for loyalty programs, and a gateway for guests to join the restaurant on social media while they're still at their table.

Throw in a feedback survey and restaurants have a quick, efficient way to truly engage with the customer on various levels while ensuring customer satisfaction and loyalty.

Technology is making improvements for the restaurant industry. While retailers may be a bit slower to adapt to the tablets in their locations, I anticipate that this will increase significantly in 2014.

If you want to know more about how a modern customer loyalty program would work for you, drop me a line on LinkedIn.

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Your passion for your business is most critical because it will drive your eventual success."

So said an "expert".

Who comes up with this stuff? It reminds me of the "expert" who said that most businesses fail for lack of cash flow. Huh? Most businesses fail because the business operators had no clue (no system) about how to operate the business successfully. They had plenty of money, but they ran out because they didn't know how to invest it.

But I bet they had loads of passion?

And what did that get them? A huge financial loss and the despair that follows.

First thing prospective franchisees and others who plan to start a business should know is to avoid and ignore the "experts". At least some of them. Instead, seek the advice of people who actually worked in the trenches, who built businesses, who failed a time or two, who made a payroll over and over again, and who understand the basics of how to succeed in a business.

And understand that passion can lead to success . . . or failure. 

Early in my entrepreneurial career, I rented a small office from a guy who owned an insurance agency. Every so often as he was leaving the office at about 6 p.m. he would stop by and say, "If you continue working this hard for another year or two, you're going to be a great success."

I know he meant well; I know he was merely encouraging me, but he was clueless.

You may have loads of passion for what you want to do in your business, and you may work 7 days a week at it, but here's the most important point: If you don't know what you are doing, and why, and how to do it over and over again, you are not going to succeed.

Work your tail off, tell everyone how passionately you love your business, your products, your service, but don't for a moment think any of that bull translates to financial success.

You want to succeed? Buy a system for success. Or develop a system for success. Of course, there too, you must be careful because all systems are not created equal.

By the way, I've identified 12 successful systems in my forthcoming ebook: 12 Amazing Franchise Opportunities for 2015. You can still get a free copy just for asking.

Franchise selling is about effective qualified lead generation and a franchise sales & recruitment process that works. Getting these two things right goes a long ways to winning you more franchise deals.

Franchise buyers usually don't enter your franchising process with their minds made up that your franchise concept is the one they will buy. And if they do they don't typically tell you that they are ready to buy. 

They might not want you to 'sell' them on your franchise. However they do want to be 'sold' on the idea of owning your franchise concept. They have to see themselves owning it and visualize doing what it takes to be successful.

Franchise sales processes from a franchise seller's perspective probably seem longer than they need to be. You likely have around a sixty day timeline plus or minus in your process.

However it's important to remember that franchise buyers need to go through a series of mental operations before they conclude it's time to commit, sign a franchise agreement and pay the franchise fee. 

 Franchise buyers buy on their schedule not yours.

There are techniques and tactics you can incorporate into your franchise sales and recruitment process to improve. Many require a certain amount of careful consideration and planning. 

I am going to focus on just one technique that you can implement right now, today without any delay. And it will change your franchising efforts dramatically.

Most franchise sales and recruitment processes have 6 or 7 steps from inquiry to franchise sale. Franchise buyers drop out of the process at different steps and it's the franchise seller's job to keep them engaged and advancing.

Here's what you do faithfully before the conclusion of the step you're on with each and every candidate. You schedule the next event in your process while you have them on the phone or across the table from you.  

Franchise sellers are the calendar keepers for franchise buyers.  

So pick a mutually reasonable time to schedule the next event with your franchise buyer. If they hedge on it you know you have a problem and you need to look into it right then and there. 

 If it's just a scheduling issue that's easy. Tell your candidate that's okay we'll put this on our respective calendars and if we need to change it we can.

This seems really easy to do. It's not.

I found the better the meeting I had with a candidate the more likely I was to forget to schedule or think it was not necessary to use this sales tactic. 

 Build the discipline to do this simple straightforward task every time and you'll get more & faster franchise sales without rushing your franchise buyers.

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