In the WSJ today, I saw where the FTC had set up new disclosure rules for the $1.5 Trillion franchise industry  that will take away many of the previous hiding spots for trouble.  Litigation and turnover are now going to be more out in the open, as are territory exclusivity.  Franchises can also receive applications without an in-person meeting, such as via a secure website, streamlining the sales process of a new franchise. (I’m not so sure that’s a good idea.)

Running a franchise is a unique business endeavor. After all, franchisees aren’t quite entrepreneurs — they have to run their businesses according to their parent company’s rules — and aren’t employees, either, because they’ve invested their own money in the store or service they’re running.   Inc Magazine.

Even if these new rules hadn’t happened, franchises that hid lots of dirty laundry from potential franchisees were being found out anyhow.  Social media and forums was already stripping away some of the barriers to knowledge.

The franchise success depends on competence and compliance as well as the competence of the franchisee.  While the franchise offers training and often grand-opening assistance, there is no way for them to know if the business is going to succeed.  Franchises are not a magic bullet, and many customers simply aren’t doing their homework.  So what you have after a while is a bell curve of success.  On one end, savvy owners making a lot of money and living a great lifestyle - while the “fail” end of the bell curve is full of very loudly upset people - often losing a life savings as they go down.

With consumer-generated-media, the franchises are faced with a really hairy reputation monitoring problem where the brand is only as strong as the weakest location.   Unlike company-owned stores, business model franchises have pretty minimal control over their brand name once a franchise is launched.

Franchise brands are like the dancer with big feet, or the boxer with a big head - it’s just such a big target!

I must admit, Donato’s franchise has great pizza. But when it comes to trusting their online ordering environment, they leave some things to be desired. Below find the email that came to my house after ordering online. We knew it was “real” because it came shortly after the order was placed. But Donato’s made two errors. Make sure you aren’t making them in your business.

• Donatos doesn’t use their own domain name for the feedback link, prompting Vista mail to flag the message with a phishing warning. In a world where trust is a critical part of branding, this is just foolish. My family is very advanced when it comes to the web, but many customers would just delete the message without reading it.
• Donatos sends our usernames and password in plain text in the message. You just don’t do this, especially with all of the other personal information in the same message. My family uses different passwords for our sensitive accounts such as online banking, but I am absolutely sure this isn’t the case for many customers. This means the Donato’s password may have been used for more lucrative purposes, such as paypal, etc. We all know that keylogger exploits can do worse damage, but at least they require an infection and many have basic protection.

As some of you know I work with Franchises quite a bit in my SEO/SEM work. These organizations offer something unique to the market. But it’s not easy thanks of some nasty dynamics. While some franchise buyers realize they’re actually buying a model and should retain consistency, many others think that they’re only buying “guidelines” they should be able to color at will.

I’m proposing a system for improving the quality, fairness, and understanding during due diligence as it relates to business model franchises. Essentially, a way for buyers to know who they’re dealing with as they do research.

Let’s take a real-world scenario involving two franchisees who are about to become the target of a due-diligence routine:

Franchisee 1 follows the business model. The operations manuals are well worn and they give the franchise model benefit of the doubt, especially in the early days of their location. But most of the time they pull through it (”the dip“) and if the model is a good one, begin to succeed as designed. They think of the franchise model as “rules” to be followed to the letter.

Franchisee 2 uses their own ideas. They try to run it the way they’d run a business started from scratch. They aimlessly try different things and frustration builds. Their operations manual is covered with dust. They start to lose money, and 90% of the time they blame the franchise. They think of the franchise model only as “guidelines.”

Potential Franchisee 3 comes along, and wants to do due diligence by way of calling or visiting other locations. They begin calling franchise locations. By Murphy’s Law, they call Franchisee 2, and get an earful of how “bad” the franchise is. This can undermine thousands of dollars in marketing effort, many hours of salesperson time, and is how many franchises bleed to death. But also it may put a stop to what would have become a very profitable venture for #3.

I have a simple idea to level the playing field and would love feedback. (more…)

A terrific brain trust of folks answered great questions that I’ve tried to aggregate into an organized list you may find very helpful. Enjoy! The Q/A was especially helpful and added a lot to the session.

Moderators:
Chris Sherman, Executive Editor, Search Engine Land
Greg Sterling, Founding Principal, Sterling Market Intelligence

TIP: See the end of this post for other coverage on the conference too.

 

(more…)

Well, getting ready to head out tommorrow for SMX Local/Mobile conference in Denver, and looking forward to seeing friends in the search marketing world again I’ve not seen since SMX Advanced in Seattle.

I’m very excited about the Local/Mobile marketplace, especially with my developing expertise in working with franchises in internet marketing, and hope to shore that up even more in 2008 with some specific offerings under the PrecisionLocal brand. This is a tough, tough marketplace for consulting as the resources for local search are still quite fragmented and difficult to understand for clients.

Flickr Sets for SMX Local/Mobile

So if you’re going, Twitter me (id: scottclark) to catch up or meet.

I looked at a franchise website’s homepage today, and found that they were all gushy about being listed on the “Franchise Times” Fast 55, so I checked that list out. It even looks like the make a plaque (see photo.)

This list, published by the Franchise Times, lists franchises based on their rate of growth and without regard for the type, size, investment or length of agreement. So, home based franchises such as in the case of Weathersby Guild, is strictly by single-person, work-from home franchisees doing highly skilled labor on site. Just to get a sense of scale for the business, I did a little bit of poking around using a few reverse phone lookups and windows live.local.com which showed me that almost all of the Weathersby folks work from home, often from apartments. There is nothing wrong with that, but consider that Mobile Attic is listed next to them in the list - naturally requiring a vastly larger capital investment (30 containers must be ordered,) a rollback truck, 1-4 acres, and a twenty year agreement. These two franchises are not even the same species. To grow Weathersby by 100%, you find some people ready to be trained in their system and equip them for the work. To do the same for Mobile Attic, you need earthmovers and a steel mill.

Entrepreneurs should try to realize that if the franchise you’re interested are not advertising in these magazines, they may actually be a lot smarter than you think - and any franchises that prominently boasts themselves in such lists could be a tad desperate for market coverage. Look for substance in the press releases. Know which magazines matter, and which are make-believe!

If you’re buying a franchise…Go visit, in person, the franchises you’re considering. I would not let the corporation call ahead - I would just GO. Talk to the owners (not the possibly underpaid staff.) Then…because some franchisees are just plain-old-grumps… go to another town, talk to those owners. And do it until you get a feeling for the company, and whether it’s compatible with your own goals (which you’ve written down, right?) Ask them if you can work for them, for free, for a couple of days.

Spend the time and you’ll not be sorry, especially with $80-100k on the line.

Postscript: While writing this I came across this little jewel of absurdity

“The first and biggest factor is finding a franchise doing something you love! If you love to cook, find a restaurant. If you like to clean up, select a carpet cleaning or maid service. Do not assume that just because you own the franchise that you won’t have to work it, you will have lots of times where an employee won’t show up and you will be doing their job. Doing something you love will make the hard work and long hours bearable!”

No… what makes a business bearable is to design yourself OUT of it. Choose a franchise where you can be profitable and expendable. You should not be required at the location much, if at all. The system should allow you the freedom to live your life the way you want it, not work “long bearable hours.”