Franchising World, January 2007
What would an individual do if presented with an opportunity to be the president of a struggling franchise company? He believes the concept has potential, that the franchise system has been mismanaged and that this has led to the decline or current troubled state of the company. Most business professionals know that they have many things they need to accomplish to successfully turn this company around. Where does a leader start and what does he focus on?
Listen to Franchisees
Without the existing franchisees, there is no company. That is the place to start. The executive must listen and learn; much like playing poker, once a card is flipped, it cannot be pulled back. Touching each and every franchisee as quickly as possible should be the first job. Next, the leader can utilize group meetings, conference calls, Web conferencing, one-on-one visits and telephone calls.
Listen to the franchisees and find out what is important to them and how they believe the franchise company has failed them. This involves a total immersion in what is going on with the franchisees and within their businesses. Since time is of the essence, relying solely on face-to-face visits and group meetings may be too time-consuming. It’s important to get on the telephone and call franchisees. Call the leaders in the network, the average performers and the low performers. Have a set of questions to ask each franchisee and capture input.
When I took over as president of PIP Printing in 1999, franchisee confidence in the company was extremely low, the company achieved less than a 20 percent renewal rate, and the tension and distrust between the franchisees and the franchisor was palpable. I spent the majority of my time during the first four weeks as president calling franchisees, getting to know them, their business challenges, where the franchise system had let them down in the past, and asking for constructive input on what service and support they would find of most value. Since about a one-third of the franchisees were on the East Coast and the corporate office was on the West Coast, I could get an early start on these calls, typically at 6:00 a.m., and still be “walking around” the corporate office at 7:50 a.m. More about “management by walking around” later.
I began each call sharing that I was looking forward to working together with them and that I was hoping that I could count on their support. I explained my background. I had the advantage of having been in the franchise printing industry for 19 years in just about every management function at Sir Speedy and MultiCopy. I shared that we were committed to providing real, substantive value and that we were going to do everything to renew every single franchise.
In 2002 and 2003, almost 70 percent of the system’s franchisees were coming up for renewal; the franchisees knew this and expected the company would cease to exist at that time due to non-renewals. Franchisees were asked about their business, what was working and what was not, which products were selling and which were not, which products and services were profitable and which were not, how the corporate office had served and supported them well and where it had not, and what they thought corporate could do to bring the most value to franchisees and to improve their business. Active listening is critical. And for every answer to a question, another more probing question was asked. Copious notes were taken.
Franchisees were also assured of the company’s priorities: to drive individual center sales volume through implementing strong national and local marketing programs; by expanding the products and services that franchisees provide to their customers; by providing substantive, quality field and corporate support; to provide outstanding targeted training programs for franchisees and their employees; and to improve franchisee profitability.
In those four weeks, almost 80 percent of the 390 franchisees who operated nearly 500 locations were called. Most calls took at least 40 minutes. These calls served as the basis to identify where change was needed. The “Pledge to PIP Franchisees” developed as a result of what was distilled and learned from this process. The pledge was displayed on each team member’s desk and shared with the franchisees at every group event.
Who are system employees and what is their belief system?
The phone will not answer itself. The corporate team leader must meet with and spend quality time with each and every employee early in the tenure. Listen to their ideas and complaints; one can always act later. The direction needs to be focused on WIN: What’s Important Now. No one will volunteer a personal contribution to the current status of the franchise; that will always be “someone else’s doing.” The task is to identify those employees who are committed to the success of the franchisee and franchise company and tuck that information away for later action.
Learn the Industry, Understand the Current Business Model
It is important to thoroughly understand the industry as well as the franchisee’s current business model: what is working and what is not, what is profitable and what is not, workflow processes, who are key customers and target prospects.
Create the New Business Model
Chances are that part of the problem that created the decline of the franchise company is the weakness in the franchisee’s business model, leading to poor profitability, which always leads to franchisee dissatisfaction, as it should. It’s important to understand the core metrics of the business and to develop the new or revised business model; once this is accomplished—and it should be done with input from successful franchisees to ensure it is real-world—it needs to be broken down into step-by-step “how tos” that the franchisees can implement.
Obsessing over the franchisees’ bottom line is essential. Everyone on the corporate team needs to understand how a franchisee makes money and know how to teach franchisees to implement changes so they become more efficient and profitable.
And the brand needs to become religion. It becomes religion first with the corporate staff and, from there, it will spread to the franchisees. Developing devotion to the brand is critical.
It is important to improve the business model and focus on making the existing franchisees profitable and happy before focusing on new franchise sales; when existing franchisees are profitable and satisfied with their franchisor, it’s easier to sell new franchises.
Develop Positive Franchisee Relations
Developing strong, positive relationships with franchisees is not a difficult task; all it requires is providing real, substantive value and keeping commitments. Of course, that is easier said than done.
There have been many articles on this topic and there isn’t space here for all the information. In summary, a franchise system should develop positive franchisee-franchisor relationships by balancing the interests of the franchise company, franchisee and system as a whole. It means providing real value: in the brand, the system, training, marketing and focusing on the franchisee’s profitability. It involves keeping commitments, treating franchisees with respect, and over delivering. It involves listening and participation.
Create a Culture of Service, a Sense of Urgency Within the Corporate Staff
Generally speaking, if an executive is given the opportunity to turn a troubled franchise company around, he will have inherited a staff that is unmotivated and unfocused. Upon joining the company, it appeared that every person had one job to do—rather than multitasking as had been the culture at Sir Speedy—and that the majority of the staff arrived late and left early. They even walked slowly around the office. The fact was that they believed that the network would not renew and that, in just a few years, the company would no longer exist. Due to a revolving door of presidents the previous 10 years, most of the best and brightest folks had left the company. This team needed a culture makeover and needed it fast.
I had the benefit of truly believing that this makeover could and would bring real value to the franchisees and had the commitment to do it. Nothing is more effective than leading by example. I was the first person at the office and the last person to leave. This did not go unnoticed by staff, due to the times on e-mails and contact reports, franchisees mentioning that I called them at 6:00 a.m. California time or finished a call at 7:30 p.m., and the volume of work I completed and generated. I also believe in “Management by Walking Around” and did it every day at 7:50 a.m. and 5:10 p.m. In just two weeks, the team got the message: be working before 8:00 a.m. and still working at 5:15 p.m. The team also started walking around the office faster.
The company held huddles—brief standing meetings with the entire team—almost daily, to announce changes, celebrate victories however small, and spread the culture. During this time the staff was “right-sized,” which meant almost 15 percent of the team was laid off. And each time a change was made, the person was told, it was explained to the entire team in a huddle, including the business reason why and how the workload would be rearranged or support for the model changed.
The management team and I focused the staff on providing valuable support and keeping commitments. Management got them to understand the need to truly focus on the most important thing: the success of the franchisee. The management team defined a new business model and immersed the entire staff in how to position it, explain it and train to it. The leadership broke the implementation down into manageable levels and every team member shared this with franchisees during every interaction. If the franchisees are successful, the franchise system can be successful. If the franchisees are not successful, the franchise company cannot be successful.
Management worked to instill an attitude of “If it can be done, it will be done” with the team, along with a sense of urgency. The leadership established the policy of responding to a franchisee’s call within 24 hours or sooner.
In just a few months, franchisees were commenting about the positive changes in service, support, attitude and sense of urgency they were experiencing from the corporate team. And we were delivering this improved service and support with fewer team members.
Right-size the Franchise Company’s Business Model
Just as important as creating the improved or new business model for the franchisee is to “right size” the franchisor’s business model. At the time of joining the company, it was overstaffed and provided poor service and support. With sound leadership and direction, after reducing the head count by 15 percent to meet an appropriate manpower model of staff per number of franchisees and locations, the quality of the service and support provided franchisees improved significantly as measured by franchisee satisfaction and the increased renewal rate.
Obtain Financing for Future Growth
It is also worthwhile to secure a relationship with a lender who understands the opportunity so that the company has a ready line of financing for future growth.
System franchisees embraced the new business model and added the expanded products and services. The renewal rate went from below 20 percent to 85 percent, which was critical to the company’s survival with close to 70 percent of the franchisees’ contracts expiring in 2002 and 2003. Franchisee profitability improved dramatically. Positive and trusting relationships between franchisees and the company developed and franchisee satisfaction ratings skyrocketed. Following these steps that worked so well for this company should prove beneficial in a turnaround opportunity.
Catherine Monson is president of PIP Printing & Document Services. She can be reached at email@example.com.