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Will franchising help to lead the U.S. out of the Great Recession?
by Jerry Wilkerson
The franchise marketplace we have today is vastly different from anything I have seen in my 32 years in the business. We all look for something in the past that looks like the economy today. I don’t see anything, and can only endeavor to monitor the present. Antiquated models of how franchising worked just 18 to 24 months ago are tactically out of place. As the economy’s growth rate resets lower, countless franchise systems find themselves starved for capital, and in fervent need to transform their business structure. There will be change. Mergers and acquisition movement a plenty, and new sources of revenue activated as innovative players find the franchise commerce field. Economic business model adjustment is habitually complex and painful, and yet, franchisors keep finding their way. Value doesn’t go boom, it tends to plod along and expand slowly with the consumer market.

People seem more willing now to take out their checkbooks for the right investment, and franchising is an asset in which many will invest. Recognizing this movement are notable economists, who believe the worst of the recession is over. However, franchise brand executives are waiting to see the lending community get back into the business of lending. The money people are sticking to the sidelines, while qualified new franchisee investors, with money to spend, experience denied loan applications. New franchise unit growth and development, thus, grinds to the slowest revolution in modern times.

So when will we see change in loan practices to fire up the franchise economic engines? Why is this recovery so slow? The answers to these types of questions are something we have sought since Adam, and his gal Eve munched on the Macintosh. When will the moneychangers get back into the game? Post recessions in the past have consistently produced record franchise system growth. Franchising time after time fertilizes a slow economy. When unemployment goes up franchising is effervescent. This is not the case with this recession because the recalcitrant lenders are holding back. This new normal is especially vexing for franchisors and their potential franchisees alike.

Due to this skittishness, some branded execs, fed up with the sluggish funds system, are charting new courses. Buying into banks, lending institutions, and even bellying up to the responsibility of becoming part of the SBA loan package. In other words putting their money where their words come from, believing in their franchise enough to be responsible for a percentage of the franchisee loan parcel. How fresh is that, a franchisor with conviction and confidence in their asset?

As the business of franchising traverses these defiant marketplaces, franchisors’ challenge is to stretch cash flow, pay disproportionate costs for quality new unit lead generation, and solicit hard to find credit. At the same time, retail has changed drastically. It will never be what it was. The consumer has changed, and good franchisors are now consumer serious. They must deliver the promise. Give the consumer the product or service exactly as they promote it to be. To go from good to a great franchise brand requires transcending the curse of competence. If the branded system cannot be the best in the world at their core business, then their core business cannot form the basis of a great company.

Franchising gets the best out of people. It commands over 40 percent of our nation’s total retail sales and service dollars. As a franchisee, you do not need an MBA to succeed. Zee’s and Zors’s are in it together as partners to win. Franchising is a driving, dominant machine that plows through challenges and persistently produces success. The business of franchising is a privilege filled with responsibilities, a series of successful habits predicated upon a few great thoughts, implemented by good employees, and driven by visionary, ever forward-looking leadership.

In franchising, we let others do the pioneering, and then, with franchisees, we do it bigger, more quickly, and efficiently in large numbers. The franchisor took the time, economic risk, built, and improved the business model, while showing the franchisee how to do it right to produce profit, upgrading the system along the way, and paving the route with consistent training.

A dynamic relationship exists between the franchisor and franchisee to promote the growth and value of the chain. This allows for solid communications, superior customer experience, and street-driven sales knowledge flowing in both directions. Each party shares in the commitment and vision as they march lockstep to establish economic standards, foster corporate culture, create brand awareness, set marketing expansion directions, and cultivate bottom-line enhancing worth.

Franchising invites everyone to join. And 2010 will be an especially challenging 12 months, while the business of franchising crosses all lines of society and embraces almost anyone who is ready, willing, and able to work. Through franchising, the success of both the franchisee and the franchisor is truly dependent upon the success of each other. That symbiotic relationship thrives on the willingness to prepare for success. Through constant training of the franchisee, franchisors strive to improve and to increase the system’s individual unit value. Each entity is willing to invest in the other.

Successful franchisees are captivated by the business while investing in their future. They should be infatuated with the force that goes into a thriving development expansion plan, possess good work habits, ethics, people skills, and enjoy that burning in the belly to win.

Franchisors come to wisdom through success and failure alike. They are looking for franchisees who wish to borrow as much as the other is willing to lend, and at the same time remain focused on the common progress of the system. Nobody says that franchising is easy or that it does not take hard work to be successful. The key to what makes the business of franchising thrive so soundly lies in the people who make it run. Without a quality workforce and unwavering management, the franchising system of business could not provide the excellent price points, branded quality, reliable training, and elevated efficiency of service celebrated worldwide. Success in franchising implies optimism, mutual competence, and fair play.

Franchisors are also aware that you cannot demonstrate leadership by pointing in the direction they want to go and telling people to go there. Leaders go to that place. They show the way. The best franchise executives know their ideas today can turn to dust or weave magic. It all depends on the talent that rubs against them, including their franchisees. People support what they help to create.

Franchising today requires wondrous vision, dauntless drive, searing intellect, fearless spirit and a profound character along with a well-honed, competitive instinct. It is a requisite that they surround themselves with managers who resonate energy, passion, and a resolute will to win under difficult financial challenges.

The business environment in 2010 will change as fast as the mercurial tides of the oceans. Franchisors today are looking for franchisees from every conceivable source to contract with their system. In franchising, one never really sells anything, and a check does not close the deal. The relationship process simply starts with that legal confirmation agreement. Every month franchisors must earn another check---the royalty. It is the franchisor’s responsibility to keep the business profitable and tirelessly build the bottom line with new products and services. This is what franchisees buy into and what validates the franchise system.

First-rate franchisors will try to surround themselves with strong, driven, ever inquiring franchisees. Second-rate franchisors will surround themselves with mediocre franchisees that will question the system and bend the rules to their perceived needs. While third-rate franchisors will surround themselves with anyone who can pay the franchisee fee and who really doesn’t care to remember the rules, work hard, or plan to be in one place for long. These franchisees are the ones who will say that they agree to the contract in principle when they truly mean they haven’t the slightest intention of carrying it out in practice, an incurable consciousness for failure.

As with all binding accords of legal consequences, it is important to remember that the big print giveth and the small print taketh away. Franchisees must read the contract in full, and understand their responsibilities. Seek outside counsel from accounting groups to business attorneys, and make certain that they clearly understand and are in synch with the corporate culture. Remember, likes attract.

Franchising is an employment locomotive, providing a heaping slice of the American pie. You can follow the business of franchising along the yellow brick road---a global Main Street of business. A common economic thread winds its way into franchising successfully weaving the mosaic tapestry of worldwide business, and that is that franchisors success is your success. It creates a legacy that inspires others to dream, to learn more, do more, and to be more. Over more than three decades in franchising, I have learned that the highest achievements are never solo events. We reach our best mark in life with the help of others and their belief in us.

This article was written for The Franchise Handbook 2010 edition and is reprinted here with permission.
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Jerry Wilkerson is a former president and executive director of the International Franchise Association (IFA), in Washington, D.C., and founder of Franchise Recruiters Ltd.®, an international franchise talent acquisition corporation with offices in Toronto and Chicago. He recently marked his 32nd year in franchising.


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