Does Buying a Franchise Guarantee Success?

I was talking to someone recently who’s interested in purchasing a TGA franchise when he made a statement that encapsulated several thoughts I’ve been having:

“I get it – I’m not buying a business, I’m buying a system.”

I couldn’t agree more.

I believe that the purpose of buying a franchise is threefold:

Get a developed system in a proven market that operates like a well-oiled machine so you’re setup for success from the outset.

Get a recognizable brand that is growing exponentially due to HQ building it nationally/globally and franchisees building it locally.

Get access to the intellectual capital and support of a tight-knit family that includes HQ members and fellow franchisees.

In my opinion, it is rare that our “system” doesn’t work in a given area.  All territories have their niches that require slight modifications, but the system as a whole is highly transferable from one area to the next.  That’s the point of franchising.

When I look at TGA’s most successful franchises, they didn’t get there because of the system.  They got there because of themselves.  TGA provided a system that works, but that’s our job and that’s why we’re paid franchise fees and royalties.  It was the franchisee who took the system and made it a successful business.

At TGA, we have a concept called the “Recipe for Success” that asks three questions on a scale of 1-10:

1.  How hard are you working?
2. How closely are you following the model?
3. How well are you engaging the network?

It’s almost universal that franchisees who score high on these questions are doing well and the folks who don’t are not.  This list translates well to non-franchised businesses as well … you’d just need to add questions about product and market.

People often mistake buying a franchise with buying success.  It’s a big mistake to make as it can lead to (among other things) complacency.  Building a business is hard, whether it’s a franchise or not, and success comes down to your ability to execute.  

Buying a franchise tilts the odds in your favor as it provides a proven market, developed product and successful system.  But, if you ever consider investing in a franchise, I encourage you to do so with the understanding that it is ultimately up to you to take these things and turn them into a successful business. 

Perception Trumps Reality

I attended a “Franchisor Boot Camp” last week in Denver that was hosted by Greg Nathan, a well-respected expert on franchising and psychology.  The goal of the conference was for franchisors to learn techniques for building more profitable partnerships with their franchisees.  It was a great learning experience with lessons that apply to both business and life, and I’ll likely touch on many of them for a long time in this blog.

One of the first and most frequent things Greg Nathan said was:

“When perception meets reality, reality comes in second place.”

This resonated with me because I recognize it as being very true but it’s a difficult concept for me to wrap my mind around. 

“Reality” is defined as the state of things as they actually exist, rather than as they may appear or might be imagined.  “Perception” is defined as the process of attaining awareness or understanding of the environment by organizing and interpreting sensory information.

My tendency is to look at facts, analyze them in black/white terms and come to a logical conclusion.  Meaning, I focus on “reality” and place a lot of value on it.  And I’m a big believer in taking responsibility for this reality.

What can be missed in this process, however, is an analysis of how people perceive these facts/terms/conclusions.

For example, when a franchisor rolls out a new initiative, have they taken into account how the franchisees will receive it?  Let’s say the initiative will create long term value but it requires an initial investment of time and money.  How will the franchisee feel when he hears about this required investment?  Maybe his cash position is strong so he sees it as a great opportunity.  Or, maybe his margins have been squeezed during the recession, the financial stress of which has caused stress with his spouse, and this new expense will be perceived as the proverbial “straw” that breaks not only the business, but the marriage. If the franchisor is unaware of this, the messaging and execution will be way off.  Now, while the franchisor feels good about themselves for this new initiative, the franchisee blames the franchisor for ruining his business and his marriage.  The seething franchisee then becomes vocal about his disdain for the franchisor and starts eroding the culture of the entire organization.  Meanwhile, the franchisor doesn’t know what the hell just happened.  They deployed an initiative that creates long term value, which is what the franchisees pay royalties for, right?

This is extreme, but it demonstrates how a mismatch between reality and perception can spin out of control pretty fast.  Whether you’re a franchisor, franchisee, entrepreneur, manager or anyone else in the workforce, you can probably think of your own similar examples.

So how do we build a better understanding of people’s perceptions?  According to Greg Nathan, the answer is to connect with them on a personal, human level.  Talk to them.  Ask questions.  Understand what’s going in their lives.  How are they feeling?  What are they nervous, excited, etc. about?  Let them tell you where they’re coming from.  Empathize, and be authentic.  Not only does this help you understand their perceptions, it develops trust and commitment.  And this makes all the difference in your ability to communicate, assist, lead and motivate.

Developing healthy relationships is a critical component of business success, especially for an entrepreneur when the company is young and fragile.  Understanding that perception often trumps reality is a key part of building these strong, healthy relationships.  I’ve added another post-it note to my desk to remind me of this “reality” and hopefully the advice helps you too.

Franchisees are the QB & Franchisors are the Coach

(Please note - this blog originally appeared on the Franchise Business Review website and you can read it here.)

We were reviewing franchise performance at TGA Premier Junior Golf recently when the conversation shifted to the universal components of the top performers – the crème de la crème.  There were three:

1.    They get out of TGA what they put in (an adage hugely relevant to franchising), and they put in a lot.

2.    They follow the model. 

3.    They are engaged in the system.

As the discussion transitioned to what we at HQ can do to better facilitate these qualities, we found ourselves engaged in an age-old conversation about the role a franchisor plays in managing its franchisees. 

On one hand, we take personal responsibility for the success or failure of each franchisee and our instincts are to do everything we can to help.  On the other hand, each franchisee is the owner and boss of his or her TGA franchise, so we at HQ have to respect the fine line between being supportive and overbearing.

My colleague LeeAnn O’Donnell made a great analogy for this relationship that really stuck with me.  She said: “Franchisees are like the quarterback and we’re like the coach.”

Yes, exactly.

Coaches utilize years of experience and proven results to create the game plan and in-game support.  The franchisor.

Quarterbacks combine the coach’s game plan, natural talent and years of skill development to lead the team to success.  The franchisee.

Coaches/franchisors cannot control a QB's decision-making and actions during a play - nor should they want to.  But, they can provide a strong system that a great QB can become a legend in (i.e. Tom Brady, a 6th round draft pick, winning three Super Bowls with Bill Belichick) and an average QB can execute with success (i.e. the Baltimore Ravens winning the Super Bowl with Trent Dilfer).

If you’re thinking about starting a franchise, I encourage you to consider three questions:

1.      Are you a QB comfortable with leading a team of role players (your employees) while shouldering responsibility for the execution and ultimate success/failure of your business?  If yes, proceed to #2.  If no, then employment with an established company is likely a better fit for you.

2.      Are you a team player who wants an experienced coach creating the game plan and helping you out?  If yes, proceed to #3.  If no, then starting a business alone from scratch is likely a better fit for you.

3.      Is the franchise system you’re considering a Bill Belichick (great), a Lovie Smith (decent) or a Josh McDaniels (poor)?  How does this match up with your own talents? 

a.      If you’re highly experienced, you can likely succeed in most competent systems, whether it’s Belichick or Smith’s, so you should probably pick whichever business is a better personal fit. 

b.      If you don’t have a lot of business experience, you can likely succeed with Belichick but you may struggle with Smith. 

c.      Under no circumstance should you continue looking at a Josh McDaniels system.

If you answered “yes” to the first two questions and your talents properly align with the quality of system in question 3, then you very well may be looking at a great business opportunity. 

Good luck and happy entrepreneuring.

What Does a Franchise Fee Buy You?

(Please note - this blog originally appeared in Franchise Business Review.)

Franchising is a great option for folks who dream of owning a business but don't have a great idea and/or want to mitigate the risk as much as possible.  When you invest in a franchise, the question really is - what am I paying for?

The answer, in a word, is “opportunity. “  Described in the dictionary as:

1. A situation or condition favorable for attainment of a goal.

2. A good position, chance, or prospect, as for advancement or success.

I’m the COO of a franchise organization called TGA Premier Junior Golf that filed its first UFDD in 2006 and currently has 47 franchises in 21 states.   We’ve been named to numerous rankings/lists as a top “franchise value” and “low cost franchise” in the U.S. with an average franchise fee of $17k and change.

I recently had one of those unfortunate conversations with a franchisee who wasn’t executing well and he wanted to know his exit options.  Thankfully I’ve only had a few of these conversations in my TGA career and this one was unlike the others because the franchisee pointed the finger at me.  “You sold me a bad territory.”  “This isn’t a viable business here.”  “Etc. Etc.”

Never mind that the franchisee down the road is one of our best in the country.

The conversation turned into a discussion of the central relationship between a franchisor and franchisee.  The franchisee believed his investment in a TGA franchise would guarantee success (even though the disclaimers clearly state otherwise).  “Build it and they will come.”  I’ve heard this sentiment from others as well.  And it is wrong.

The franchise fee buys an opportunity.  A “favorable (situation) for attainment of a goal.”  A “good … chance … for advancement or success.”

I remember the first few years at TGA when we were losing money.  We made several mistakes.  We asked questions of our customers.  We learned.  We pivoted.  We took three steps forward and two steps back.  We launched the business in 2003 and first said hello to the black in 2006.  By then, we had figured it out.  And we grew – quickly.  Profitably.

When a franchisee invests in TGA, they get two things:

A)   An express pass through those initial 3-4 years when a new business typically loses money, makes mistakes and constantly walks the survival line.  This “pass” comes in the form of TGA’s proven product, IP, strong brand, training, support, inclusion in partnerships and so forth.  As a result, most of our franchisees are profitable in their first year.

B)   Tangible goods that, in our case, would cost more than $17k if purchased/developed on their own - $2,000 worth of supplies, a website with backend CMS, a robust CRM system, national and local PR, cost-savings due to favorable agreements with suppliers among other things. 

Franchisors provide a model/framework for success.  You want to build a castle and we provide a proven blueprint and the necessary tools.  That’s what your franchise fee buys you.  The first thing I learned in my MBA program was that entrepreneurship is about execution.  A franchisor provides a great opportunity.  If you're exploring the franchise path to entrepreneurship, understand that it'll ultimately be up to you to capitalize on this opportunity by picking up the tools, following the blueprint and building.

The Franchise Option

I’ve been asked to guest blog for the Franchise Business Review (FBR) and I just wrote the first two posts as I travel from Charlotte to LA.  Thus, my mind is thinking heavily about the role franchising plays in entrepreneurship - and it is huge. 

I haven’t talked about franchising much on this site so I’m going to repost my blogs for FBR here as they’re published.

I recently came across a fantastic book (hat tip to Mark Suster) called “Do More Faster.”  The book covers seven main topics in entrepreneurship through short stories written by founders and venture capitalists who are involved with TechStars.

One of my favorite vignettes is titled “Trust Me, Your Idea is Worthless.”  The key line in the story is: “Entrepreneurs (often) overvalue ideas and undervalue execution … one can steal ideas, but no one can steal execution and passion.”

This describes the value of franchising to a T.

I’ve heard many people say: “I want to be an entrepreneur … I’m just waiting to think of that big idea.”  With franchising, you don’t need it.  The “big idea” is already established.  Your investment is in a proven business model where your chances of executing well are strongly enhanced.  And, it’ll likely cost you less than trying to start something on your own.

As a result, the U.S. Department of Commerce has found that 90% of franchises continue operation after five years as opposed to less than 25% of privately owned start-up companies. (Stats here)

Why?  Because franchisors have a tried-and-true model in an established market with identifiable customers.  When you buy a franchise, you leapfrog the first several huge obstacles most entrepreneurs face.  At TGA, we weren't profitable for several years  ... but our franchisees are mostly profitable in their first year because they immediately obtain the blueprint we spent a lot of time and money designing.

The downside to franchising is that you’re one part of a bigger system so you’re likely not going to change the world alone … and you have to deal with the franchisor, who thankfully isn’t a boss but acts like an uber-protective big brother.

Franchising doesn’t guarantee success because it always comes down to execution.  A franchise provides the blueprint and tools to build a castle.  Ultimately it’s up to the franchisee to pick up those tools every morning, follow the blueprint and build.

If you want to be an entrepreneur, franchising is an immediate, viable and less-risky alternative to waiting for your big idea and starting something from scratch.  It’s not for all but is great for some, especially first time entrepreneurs.  I look forward to further discussing the topic on this blog and for the FBR.