Five lead indicators of franchisee underperformance

Underperforming franchisees in a network do harm to themselves and to the brand they represent, yet the lead indicators and causes of underperformance are poorly understood.

Franchisors will generally rely on after-the-fact sales data to identify performance trends. The sales data could be days, weeks or even months old before any franchisor personnel asses it for performance trends, and by then the effort required to reverse a decline will be significantly greater than if the trend had been identified earlier.

Worse still, an analysis of sales data only indicates one element of the performance of a franchisee’s business. Sales data does not provide any meaningful information to assess the management of costs in a business, which can equally represent an area of underperformance.

Even for those systems where the franchisor regularly receives profit and loss information from franchisees which shows both sales and costs, underperformance can still go unnoticed. This is because the data (particularly in relation to costs) is not comparable across the network, or because the profit and loss reports are provided so infrequently (e.g. annually) that they are analysed too late to undertake a meaningful intervention to improve a franchisee’s business.

So if sales and profits are indicators of the performance of a franchisee’s business after the fact (i.e. lag indicators), what are the factors (i.e. lead indicators) that determine franchise performance in advance, and how should they be assessed?

Lead indicator 1: Franchisee attitude

Surveys of franchisors indicate that the most desirable quality in potential franchisees is passion and enthusiasm. Franchisors want franchisees who will leap out of bed in the morning, who punch the air with excitement, and can’t wait to get to their businessess to start selling their products or services each day.

Unfortunately attitude is so innate to an individual that it can be transferred only under special circumstances (e.g. peer pressure).

Where franchisors recruit franchise candidates with the “right” attitude before joining the franchise, it is reasonable to believe that the franchisees will do whatever is necessary to be successful thereafter, including gaining the skills required to operate the business.

This contrasts with recruiting franchisees for their pre-existing skills or industry experience, which might be desireable, but if not paired with the correct attitude, is no guarantee of success.

Lead indicator 2: Operational proficiency

Franchisees who are operationally proficient have proven that they are capable and competent to operate their businesses.

Determining when operational proficiency has been achieved involves a constant process of assessment, especially during a franchisee’s initial training.

Competency assessment is often poorly executed in training programs offered by franchisors, and frequently made on the basis of the gut feel of the trainer, rather than against an identifiable scale of performance measures known to both the franchisee and the franchisor. By sharing the performance measures at the outset of training, franchisees are able to identify for themselves their strengths and weaknesses, and if need be, to improve their efforts during training.

Operational proficiency after training is usually assessed by compliance measures only, but should take a broader focus as compliance alone does not always guarantee high performance.

Lead indicator 3: A plan

Operationally proficient franchisees who have a great attitude can still wander off course if they are not focused on a set of outcomes for themselves and their business.

These outcomes – and the actions from which the outcomes are generated (particularly marketing activities) – should be set out in a busines plan which is shared with the franchisor at the commencement of the relationship, and then used by both the franchisee and the franchisor thereafter as the franchisee’s roadmap to success.

Monitoring by the franchisor of all elements of the business plan will help keep the franchisee on track, or to realistically modify their plan as required. Unfortunately, many business plans are prepared as a condition of joining the franchise and then never looked at again by either the franchisee or the franchisor.

Lead indicator 4: Franchisee engagement

While it is possible to have high-performing but disengaged franchisees, this is the exception, not the norm.

Franchisees who are engaged with the franchisor will have a business plan they refer to on a regular basis. They will attend meetings, read memos, undertake additional training provided by the franchisor (and send their staff as well), and generally take the view that the franchisor provides resources to help them grow their business and will be proactive in utilising those resources.

Franchisees who are disengaged may not have had the right attitude from the outset, or have suffered one or more setbacks in their business journey which they will consciously or subconsciously attribute to the franchisor.

Franchisees demonstrate disengagement through such behaviours as failing to attend meetings (or improperly participating if they do attend). They may also submit reports late or incomplete, ignore franchisor communications or fail to access online knowledge or training systems. They may even seek to avoid visits from franchisor field consultants, or undermine the usefulness of these meetings by failing to prepare or allocating appropriate time or resources to the meeting.

Lead indicator 5: Family circumstances

Franchising Australia Surveys conducted by Griffith University over the years have consistently indicated that franchisees are overwhelming in the age bracket of 35-55, and are married or in an otherwise stable relationship. Even if only one spouse or partner is involved in the daily operation of the franchise business, the financial and moral support of the other may be necessary to get the business off the ground and to keep it going.

If there is a change in a franchisee’s family circumstances, such as relationship breakdown or divorce, this can remove these behind-the-scenes support factors necessary to the survival and growth of the business. Other changes in family circumstances, including bereavements and, to a much lesser extent, births or issues arising from dependents, can also be a lead indicator of franchisee underperformance.

The bottom line

Franchisors who have the ability to monitor these lead indicators and can provide timely and appropriate remedies when required have a much better chance of maintaining and increasing performance across a network.

It also follows that not only will franchisors then have higher-performing franchisees, but that those franchisees will be better advocates for the brand, which in turn leads to further benefits for the network.

The Franchise Advisory Centre will be conducting workshops exploring the issue of Managing Franchisee Underperformance in Brisbane, Sydney and Melbourne during September.

Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for 20 years at franchisee, franchisor and adviser level.