2007 Franchise Review - Understanding the Franchise Business Model
By admin | April 29, 2009
The Modern Day Franchising Model is perhaps the greatest business strategy ever created in the history of mankind. Why you ask? Well, franchising pays dividends to both Franchisee and Franchisor in a Win/Win Situation. When the Franchisees win the Franchisor wins in increased brand name and royalty income.
As the brand name increases the Franchisee finds more loyalty in their customer base and the Franchisor finds a greater number of new entrants wishing to buy into the franchise system as new potential team members or Franchisees. This allows the Franchisor to be more choosy in which potential new team member candidates they decide to sell to and thus strengthens the system again with better franchise buyers with more capital, business acumen and strength of character. Of course each new strong Franchisee increase the strength of the Franchise System.
In franchising it is not merely a Win/Win for the Franchisee and the Franchisor, because such strength in the market place allows for a larger organization, which benefits off the economies of scale and that means lower prices for consumers and customers. Those who partake in the products and services of the franchised outlets also have piece of mind knowing that they will receive quality, great service and consistency. Once the franchise system gets going and if it is run properly it is like a rocket ship.
Is there a downside to franchising? Indeed there is but it is probably not what you think. The Franchising model is a highly regulated industry even though it has the lowest number of complaints, almost nil on a percentage basis and of the less than 1% of complaints that are received each year nearly 70% are unjustified and bogus. Then there is the litigious nature of the franchising industry where lawyers have hijacked the laws and regulations and worked too closely with regulators to mold the rules to their benefit. Some call this a parasitic relationship and few could argue case, expect the self-serving lawyers.
As a Founder of a Franchising Company, I built my company from 53 units in 39 cities where we regionally dominated our industry sub-sector to a full-fledged franchising company serving 450 cities, 110 markets after selling franchises in 23 states and 4-countries. Having built the company literally from scratch and knowing every single job like the back of my hand, I feel qualified to help you understand and discover all you need to know about The Franchise Business Model. I thank you for reading my article and perhaps this article is of interest to propel thought in 2007?
Lance Winslow, a retired entrepreneur, adventurer, modern day philosopher and perpetual tourist.
FranchiseTopics: Franchise | No Comments »
Comparing Google’s Search Franchise to McCormick’s Spice Franchise
By admin | April 28, 2009
Google has a competitive advantage. In fact, one might even say it has a franchise in web search. I wouldn’t say that. I mean, Google does have a franchise; but, it doesn’t have a monopoly on web search and never will. There are real problems with Google’s model that are often overlooked. It does a poor job of finding certain sites that are difficult to describe in keywords. For this reason, there may still be a market for web search in the form of specialized niche directories and in some of these “social search engines” (e.g., Stumble Upon) for many years to come.
I’m not suggesting any of these services will be as successful as Google; I’m sure they won’t be. I am simply pointing out that there is a difference between a need and the means by which that need is satisfied. Even as the dominant search player, Google will only have a franchise on the means (keyword search); it will not have a franchise on the need (finding stuff on the web). Also, Google can not, at present, rightly be called the dominant search player. There is no dominant player in search. Google is the leading search player. It is also the catalyst for many changes in search. But, it is not yet the dominant player in search the way McCormick (MKC) is the dominant U.S. spice producer.
Looking at McCormick’s franchise is actually a pretty good way of evaluating Google’s. Why do I say McCormick is the dominant player (domestically) in spice, but Google is not yet the dominant player in search? There are a few reasons.
McCormick has a 45% share of the U.S. retail spice market. Its closest competitor has a 12% market share. We may differ about exactly how the web search pie is carved up. But, I think we can agree that Google’s share of the market is less than 45%, and that at least two of its competitors have a share of the market greater than 12%. So, Google’s position differs from McCormick’s in two material respects (already). Google has a smaller slice of the pie, and the search market is less fragmented than the spice market.
The spice market is an upside down funnel. The few producers are at the top. They feed their products through three distribution paths: retail, industry, and restaurants. In each case, the shape of the upside down funnel remains intact, because the widening happens at the very end. The ultimate consumer of McCormick’s product doesn’t get to choose from all available spices. His choice is always indirect. He picks a grocery store, a food product, or a restaurant. Then, must choose from the spices that particular supermarket chooses to carry, or the restaurant he frequents chooses to use (and/or make available).
In search the story’s a little different. There is still something of an upside down funnel shape in search. Although, it is less pronounced than it was a few years ago. Search results are fed through dependent sites that searchers visit. But, it is the searcher who chooses the dependent sites. A few of these dependent sites account for a large part of all searches. That is very different from the spice market, where no supermarket or restaurant chain accounts for a large part of all spice consumption - none even comes close. So, the searcher has a much bigger role in choosing his search provider than the spice consumer has in choosing his spice provider. Even though it is true you are sometimes searching without knowing Google is the search provider, the situation is nothing like it is at McCormick. When eating a meal you aren’t thinking about McCormick. Quite often, however, you are using a McCormick product. Whether it was in that package of spices you used to cook a meal at home, or in that manufactured food product, or in the dish you ordered at the restaurant, you are a consuming a McCormick product.
What matters as far as the investor is concerned is that the ultimate consumer of McCormick’s product rarely makes an active, unfettered choice to consume that product over all other competing products (or even many competing products). The closest he comes to making such a choice is at the supermarket; though even there, the decision of how much shelf space to allocate to each company’s products was made for him. To use Google, the first time searcher must make an active, unfettered choice.
Finally, there is the matter of infrastructure. This consists of two parts: production and distribution. McCormick has an existing production infrastructure which is helpful as far as costs are concerned, but isn’t especially valuable. It could be duplicated by a new entrant with deep pockets. McCormick’s distribution infrastructure is almost impossible to duplicate. It is worth far more than it cost McCormick to create it. Prying McCormick’s customers (situated at the narrow of that inverted funnel) away from the company’s products would not be easy. This distribution infrastructure gives solidity to McCormick’s spice franchise in the U.S. In some instances, it will also help McCormick aboard (as some of the company’s customers are expanding globally and will be inclined to stick with McCormick in their overseas operations).
Google’s production infrastructure (the algorithm and the index) is easy to duplicate and will become even easier to duplicate in the future. There isn’t much of a barrier to entry here. Google may currently offer the best search service around, but there is no reason to believe this will always be the case. Distribution is very often the most valuable part of any franchise (it is usually the part that is hardest to duplicate).
So, the natural question is: in the world of search, if you build it will they come? Will the best search engine always attract the most searchers? Probably not. That’s good for Google, because it won’t always be the best search engine. Google has a great brand. Whatever value is in Google comes from that brand. That brand is what will keep searchers from flocking to the inevitable newer, better search engine.
All of Google’s revenues are ultimately dependant upon attracting searches. Getting those searches requires two things. First, millions of people must make the active, unfettered choice to search Google. Then, those millions of people must keep searching with Google. The brand is the key to step one. The service is the key to step two. Search customers are sticky. But, they probably aren’t as sticky as we think. It’s very easy to take immediate action on the web (just click a link). Switching away from Google isn’t like switching away from Windows.
That leaves the brand. True, when you think search, you think Google. But, is that brand worth $120 billion? No - and neither is Google.
About the Author
Geoff Gannon is a full time investment writer. He writes a (print) quarterly investment newsletter and a daily value investing blog. He also produces a twice weekly (half hour) value investing podcast at http://www.gannononinvesting.com . -
Whether you work one-to-one or deal with customers in groups, you identify a target market of customers most likely to value what you can offer. You develop processes that work best with those clients. You learn to anticipate their responses and help them feel pampered.
Ideally, you recruit new customers who fit your target customer profile, but sometimes you attract a customer who doesn’t belong. These customer misfits can drain your energy, alienate other customers and fail to recognize the value you provide through your service.
A lesson from Tony Soprano
For an extreme example of what happens when you accept a “different” type of client, watch a few episodes of The Sopranos, an HBO mega-hit. You can rent videotapes of the first two seasons.
Almost every episode includes scenes between mob boss Tony Soprano and his psychiatrist, Janet Melfi. These scenes are so realistic that professional psychotherapy associations have included them in training programs.
From a customer service perspective, the psychiatrist seems overwhelmed by her notorious client. She can’t resist hinting at his identity during a dinner party.
And Tony in turn is dangerous to his therapist. His curiosity about her background goes well beyond the average client’s harmless fantasy, as he orders a wayward cop to follow her around for a few days.
Tony means well. When the therapist’s car breaks down, her patient simply “borrows” the car and arranges for a repair at one of the “family” garages. He brushes away the therapist’s concern about boundaries.
Your client will most likely be less connected, less violent and less persistent. But you may find yourself dealing with someone who is equally determined not to play by your rules.
A lesson from Club Med
The wrong customer can harm everyone and experienced service companies know it. Suppose you signed up for Club Med with the idea that you were going on a retreat, where the “wild night out” would be a fireside poetry reading. As soon as you realize your mistake, Club Med will fly you back home and refund all your money. Bad attitudes are contagious.
You may not be as focused as Club Med, but your process will most likely work best with a certain type of client. A cynical client will challenge your value. A client who trusts without questions will easily feel betrayed.
In summary
Service businesses thrive on established processes and systems to serve clients, rather than relying on ad hoc “whatever happens” policies. The “wrong client” drains energy and can drive away “right” clients. By staying focused you can direct energy to building relationships with customers who enjoy each other’s company and help you find others who, like them, will value what you offer.
——————————
Cathy Goodwin, Ph.D. is an author, speaker, and career coach who helps mid-career, midlife professionals make a fast move to career freedom. . Susbscribe to her free monthly Career Freedom ezine: http://www.movinglady.com/subscribe.html . Visit her website: http://www.movinglady.com. Call: 505-534-4294 Email: mailto:cathy@movinglady.com
Topics: Franchise | No Comments »
