The Next Recession Could Make Franchisors Rich

You have already heard it. Today, there are more franchisors than ever before and, unfortunately, less prospects.

That, however, will not be the cause of the next recession.

Hear about that thing called GrubHub? Yeah, they have the largest restaurant menu in the world. They are also teaching us a thing or two about the consumer. The consumer is perfectly fine paying the same price they would to experience (yes, experience) your restaurant—plus a delivery fee, plus a generous tip—to eat the food that they want, when they want it and where they want it.

This is nothing new. The consumer screamed at us when self-serve frozen yogurt busted onto the scene. “If I want 10 pounds of chocolate yogurt with another 10 pounds of cookies on top, who are you to say I can only have one, two or three scoops?”

But what does this create or eliminate? Blend an in demand world with technology and more regulations – this means job elimination. And that elimination isn’t happening at the top or middle, but at the bottom first. The bottom is made up of the tire kickers everyone complains about.

The stock market is teaching us a thing or two about investments. While franchising has done a solid job at educating the marketplace that it is a viable way to return your investment, the stock market (at the moment) is providing a better return on investment. And there’s more to it. A good economy means job stability. Job stability means that while I may be interested in owning a franchise someday, I am in no rush. I am intrigued, but in no rush at all.

So, how could the next recession make franchisors rich? Wait for it, not yet.

Let’s talk about expectations and goals (not the other way around). CEOs in franchising have high expectations. These, somehow, are solely (in many cases) placed on the development team.

“I want 20 franchises next year,” says Bob the CEO.

“But sir, last year we only did 10, how will we do 20?” says Stan the salesperson.

“I don’t know, that’s your problem. But, back to the 20. I want 20 and those 20 should equal $500,000 in franchise fees,” says Bob the CEO.

“Sir, what budget do I have to get that $500,000?” asks Stan the salesperson.

“Stan, you have $150,000,” says Bob the CEO.

“But sir, last year we spent $125,000 and got 10. That means we spent $12,500 per deal on franchise marketing. Therefore, this year you can expect 12,” Stan the salesperson explains.

“You’re the salesperson, figure it out,” says Bob the CEO, as he scrolls through LinkedIn wondering if it’s time to get a new salesperson.

What Bob the CEO is missing is how franchise development works. A few points:

• There are no silver bullets. Your sales team is not only not sophisticated enough to find them, they don’t exist. Sending him or her out on a voyage to find them will only be a waste of time. And I promise you, they are certainly not nested away in one of those regurgitated conference presentations that are given by the same people year after year.
• Sales is not the responsibility of the salesperson. It is the responsibility of the entire team. From operations to marketing, you are a franchise brand and you need to make sure everyone understands that the way they keep their jobs when expectations don’t meet goals is by collectively working on the most important aspect of sales – validation.
• You go on GrubHub to buy food (duh). You want spicy ramen. Ramen place one has three stars and ramen place two has four. Which one do you buy? Duh. The same goes for validation. Stop simply comparing your pizza to the other pizza brand. Compare your internal validation. If franchisees are telling prospects, “Eh, I like the brand, but I probably would not buy another location,” prospects will get scared. When the economy is good, they have good jobs and are making good money – THEY WON’T TAKE A RISK.
• Data is data is data. If it cost you $40,000 per deal to get it done last year, this year it will cost you more. Why? More franchisors, less deals. Come on people – this is easy math. And if validation is turbulent, tack on more.

Now, here’s what happens when expectations don’t meet goals. Bob the CEO cuts the budget, thinks about replacing Stan the salesperson and blames the wrong people. After a good product, strong leadership and profitable investment (hopefully that’s already a given), then sales becomes this equation: validation + a great website + a strong digital strategy + a good (organized would be better) salesperson = winning. Period, period, period, period.

Now, how can franchisors get rich (those who didn’t already get rich by selling to the super hungry private equity firms that understand the success equation and blame you, Bob the CEO/sometimes founder, for not meeting brand potential and uncovering tons of money on the table that they will eat like ramen and spit out to another private equity firm, thus taking money away from you and them winning, oh and yes, I said that in one breath)?

By not stopping. By continuing to invest. By looking at the top sales indicators – quality leads and quality franchisees. By giving two $hit$ about franchise fees and understanding the lifetime value of a deal is a ton – especially when it comes time to sell.

Spend money now. Don’t scale back, because you will be left in the dust by others who continue to push forward.

More franchisors, less deals. Ugh.

It will cost more per deal (read the last paragraph again). Get over it. Invest. Invest in the growth of your brand. You made the decision to franchise; commit to it.

And then, when the $hit hits the fan by whatever crazy #realnews event happens next and when everyone else is panicking and hiding their kids and hiding their wives, you will be winning (Charlie Sheen will be jealous).

You don’t scale back. Not now. Now is the time to invest in that giant pile of cash you will get because you were prepared for the war. You WILL be prepared to make a lot of money. You WILL understand that Stan the salesperson is not the only one responsible for sales (but better be calling those hungry leads back). You WILL enjoy that piña colada on the beach.

Or, you won’t, and I will. And chances are, because I am still a supplier, I will be buying you that drink anyway.