There are plenty of people who can identify a problem. A high percentage of those can even identify the solution. A much smaller percentage do something about it.
Take body weight.
You know you weigh a few too many pounds. You know that if you got off booze for a month (2 drinks/day X 150 calories = 300 X 30 = 9,000 | 9,000/3,500 (calories in a lb) = 2.57lbs) and exercised to the equivalent of 500 calories burned/day (500 X 30 = 15,000 | 15,000/3,500 = 4.2lbs) you would lose about 8lbs/month. Do that for two months (as long as you eat the same) and you have a solution.
We can create the solution, but what do we do about it?
The same is true in business.
In many company settings, we can identify problems (or pay a consultant to do it), but we don’t take the steps to correct it.
I was once looking at a social listening tool. It gave us data on one menu item at a restaurant. To protect the innocent, let’s say that menu item cost $10. The listening tool came back with average results – meaning, people were not thrilled about the item and didn’t hate it. What solution should this provide the restaurant?
A. The item doesn’t meet the expectations of the buyer, clearly. You could lower the price point so that the user feels like they are getting a better value.
B. You could re-engineer the product to have higher quality ingredients.
C. You could remove the item since your customers are clearly not excited about it.
D. You could crowdsource the solution through social. Host a contest that makes the product better (it was pretty powerful when Domino’s said their pizza sucked).
The point is, there were options – or solutions – that could be put in place.
What do you think the restaurant did?
In franchise development, we could listen to the same rationale. Let’s say a brand costs $1m to get into. Let’s use these hypothetical data points:
1. Average Unit Level economics are below $1.5m (rule of thumb is a 2-1 investment ratio is strong) – let’s say $1,400,000.
2. Customers rave about the product.
3. Franchisees are holding on buying again.
4. Leads that inquire are underqualified (for the most part) and those who are qualified eventually are turned off by the unit level economics.
So, the challenges have been identified. Now what?
You could re-engineer the build-out. Let’s say AUV decreases as a part of this model, but you know your customers still love the product. Perhaps you don’t need a $1,500,000 building. Perhaps a build-out of around $500,000 with an AUV of $1,000,000 is doable. You shave half the costs of the build-out and lose $500,000 in AUV, but you create a brand that’s in line with what you want:
A. Growth because existing franchisees can open two for one. You are invested in their future. Two units will do $2,000,000 and cost $1,000,000 to build, which creates a more attractive opportunity.
B. Growth can happen because now your qualifications got split in half – meaning, those who were under qualified for a $1m investment to build may now be qualified for half of that cost.
C. Let’s say you had 100 locations creating $150,000,000 in system-wide sales (royalties) in the existing model. At a 0.5 percent royalty, your brand pulls in $7.5m. Let’s say you are capped at that cost. What would the next 200 units at $1m AUV equal? $200m and $10m in royalties.
The point is, when your brand hits a challenging spot, don’t be afraid to adjust. Sometimes, adjustment is the solution. With weight loss – adjustment wins. With business, the same is possible.