Franchising's Sold Vs. Open Debate

Dear eager franchise development people, brokers, ambitious emerging zors and the like…

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An insightful conversation took place this week on the Social Geek Rock Stars podcast. The topic was “irresponsible franchising,” and I must confess that I was hanging on every word. [You can listen to it HERE.]

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Don’t worry. Names were withheld to protect the guilty. But queue the Law and Order TV theme music here for maximum effect. Because the conversation between Ali Kraus, CFE , Derrick Ableman, CFE , Kristen Pechacek, CFE , Scott Greenberg and host Jack Monson , brought to light what so many others are thinking and whispering about behind closed doors. And it’s a very serious issue.

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In a marketing era to promote #ResponsibleFranchising, this catchphrase is being used by people who may not practice what they preach. And the rabbit hole went deep on one very hot point.

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How big is your franchise network?

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To give people the benefit of the doubt for not knowing any better [but let’s be real here], there are professionals who are touting the size of their franchise networks by including deals sold. In more egregious cases, they may not even say sold or awarded to clarify those answers. There’s also the factually correct, albeit often misleading, open and in development remark.

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I can’t argue with the Social Geek rock stars. I can scroll my LinkedIn feed on any given day and find someone boasting about a brand’s 100+ locations, 200+ locations, or growth by…insert-crazy-big-number here.

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To be clear, there’s nothing wrong with talking about franchise agreements that have been awarded. It’s an optimistic representation of what’s to come for a brand if, in fact, those locations do open, are well-supported by a franchisor that’s adequately staffed to onboard and train those new franchisees, and collectively the franchisor and franchisees continue to build upon a growing network with positive revenues.

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But also to be clear, sales numbers should not be misused in posturing for a brand that is anxious to look bigger or more successful than it is in real life. What if this same brand never even existed two years ago? What if a headquarters staff with only a handful of people is supposed to support these 100+ locations? What if awarded locations do not explain the number of locations that have recently closed? Franchisors cannot succeed in franchise fees for new agreements alone.

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That’s why, as the Social Geeks pointed out, the real question to ask is:

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How many locations are open?

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It should come as no surprise that the next answer for many brands out there is a very different number. A real number. A much smaller number. A number that, hopefully, fast-growing emerging franchisors are actually supporting.

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I get it. I love franchising. I am the biggest cheerleader for the opportunities a strong franchise business model provides. There are incredible brands with a rich history of successful franchisees validating this. Nothing makes me happier than to know and talk to franchisees at the grassroots level who are experiencing life-changing success. To hear them say they would do it all over again is the absolute best. Even better is when they double down and add another location.

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And yet, here we are. All it takes is a rogue brand, an uneducated founder, or a fake-it-till-you-make-it voice to hitch a wagon to this impressive history and negatively impact the overall reputation of the franchise community at-large. The pressure to award agreements and grow quickly haunts many franchise development pros out there. Trust me. This is not a community where a disruptor mentality to move fast and break things ends well.

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However, I’m the quintessential glass half full type. That means I must give kudos to the overwhelming number of ethical leaders who set strong examples out there. The list is long and distinguished of people who walk the walk, operate above the line, and are ripe with knowledge and lessons that others can and should heed. They don’t promote absentee models that are not absentee. They surround themselves with skilled people who are full-time and not fractional. They are dedicated to the success of people who put it all on the line for those brands across Main Street America. And, as a result, they have the best tool in any franchise development toolbox: happy franchisees.

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So, let’s champion the voices that discuss strong unit-level economics. Never underestimate the importance of a solid FDD and a compelling Item 19.

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Development deals and aggressive expansion aspirations mean one thing. Open units with profitable and sustainable AUVs mean another. If we give due attention to open locations and share true stories of franchisees who can validate that journey, it’s a win-win for a brand. One that stands a much better chance of growing the right way.

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Cheers to the Social Geek panel for the sales and marketing lesson.

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Now go forth and talk responsibly out there.

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