Hard Truths

Franchisees sometimes fail.

It’s the hardest thing to discuss and own up to as an emerging and mature brand. The fallout, including potential unit closure, litigation, system disruption, and just bad feelings all-around exist as one of the toughest things to talk about in our sector. When we first started down the franchising road at Shuckin’ Shack Oyster Bar, we externalized a lot of our frustration, pushing the blame to the outside.

“The unit is failing because the owner isn’t doing <insert reasoning here>!”

“If they would just understand that it isn’t that complicated.”

“Why did they think that would work?”

And so-on, and so-forth. As we matured a bit in our system, honed in our expectations, became more open about our shortcomings, and in-turn communicated those shortcomings to potential franchise owners, we noticed something:

The system improved. A lot.

Though there isn’t one singular “a-ha” moment for this turning point, I believe some of it came in the form of, wait for it, our Item 19 (I can physically see the number of attorneys liking this post increasing). Stick with me.

My previous Item 19 process was focused on communicating the top-line numbers. How much top-line revenue “on average” does our system do? How does that number compare to last year? If I break it down into quartiles, quintiles, septiles, octiles, or even deciles, “man” I thought, “that top 10% looks REALLY good!”

The psychology of this “Top 10% trend” is pretty simple: everyone believes they’re going to be a top 10% performer in every system they enter. I’ve never met a potential franchise owner that said something like “eh, I’d be cool just being in the bottom 25%, no big deal.” We’re playing to the entrepreneurial psyche when we only show the top echelon of the bell curve. (Just like I believe I’m probably a top 10% ping-pong player on earth, pic related).

This wasn’t a mis-leading way of Item 19 composition; I was just breaking down the data (aka doing the math) and reporting it how I wanted it. After-all, we didn’t make additional earnings claims, and profitability could vary so much per location (based upon all the controllable and uncontrollable restaurant things), that I didn’t feel great about showing the whole picture – on both ends of the spectrum both to our benefit and detriment!

Over time, and with the help of some trusted advisors, and reading of many, many other Franchise Agreements and Item 19s, I changed the way I wrote Item 19s. In a way,

I swallowed the red pill.

What you’ll see in our last few versions is simple: we show everything. Each location is portrayed in a non-rose-colored fashion. We show very strong net numbers in some locations, and negative net numbers in others. We’re painting an accurate picture of not only our system, but the restaurant industry as a whole: it’s not perfect.

If you’re considering a franchise opportunity (with anyone!), understand that it isn’t all perfect. We as a franchisor work tirelessly to try to improve the system, make our franchisees more successful and profitable, and make the correct long-term decisions. At the end of the day, a majority of that success is on the operator, the person running the business on a day-to-day basis. And as such, that person needs to know that not following the system, falling in love with every new trend, and even missing the basics of [in our case] hospitality, can lead down a road no one wants to venture.

So, for all those out there (especially emerging) that want to put their best foot forward, I’d suggest transparency in your system. Use it to show an accurate picture, but also use it to hold yourself accountable for areas of improvement! If you aren’t happy with how it looks on paper, chances are, you aren’t the only person sharing this displeasure.

Don’t limit yourself to do what a lot of others are doing. There are important conversations behind every chart you show. Context is everything. Make sure that you’re in sync with your sales team on this display.

And for heavens sake, please don’t make an entire advertising campaign around bad, misleading data – it might lead down the less-than-desirable path of failure for your franchisees