Franchising Basics

Jim Richardson, a franchising veteran from Pizza Hut (20 years) and Panda Express (15 years) discusses some foundational franchising theory in a “Franchising 101” segment. Afterwards Jim expands on fundamental best practices for franchisors as they develop their franchise system.

Timestamp:
0:00:41 – Jim Richardson Introduction
0:03:15 – Segment 1 – Get to know Jim Richardson
0:16:58 – Bonus Segment: Franchising 101
0:40:00 – Segment 2 – Franchising is a Partnership (Business/Branding)
1:05:44 – Segment 3 – Quick Draw Questions

Show Notes:

Segment 1 – Get to know Jim Richardson

Recorded on location at Jim Richardson’s house in Parker, Texas – just a few miles away from the famous Southfork Ranch (Who shot JR?)

Born in Rockwell, Iowa

Jim’s first real job was as a grocery man

Studied chemistry and finance.

Small town boy makes it big – Ford Motor Company, Pizza Hut, and Panda Express

Bonus Segment – Franchising 101

Franchising allows you to expand your concept by utilizing the resources of others.

Money

The franchisee pays his part of the investment capital that is necessary to expand in exchange for the majority of the revenue.

People

In many cases, people is a more constraining resource than money

The franchisee will source the people that will make them and your brand successful

Time

A franchisee can duplicate you, working on his/her side of the expansion investment as you continue to grow your business form the franchisor side.

Connections

In this conversation, the term connections refers to real estate connections. A franchisee will have a closer tie to the local market in order to maximize potential from the real estate selection. This is particularly important with international franchising.

When is a good time in the lifecycle of a business to start franchising? How do I know it’s time?

When you attempt to franchise before you have all of your systems in place then you are asking a prospective franchisee to take bet on you when you have taken only a limited bet on yourself.

Don’t franchise until you have the answer to all of the questions:

• What has made me successful? Why is my concept successful?
• When you know what it is that made you successful, then you know what you need to impart to others to make them successful.
• Why do customers like you?
• Why do customers come back?
• Can I duplicate a customer experience?

Do I have what it takes to be a franchisor?

What is your leadership style?

• Command and control versus collaborative
• You will be entering multiple long-term relationships. Are you ready to do your part in the relationship? Can you work well with others?
• Personality profile tests can help you determine your leadership style as well as evaluate how a new franchisee will fit into the system.
• Biggest myth in franchising: I don’t franchise because I want to have total control of the business. Franchisees have more incentive to follow a system standard than an employee
• If you are a command and control style of manager, you can still franchise but you won’t like it as much, and neither will your franchisees.
• Command and control franchisors will also miss out on many innovations that come from franchisees (e.g. paper cups at Starbucks, pan pizza, and the Big Mac)
• Most franchisee relationships last longer than the average marriage.
• To be successful in franchising a concept, you have to have both a business that is ready for franchising and a leadership team that is ready for franchising.

What is your growth strategy?

• Fail to plan, plan to fail.
• Be able to pay equal attention to both company-owned and franchise locations.
• Can you remove yourself from your business for 1-2 years and still have it operate efficiently? Do you have the infrastructure to franchise?

Segment 2 – Topic Segment

Franchising as a Partnership

Franchising is an extreme relationship and your franchisees will need your attention

Franchising is a bilateral relationship where each party should be able to learn from each other.

How to find the best franchisees: When you build a solid reputation, the people that you want will come to you.

Just because a prospective franchisee has something that you want (access to prime real estate or lots of money) doesn’t necessarily mean that they will be a good franchisee.

Look deeper into a prospective franchisee before you decide to accept of decline them. It is not just about access to money. It is about character and integrity. You want franchisees with the following characteristics:

• Character
• Trustworthiness
• Have something to teach you
• Open to learn from you

The relationship between franchisor and franchisee must be complimentary. If they knew and had everything that you know and have then why would they need you? If you knew and had everything that they know and have, why would you need them?

If all you are looking for in franchisees are carbon copies, then don’t franchise. You probably already have that in your corporate staff.

After you have brought in franchisees that are unlike you, then don’t forget that they are unlike you.

Examples of how franchisees with complementary management styles can benefit the organization:

• Price: Ted Swan in Lansing, Michigan – Introduced the coupon pricing model with pizza when nobody else was doing it. Ted had knowledge that corporate didn’t have.
• Place: Dick Freeland in Ft Wayne, Indiana – Discovered a method of expansion that had his future customers paying for his expansion costs.
• Promotion: P-zone by pizza hut – The campaign failed because the word P-zone was dangerously close to the Spanish word for nipple. The franchisees in Latin markets knew this – corporate didn’t.
• Product: Many product innovations have come from franchisees versus corporate.
• Purpose: The purpose of a franchisees business may or may not be complimentary to yours. This refers to the questions, “Why did they decide to become a franchisee?”
• Accept the differences. Just because differences exist between franchisor and franchisee, this doesn’t make you unequal.
• Demand that your relationship with franchisees be one of equality.
• Franchising is where servant leadership thrives.

Success in franchising takes more preparation than success in your own business.

• Inspect your success. What is it that made you successful?
• Spend time reflecting instead of projecting forward.
• Determine how you are going to transfer your knowledge to franchisees.
• Franchising is all about knowledge management.
• Know what you know. “If HP only knew what HP knows.”
• Put metrics in place that measure the activities that lead to your success.
• Know your benchmarks so that you can document them into a “playbook” that the franchisees can use to replicate your success.

Segment 3: Quick Draw

Jim’s favorite book – The Hobbit

Jim would love to travel back in time to see Leif Ericson – he is fascinated with archeology

Whataburger versus In & Out – WHATABURGER WINS!!!!!! Take that Mike!

Favorite movies: The Matrix and The Jason Bourne series.

iPhone all the way – Yahoo Sports is his most used app

• Texas Rangers
• Minnesota Vikings
• Iowa Hawkeyes
• Dallas Mavericks
• Texas Longhorns

If Jim had $1 billion, he would give it to his wife. Go figure.

Jim Richardson Contact Information

• e-mail: richardson411@icloud.com
• cell: 214-551-1514

Kit Vinson’s Contact Information

e-mail:  kit.vinson@franman.net
Phone:  214-736-3939 x1

Website:  www.franman.net

Listener Highlight

Angela Cote
Angela Cote Consulting Inc.
Business growth and franchise specialist
Victoria, British Columbia, Canada
www.angelacote.com

Books Mentioned in the Episode:

• Pour Your Heart Into It – Howard Schultz
• The E-Myth – Michael Gerber
• Can’t buy me Like – Bob Garfield

Doc Cohen was an absolutely fantastic guest on The Franchise Manual Podcast. If you miss this podcast you will be missing one of the best ones yet.

If you already know Mr. Cohen then I’ll bet that you will still learn something about him that you didn’t know in the “Get to know Doc Cohen” segment. If you didn’t already know Doc Cohen then you will definitely learn a lot about one of the finest men in the world of franchising. Find out why they call him “Doc”. Find out what Mr. Cohen has in common with Ray Kroc and Dave Thomas.

In “The Fun Questions” segment you will learn what Mr. Cohen’s favorite movies and TV shows are. You will be surprised when you find out. I surely was. (Did he say that he wants to be a zombie?)

Most importantly, in the topic segment, “Being the Best Franchisor from the Perspective of the Best Franchisee”, find out what advice Mr. Cohen gives to all franchisors in order to help their franchisees flourish and reach their success potential.

Special thanks to Jerry Darnell for introducing me to Mr. Doc Cohen.

Doc Cohen is a multi-unit and multi-concept franchisee, and he talks about how to be the best franchisor from the perspective of the best franchisee. Doc Cohen is the only franchisee ever to be inducted into the IFA’s hall of fame.

Timestamp:

00:02:00 – Get to know Doc Cohen

00:36:00 – How to be the Best Franchisor

00:52:00 – The Fun Questions

This podcast was inspired by a document written by Bob Gappa titled, “Understanding Franchising”. In this document, Mr Gappa defines the nature of the relationship between the franchisor and the franchisee. In this podcast Bob really shines as he is deep within his element touching on topics such as the history of franchising, the purpose of a Brand, and of course, Peter Drucker.

If you are a start-up franchisor then this podcast is a MUST – no question about it. If you work for an existing franchise organization then the contents of this podcast could really help you see where your comapny may have made a wrong turn in managing the relationship with franchisees – more importantly, how to correct those problems.

You can get a copy of this document directly from Management 2000 simply by sending an e-mail to m2000@mgmt2000.com. Or, you can call 800-847-5763 and ask for a copy.

Bob Gappa of Management 2000 explains in detail a paper he has written called “Understanding Franchising”. This paper details the nature of the relationship between franchisor and franchisee, the importance of using the proper language when talking to franchisees about their investment, and the true purpose of the fees that a franchisee pays to the franchisor.

Podacast Content Timestamp

0:00:51 – Bob Gappa Introduction
0:03:04 – Get to know Bob Gappa questions
0:27:29 – Understanding Franchising discussion
1:24:22 – “Quick Draw” questions and answers