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Jan, 01 2008

Gateway to modern business operations

`Since I do business around the world, it amazes me to see new franchise businesses started up almost the same way it was done over 25 years ago. It seems professionals, knowledgeable about franchising, continue to provide advice the way they have done fo

Today, most franchisors manage to establish 1 to 10 profitable outlets! Many from 10 to 20, some from 20 to 100, others from 100 to 500, few from 500 and up…. Besides, many franchisors also

• cannot bring themselves to the next level of franchising and large-scale operation;

• do not have a field service support programme;

• do not listen to their franchisees;

• are paying `big money` after 3-5 years in business cleaning up mistakes and failures;

• do not make franchising their lifestyle;

• do not know enough about franchising and do not make it a priority;

• copy other franchise systems and agreements instead of developing their own;

• accept master franchisees and franchisees based on their financial capability and not their personal profile, experience and know-how;

• establish few outlets in many countries/markets instead of being market dominant in one country/market at a time;

• are franchising in order to grow fast and let franchisees take the major risk;

• do not see the need for establishment of a company-owned pilot unit in new markets.

First generation franchising now history

In the past you were ready to start growing your business as a franchisor if you were the happy owner of a successful product and an operations manual and training guide to support it. That doesn`t work anymore today, because

• the old fashioned paper manual and training guide is not enough any longer;

• there is no point in practicing franchising in the future without focusing on human resources and people development;

• there is no point in growing franchisees without having a policy and platform on how to co-operate with each other;

• a product does not make the franchise system. You need a detailed concept to complement the product itself;

• you can`t operate a profitable global business without specific know-how about all markets you want to enter.

To many of you, growing quickly was a dream comes true, particularly if you had a strong concept and many people interested in buying it. The franchise fees and royalty were rolling in; your investment in building up your business was starting to generously reward you.

But the problems start to surface when you grow. How you support five franchisees is far different than 25 and more. The honeymoon period is over; your once happy franchisees start to complain about a range of things or products, the key concern being the lack of support they receive. This is not to say you should be babysitting them, however, you likely agreed to certain level of support, not just after they start operating their new business but on an ongoing basis as well.

This is one of the differences between the `old` ways of franchising versus modern franchising. Clearly, it`s not possible to practice modern franchising based on the old fashioned first generation of franchising method. It worked very well in the past but it will not work in the future!

Second generation franchising is here

Franchising is about growing from a local business to a national or even global organisation. Second Generation of franchising is a modern way of managing and operating your entire business, not only your franchise outlets, by using one-uniform, structured business format.

The second Generation of Franchising Programme consists of the following seven elements:

1. Strategic chain and policy platform

2. Local outlets operations programme (manual 1)

3. National field service support office programme (manual 2)

4. Global management programme (manual 3)

5. Corporate career programme

6. Corporate training system

7. Corporate IT-structure

Strategic chain and policy platform

Any chain, franchising or company owned, starts by having one or more profitable prototype outlets, you start the process by developing a strategic chain and policy platform. Even though you haven`t started to grow your business yet and decided how to do it, you need to define all aspects of the type of chain organization you would like to own and operate based on the performance of your already existing prototype outlet(s).

The first part of the policy puts into place a range of decisions and long-term planning including your partnership philosophy. It should also describe your future chain outlets and how you want to support these locally, nationally or globally as you are growing and expanding your potential business. The second part of the policy consists of feasibility studies, financial profit and loss forecasts covering future franchisees, master franchisees and you as franchisor. It also consists of a three years business plan with related road map.

The policy is your foundation for growing your business. The strategic plans will tell you what it takes – Before you start – that way you can do proper financial and operational planning and avoid lots of unexpected surprises down the road.

Remember, while it is ideal to establish your strategic chain and policy platform as part of your initial concept development, it is never too late to develop one! As an already existing franchisor, I strongly recommend you to get it done now. It will help you to identify and repair problem areas within your current operations, methods, systems and other programmes. It will also help you to avoid problems in the future.

Managing local outlet (manual 1)

Step 2 is for you to develop a modern local operations programme to be used in all your outlets by future franchisees, managers and employees. The programme will as a minimum consist of an operational manual (toolbox) covering all aspects of how to own and operate your outlets and a training system, HR management and development programme for your outlet staff.

In the past or `old` way of franchising, franchisees would get their pre-start up training and then some assistance to run their operation after opening. The amount of time assisting them varied based on the complexity of the concept. Now, in your mind, the franchisee is fully competent to run the business, right? Franchisees, like any of us, have their strengths and weaknesses when it comes to running a business. Help your franchisees to become successful business partners instead of doing the very basics, consider a gap assessment of your franchisee`s skills and then provide training to develop their weaknesses. Whatever you can do to upgrade their skills, knowledge and abilities will benefit not only them but you as the franchisor as well. When they succeed, you succeed.

Franchisees are your long-term business partners and will be operating their outlets for many years. They need to learn how to plan a business, start a business, manage a business and especially how to grow a business. Additionally, show them how to do business planning; give them additional tools and training so they can be successful right out of the starting gate.

Managing country (manual 2)

Step 3 is for you to develop a modern national field service support programme to be used by your entire staff within your national support organisation. The programme will, as a minimum consist of a field service, support manual (toolbox) covering all aspects of how to support your outlets and a training system, HR management and development programme for your head office staff.

The major outcome of a field support programme is a strong partner relationship. Apart from outlining how often you visit the operation, the purpose of each visit and the follow up associated with each visit, it creates an opportunity to be clear as to expectations from each party. As a franchisor, you have a lot at stake in terms of your brand and reputation and by having a strong field service support programme, you are able to ensure the success and profitability of your concept. It also ensures the franchisee is following the high standards of performance you have developed by being able to openly assess, measure and evaluate the franchisee`s management of your brand and concept.

From the franchisee`s perspective, such a programme clearly states what they can expect in the way of support and how they are going to be measured. It also provides a great way for the franchisee to provide feedback to the franchisor. All in all, it holds each party accountable for delivering: performance by the franchisee and support from the franchisor.

Managing world (manual 3)

Step 4 is for you to develop a modern global management programme to be used by your entire staff within your holding company that controls your entire franchise growth and expansion including how you support your future national organisations and master franchisees. The programme will, as a minimum, consist of a global management manual (toolbox) covering all aspects of how to support your countries and a training system, HR management and development programme for your executive global management team.

Apart from building up a successful local and national franchise system, you now have manuals etc that you can give to master franchisees when they buy the rights to use your concept in other territories or countries. The beauty of it is that you can charge more for the rights merely because you are giving them all that they need to immediately and successfully manage their backyard. Think about gets them up and going faster which can translate into higher franchisor fees. You also have confidence in how they will grow and manage your brand and concept as well as you will spend much less time sorting out problems and issues.

Corporate career, training programme and system

Modern chain operation is not only about having a great business concept. Franchising and chain operation is absolutely a people business! Without people, there is no chain, it`s that simple!

When your business is growing you need to grow your people too. As your organisation becomes bigger with the passage of time, you will like to expand via employees and managers who have been with you for a long time and who know how to run your entire business. To attract and keep outstanding employees you need a development, training and career programme covering your entire organisation.

You also need an IT system covering your needs from local to global, not limited to an EPOS system in your outlets or SAP system in your support office. Your 3 manuals and corporate training programmes have to be managed through your website so that your franchisees, master franchisees and employees from all levels of your organisation have easy access to necessary know-how in order to perform by excellence.


Second generation of franchising is like `building blocks`. You start by developing your entire modern chain structure using excellent and practical franchise and chain operations tools, plans, working methods, procedures and programmes, based on the latest industry best practices, addressing all aspects of managing and operating franchise and graduate to company-owned chain locally, then nationally and finally globally. You add from the 7 elements to your business as you grow! You don`t wait to develop parts of the 7 elements until you have failed because you didn`t have them in place in time!

As said earlier, modern franchising is more than arming your franchisees with an operation and training guide and some pre-opening training. That approach will get you only so far......and probably not far enough to grow a lasting, healthy, profitable concept.

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