Reopening: It’s more than royalty flow

Recently, I was asked what it would take for franchises to reopen as the pandemic subsides. I’ve watched several webinars, read many articles and talked with clients and many franchise friends and the only true answer that I can give is that I don’t know. 

First, we don’t know that the pandemic is subsiding. but we can only hope that it is. We don’t know what the long-range changes are in operations restrictions and customer comfort levels. 

I leave it to the expert franchisors to understand their operations and make the right decisions for day-to-day activities and the future of the brand. But there are other things to consider as we go forward. 

Let’s start with the foundation, if you don’t have that basic foundation how do you make a plan for what comes next?  Go back to your roots; Go back to your founding principles and build on those. 

Mission statement

A good mission statement is a statement of purpose; It explains why the brand or entity exists. It should define your aims and values, your corporate philosophy and your culture. 

It can be difficult to craft a good mission statement and very often brands do a slapdash job at best, but without a touchstone such as a mission statement, it’s harder to rally your staff and your franchisees around a principle that is bigger than the emergency in front of it. Who are you as a business and what does the brand stand for? Answering these questions and revisiting your mission statement now can help guide your direction in the future no matter what the result of reopening is. It’s also a key piece for vetting your franchise prospects now and in the future. That prospect needs to align with your mission before they are brought into the system.  You may find it necessary to create two mission statements: one that is consumer facing and the other that is for the franchisees and your employees. 

Value statement

The values statement grows out of the mission statement and calls out the values that you ascribe to the brand and anyone you bring into it. Clearly defining the values that the brand represents to the consumer, to the franchisee and to the employees helps make good decisions and to keep you on course. When asked to address a difficult question or to make a difficult decision, look at the list of values and ask yourself if they are supported by the decision you’re going to make. Very much like Rotary international’s four-way test, your mission statement and your values should be used as determining factors. Again, it’s a great tool for choosing future franchisees because you want people who align with the same value system that you have. Skills can be taught but values come with the human. Candidly, most franchisors don’t give this enough thought, but it is a critical piece of foundation.

Vision statement

Vision statements change with the times and with circumstance and perhaps this is a good time to revisit that vision and adjust it to meet the current situation. But your reason to exist and the values that support that reason and are supported by your existence should not change radically based on outside influences. How you deliver on that mission might change but not the core principles. 

Of course, it’s time to evaluate changes that were made in the last 60 days and determine how much of those should be absorbed into your operating system now, what is sustainable, what would it cost the franchisees to retrofit and go back to the original business model and if your temporary change fit into the new normal. I’ve talked to quick casual food brands that are rethinking the sit-down model; all restaurants are looking at menu changes and supply chain modification, retail using more online ordering …. Again, not knowing what the results of the reopening will be and what the long-term results of this particular virus are, this wise franchise system is simply looking at whether the square footage for sit down restaurants is the best long-term play, for example. You have all been looking at alternatives and made changes and now is the time to do a deep evaluation as to whether they are necessary and or sustainable.  And more.

Fees

Let’s start by saying, on the upside, never before have franchisors had such a reason to demonstrate the value of the brand to the franchisees and to drive home the reason for fees such as royalties and marketing.  Without them, there was no way to support the franchisees, create new messaging and innovate, especially with sales being down.  Are they enough?

It’s time to look at what it took to do all that transpired in the last 60 days and recalculate.  Looking forward, are the fees adequate?  Don’t forget to look at tech fees, call centers, third party software, and additional support.  Don’t look at the increase as a way to recapture what was lost during this, but to be in a position to weather future upheavals and be strong.  Most of the changes are not retroactive – they will be borne by the future franchisees.  Talk with your accountant and lay out a long-range plan that works well and is a good tactic with ADC rule 606, too.

Item 19

This pandemic hit as most brands were winding up their annual registrations and there were many questions about financials and Item 19.  IFA hosted an excellent webinar with “A Special Question & Answer Session with Franchise Regulators” Dale Cantone and Therese Leets in which this was addressed.  Bottom line: what you presented then, and today’s realities are very different and there may be a need to change because disclaimers are not allowed.  We strongly advise you talk to counsel.  Franchise development is heating up, so be prepared and stay as safe here as you have been with your customers on the front lines.

Insurance

There were many webinars and email alerts about insurances and whether or not they covered losses from pandemics.  The answers were not always comforting, and it is certain that things will change.  Be ready.  If your insurance advisor hasn’t reached out to help yet, find someone who will.  It’s time to reassess all your insurance requirements and evaluate how they protect you and the franchisees.

Training

It might be wise to switch much of your training from live to online to limit travel and physical exposure bearing in mind that, as architect Lois H, Sullivan said, “Form follows function.”  Don’t allow yourself to be seduced by the glamor of high tech if it doesn’t enhance the training outcomes.  If distance learning is what you need now, look into how your material can be broken out, tested, presented, blended with in-person skills training.  Look at the ramifications of offering this if it is not what is promised in your disclosure document.  Consult your legal counsel for advice for short term versus long term solutions.

Real Estate

First, take a look at your square footage requirements – does it still work?  If you are in the fitness or beauty space and will have to space out clients, do you need the same amount of equipment and space?  Does your sit-down dining concept need more to account for the space between tables?  It’s time to reassess and change the Item 7 numbers.

Take a look at your lease addendum.  Is there anything that can be added there for better protections and communications?  Look to add some protective language for pandemics and other large-scale disasters.  Talk with your exclusive agents, landlords, or real estate advisors.

Marketing

You have already changed messaging to adapt to the pandemic, and now it’s time to change again.  Change the messaging to the new model, the new consumer “normal.”  Ask for your franchisees’ input about customer feedback and communicate the changes clearly.  This is not the time to break trust with your franchisees, make the pillar of communication stronger and it will carry you through the changes that have yet to manifest themselves.

It’s also time to change your development messaging to reflect the new model that accommodates social distancing and other precautions.  Have your brand culture shine through as a reliable and trustworthy beacon in these tumultuous times.  We all crave stability now and your strong commitment to your values and mission can attract those who were lost in their company’s panic.

Closing thoughts

It really is true that we are all in this together, but we won’t all travel the same path.  Those brands who know who they are, deeply understand their financial model and have core values to guide decisions will fare better.  Take the time now to shore up your foundation then build.  Life will be different, but that can be good, too.

If you need help in locating professionals for any of these services, please contact me at maryann@franwise.net.

fcx-logo

When you are ready to expand or sell, meet the people with the funds and franchise expertise who can make that happen at Franchise Capital Exchange. It is an invitation-only event; ask us about your invitation.

Request an Invitation

Visit franchisecapitalexchange.com

Contact us

Don't hesitate to reach out!