Data…Your Most Effective Guiding Light

There are long-term real estate experts who will stand at a site within a market under consideration and just ‘feel’ whether it would or wouldn’t work. At the other end of the spectrum there are finance experts looking for a model to perfectly forecast the sales and returns for each potential location. Admittedly these are the extremes and I genuinely believe real estate development is both an art and a science as has often been said.

When emotion-filled debates occur as each person’s gut is telling them something different, you know there must be another way; there must be the potential to reach a more fact-based decision. For those of you who tend to be more science-based, whilst modeling solutions continue to become more sophisticated, I challenge any forecast model able to consider absolutely everything affecting the success of a specific unit and subsequently predict a future unit’s sales and returns perfectly.

In my experience, even if forecast models don’t provide the exact answers, the chance of success is far improved when franchisors and franchisees arm themselves with all available data and models and assess the resulting insights against their gut feelings.

For this to occur, all measurable performance-impacting factors need to be tracked and taken into consideration for each location. Each factor needs to be tracked consistently and collated across as long a timeframe as possible. With COVID impacting consumer behavior as much as it has, and with the uncertainty around future consumer behavior, I’d recommend considering data from both pre and during COVID times and ensure the ability to update analyses frequently over the next year until a new norm is reached.

As a franchisor, the first step in the process of assessing a new location is ensuring you have solid alignment on development and financial goals (internally and with your franchisees). You also have to identify the questions you need to answer to help achieve those goals.

Next, you need the right tools, funds, and resources to answer those questions, to:

• Collect and collate a plethora of data consistently and longitudinally

• Analyze the data and correctly draw out insights

• Understand the limitations of those insights (and watch for potential false inferences)

The last step, without which all the data and analysis in the world is worthless, is to ensure you have a team with a trust-based relationship with your franchisees. This team needs to be able to share, collaborate and discuss the findings and subsequently agree on next steps. With the right franchisee/franchisor relationship, franchisees will not only listen to the insights and your perspective, but also add to them by sharing data and information only available to them. Once you have achieved this level of engagement, the ability to align on the path forward is far more straightforward. Collaboration and fierce alignment provide the quickest path to action and hence growth of your brand.

Remember there are no guarantees, and there will always be factors able to impact results you’re unable to fully measure. A struggling store manager can cause a great site to underperform, and a strong manager can make a marginal site incredibly successful. It’s important to evaluate and understand any unpredictable and unmeasurable factors and refine your perspective over time. With those additional learnings combined with solid data analysis, you’ll be in a far stronger position to make informed and reliable decisions.

Growth is predicated on past results and an ability to predict the future. Optimizing the use of data will light your path to success across any industry and geography.

Listen to Learn From Your Franchisees

As you all know, any relationship requires ongoing communication. But the focus for a franchisor should be on listening and learning from your franchisee’s first.

As the franchisor there’s a tendency to believe you need to have all the answers. There’s nothing wrong with this theory, but it’s a significant weight to put on your own shoulders. If you establish a team of corporate experts who believe they alone need to have all the answers, their collaboration with your franchisees, your field experts, can be significantly limited. Believing the brand’s corporate team need to have and share all the answers can lead to a lot of telling and little listening. Dismissing the true depth of experience and knowledge from the franchisees can be a significant loss to your organization.

There’s no one better able to share the reality of opening and running a unit of your brand in a specific market than the franchisee. Team members working in an outlet and engaging with the customers daily, can provide broad and real feedback on customer likes and dislikes as well as their challenges and excitement about the brand. The construction teams building the units can offer suggestions on how to optimize capital spend. Feedback on how to lay out and set up a unit most efficiently and effectively is best described by those that have worked in them. There’s no one better able to tell you about potential competitive threats or opportunities than the teams that have observed them in their local market. There’s so much depth of insight available from the franchisees and their teams that not actively listening to them shouldn’t be an option.

In my experience, within a franchisor organization there are usually a couple of teams most connected to the full breadth of franchisees. The operations and development teams are generally on the front line interacting with all franchisees throughout the year. You will hopefully have already established these teams based on their excellent relationship-building and communication skills. They’re usually the first point of contact and spend hours engaging with the franchisees and their teams, very often on long days with a considerable amount of wind-shield time. They often have little choice than to hear everything, but the best ones truly listen, recognize themes, consolidate the learnings and provide it back to the broader organization. The question lies in what happens next. To truly optimize the collection of these insights, the broader organization also needs to be ready to listen. The organization needs to have a forum for the feedback; the internally focused experts need to believe there’s value in listening and they need to be willing to incorporate these insights to help them provide better guidance for the whole system.

Beyond the failure to benefit from specific experiences, there are other risks from not actively listening. The relationship with the franchisees will be dysfunctional similar to any other relationship – a lack of active listening can drive disengagement and a loss of trust. Franchisees can become set on believing the franchisor must have all the answers and anything that doesn’t work is solely the franchisor’s responsibility. The franchisor’s front-line operations and development teams can also be challenged. It’s near impossible to maintain a positive attitude for any length of time when positioned between a franchisee who’s trying to share and a franchisor who isn’t listening. These teams can stop being able to do their jobs effectively due to their anxiety in trying to resolve the situation, by only seeing either the franchisor or franchisee perspective, or from disengaging from communication completely.

It’s critical to work collaboratively with the franchisees to build solid relationships, uncover best practices and determine the most effective and efficient way to improve and grow the brand.

Focus on the Long Game

I don’t think it’s difficult for franchisors and franchisees to agree on growth as a long-term goal for any brand. Growth drives consumer awareness and engagement with the brand, provides increased marketing funds (thereby doubling down on consumer awareness and engagement), and ultimately delivers incremental revenue streams for both parties.

But all growth shouldn’t be considered equal and no growth should be rushed focusing on short-term goals. Growth of poorly built or operated units that damage consumer perception can reflect negatively on the entire system. Growth that’s not economically viable for the franchisees may increase your unit count in the short term but negatively impact the health of your franchisees and destroy long-term growth plans. If franchisees struggle financially with a new build, they will soon lose their ability and/or willingness to run, maintain and remodel their current units.

There’s an extremely important principle that can get lost in the drive for accelerated growth… it’s crucial to keep the franchisee’s return on investment as the cornerstone for all growth plans and expectations. As the franchisor, there is no doubt at some point you’ll want to ask your franchisees to invest more capital towards new equipment, remodels or new units. What we need to remember though is that there is a plethora of opportunities available in which they can invest their capital. To drive the growth of any brand, franchisees need to be financially satisfied with the investments they’ve already made. This is not to suggest every individual investment required of your franchisees should provide immediate high returns (every brand is reliant on continued development and maintenance of the current units for their long-term success), however, the size of the investment necessary to build new units will always require stronger returns.

There’s obviously no guarantee with any new build and as a franchisor you absolutely can’t guarantee success, but you can arm the franchisees with all the information and resources you have available. You can share with them your experiences and those of other franchisees and you can establish a build-out and operational platform focused on their economic returns (as well as the brand image and experience). Most importantly, based on everything you know, you can make sure your ask of your franchisees is something you’d be willing to do yourself and that you truly believe will be financially successful. Similarly, you can make them aware of any concerns you have about something they’re driven to do themselves. The communication needs to flow both ways and both encourage and discourage investments based on a full review of the opportunity.

If your franchisees are incredibly successful which is reflected in their lifestyles, this is to be celebrated and not resented; nor should it create a filter for future conversations or expectations. You have achieved your goal and the franchisee has achieved theirs. This is something to be built upon. Economically viable growth is a virtuous cycle - your franchisees will want to grow more, investors and banks will support the growth, and it’ll be easier to recruit new franchisees should you want to. A positive financial relationship for both franchisor and franchisee is essential for sustained long term growth.