Heavyweights Tell How to Avoid 'Unforced Errors'
From left: Tom Coba, Joe Bourdow, Stuart Mathis and Amit Pamecha have formed Premier Franchise Advisors. The men have founded or led brands including Subway, Dunkin' Brands, Domino’s, The UPS Store, Valpak, Service Brands International and FranConnect.
Amit Pamecha and Joe Bourdow have seen it all in franchising, mistakes and triumphs alike, and have now joined with two other partners to form Premier Franchise Advisors. Their goal is to help franchises and private equity firms avoid the former and achieve the latter.
Pamecha is founder of franchise software maker FranConnect and Joe Bourdow is former president of Valpak, among many other things. FT asked them to share lessons learned.
FT: What are some common mistakes you see franchisors make?
Joe Bourdow: That’s a full-day seminar. Many times it’s what I call unforced errors. There is a breakdown of communication. There is a poor choice of words in a written communication, any number of things not corrected can create a simmering problem that eventually becomes a significant problem.
One other specific area that seems to pop up very often is a franchisor with an unrealistic view of how quickly a new initiative can be adopted across a system. That oftentimes causes a breakdown in trust and cooperation among the parties. Just having another set of eyes in the C suite on a regular basis, in the form of an advisory board, can see problems coming down the road that folks close to it can’t.
Even in cases where folks close to it are experienced, sometimes you’re blind to obvious problems.
FT: You talk about improving unit-level economics as the first priority. How can you do that?
Amit Pamecha: More and more franchisors acknowledge how critical the unit economics are, now that Item 19 has become a central focus. Oftentimes at the franchisor level they’re not talking enough with the franchisee, to really know what makes them tick, and essentially go in and implement things that could drive those unit economics.
It could be something completely driven by the franchisor, like marketing and brand recognition, and there are other things that you could do by choosing franchisees that really want to grow the system.
Often times, a franchisor will award franchisees that will only do $200,000 in sales, and then the whole franchise will be limited. So it’s making sure there are those things I can do, and you can do, to make more money.
Some private equity firms focus on unit economics, and others focus on the deal. If you do the data analysis of some of the firms that have been taken over by private equity, the growth has kind of stalled, and the reason is there’s more focus on the royalty side of things, rather than how can I make the franchisee more successful.
The first thing is the product and the service, whether it’s the pizza you are serving or the carpet you are cleaning, you need to provide a satisfied customer base. Oftentimes that gets overlooked when you have an established brand, because you already have so many units and people stop re-inventing. And the greatest example is the Domino’s ad and the CEO came out and said, ‘our pizza sucks.’ Often both parties are looking at each other in terms of who brings business to the system.
FT: Joe, what can you add about unit economics?
Joe Bourdow: Any brand I work with when I’m getting to know it better, it’s to identify those franchisees who are significantly beating the model, they’re the top 10 or 20 percent, and really trying to understand what they’re doing differently. People who are doing a lot better than the system—you can learn a lot from those people.
FT: What’s one lesson you’ve learned about growing a successful franchise?
Joe Bourdow: I was taught years ago by the fellow that hired me at Valpak, that the most important thing was what was between the ears of our franchisees. Again, if you have solid alignment, lots of participation, lots of listening, and making sure that you’ve got to do it every day. You cannot have unforced errors, you’ve got to communicate freely and openly and with transparency, and the whole goal is to have your franchisee fully committed to their own businesses and helping to build the brand. Just don’t get in the way of the process.
Amit Pamecha: What I’m always struck by, how every second brand is making the same mistakes over and over again. My take is, this probably comes from the fact that a lot of these brands are entrepreneurial-driven, and part of that comes from, and I’m guilty of it too—we feel they have all the answers. I don’t want to sound self-serving here, but I’m always struck by why franchisors do not surround themselves with other people who essentially can solve a lot of their problems, and not make the same mistakes that other have made in the past.