The holy grail of franchising is to capture every input to the system, and multiply it: Every unit of time, money or effort is an investment in the continued growth of the franchise. That is, unless the input is wasted (and it often is). Poor performance by franchisees leaks revenue out of the system, reducing the franchisor's ability to deliver on the plan. Likewise, ineffective franchisor decisions and inefficient processes soak up resources, without imparting the intended value in return. Either way, leverage is lost.

 

For better or worse, the results of both franchisee and franchisor efforts are multiplied, and their effects compound over time. It's a powerful principle that makes franchising worthwhile. But it's also terribly unforgiving, and a primary reason why some franchise systems never seem to reach a point of sustainable growth or profitability. The problem can be difficult to diagnose, even though it's hidden in plain sight.

 

Borrowed from the world of economics, the 'fiscal multiplier effect' is the idea that some amount of revenue, when strategically reinvested, can do more for a system than if the money is taken as profit and redistributed wherever it might otherwise go. Essentially, an economic system will actually be healthier and richer in the long run after some initial spending starts the ball rolling, creating a virtuous circle. The cost of a new factory, for example, can pale in comparison to the income generated not just by the factory, but by the neighboring businesses that grow up as a result.

 

In franchising, we believe that the investments a franchisor makes into the system will pay out many times over by nurturing the franchise's own economic system. Starting with creating the business concept, to supporting it's growth, continuing to support effective operations, and protecting the brand, franchisors impart great value. Franchisees agree. That's why they willingly pay franchise fees, start up expenses, royalties and national advertising. They also believe that spending their time and money this way will yield better results than making their own business investments. They are seeking to leverage the advantages of the system.

 

Unlike the fiscal multiplier, however, the 'franchise multiplier' works in reverse, too. In normal circumstances, businesses are able to capitalize on any potential source of revenue, and any potential resource that could help to generate that revenue. Franchises, however, are tightly restricted in this regard. That means, while beneficial results can multiply across the network, lousy results almost certainly do.

 

The key to understanding the franchise multiplier is that there is no silver bullet, but there can be a silver torpedo. In other words, there is no single solution that makes a system great. It's multiplying all the little ones that add up. However, multiplying just one undesirable result can, in fact, damage an entire franchise network, and multiplying undesirable results is much easier to do.

 

When the result of any particular input is different than intended, chances are good that it is helping to pull the plan off track. For example, if a training program fails to create the intended behavior at the franchisee level, the time and money spent on training is not just wasted, it creates a deficit in projected earnings, by impacting franchisee profitability, and a vicious circle is created.

 

Similarly, consider how ineffective support initiatives can actually reduce system revenue. When a support team member focuses a significant portion of time trying to improve a struggling business, it's not uncommon for that support to cost much more than the contribution that franchisee ever makes to the royalty stream. If a support initiative does not pay for itself out of improved earnings, that money is lost to the system, as is additional money paid by other franchisees to subsidize that franchisee's support. It's not a enough to chalk up support investments to the ol' 80/20 rule. It may be normal to think that way, but it surely isn't profitable.

 

Add up the instances, the time and people involved, and it becomes likely that small deviations create big consequences. There really is no such thing as an isolated incident. In a franchise network, those deviations can end up costing thousands, hundreds of thousands, or millions of dollars. These don't tend to be willful or obvious deviations, because it can be so difficult to know what actually constitutes a 'deviation' at all.

 

Only with the help of a thoroughly documented system can anyone identify deviations. We aren't just talking about having a manual and satisfying the basic legal requirements. Everyone does that. We're talking about cloning, or exact replication. Few bother to understand what that even means.

 

Cloning makes it possible to precisely duplicate positive outcomes by defining the specific standards under which the entire system operates. Cloning allows both franchisors and franchisees to measure, benchmark, iterate and innovate. It allows a franchisor to identify and eliminate harmful deviations with exacting precision, wringing more profit from every choice. Only by cloning everything does a franchisor gain the leverage the business model is intended to create. Yet few franchisors apply the cloning principle, especially early in their growth. Why?

 

Franchise executives are typically the same folks who developed the proof of concept in the first place, and that's part of the problem. The entrepreneurial spirit it takes to create a business from scratch is entirely different than the detailed analysis and implementation that effective franchising requires. Because young franchisors are small businesses, still very much under the influence of the founders, chances are they are disinclined to spend the time and money that cloning takes, when growth is the objective. And there's the trap: Growth is not the real objective, even though it ends up taking precedent in strategy. The real objective of franchising is fail-safe business practices. 

 

Growth provides cash and buzz that together lead to more growth. It's a “house of cards” approach that is, amazingly, more common than not. Cloning, on the other hand, provides the basis for profitable, sustainable business operations, franchise owner satisfaction and long term stability. Cloning makes solid growth possible, while rapid growth can destroy cloning efforts, despite the best of intentions.

   

The point of cloning is not consistency for it's own sake, nor is it to undermine franchise sales objectives. Cloning is what the most effective franchises actually do. It's what creates real leverage, multiplying every positive outcome at a rate much higher than any deviation that can drain the system. Far too many franchisors don't believe they can afford to clone their processes. The truth is, they can't afford not to.