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Financial markets are in a near-panic. Oil and gas prices set new records, seemingly daily. Financing is drying up, whether for consumers or businesses. Real estate prices continue their record spiral downward. Plummeting truck sales paralyze what’s left of “The Big 3”, while boat sales are at a 40 year low.

What a perfect time to invest in growth.

The Worst of Times Were the Best Of Times

Horrific times like these don’t come along often. But when they do, history shows that brave investors willing to leave the harbor and navigate tumultuous waters are often generously rewarded over the long haul.

Early 1990’s New England Real Estate: At the time, condo prices and commercial properties had dropped 50% in value in most markets (including some of Boston’s ritziest neighborhoods). Yet, there were few takers because people had been burned at much higher prices. People who did manage to scrap some money together were greatly rewarded.

The Stock Market: 1981. Our economy was in the deepest recession since The Great Depression. Short term interest rates were 18%. The stock market was sitting at 800, 20% below where it sat in 1966. People hated stocks then. Stocks proceeded to triple over the next 9 years.

Gold/Precious Medals 2000. Gold had an annualized return of -1% over the past 20 years. “Experts” said, don’t buy gold. Gold has quadrupled since then.

Think Expansion

When times get tough, people get scared. You should be thinking expansion. Consider the following areas.

Airlines: For those airlines not teetering on bankruptcy, at the very least, maintain your level of service, or if possible, expand into markets that need your service. A reduction in industry capacity will bring higher prices to offset higher fuel costs. JetBlue, and particularly, Southwest, now is your time.

Franchising: Ironically, franchising is often counter-cyclical. During bad times, many people search for something new to do with their lives (or are forced to by early retirement in the financial services field or the above-mentioned fields). Is your concept positioned to take advantage of the times?

Construction: Same lesson. Ratchet up customer service (which you should have done in 2005 by the way). If you managed to save any money, buy up land and equipment at fire sale prices and hang in there. Your time will come after most of your competitors have left (fled) the building.

Retailers: With the demise of Linen N’ Things, The Sharper Image and others soon to come, now would not seem like the best time to expand. Au Contraire. As these companies fold, vacancies will rise and occupancy costs are sure to fall. In the not too distant future, it’s possible that you’ll be able to lock in that 10 year lease at low market rates or, buy real estate that suits your needs.

Real Estate Investors: Markets are likely to get even worse, before they get better for Florida, Nevada and California, but it’s worth sticking a toe (or foot) in the water. Already, sales are up dramatically in Detroit as prices have dropped something like 40% in the last year. Even with the auto industry implosion, that’s good news. The wild card here is long-term interest rates. If inflation rears its ugly head, then prices will go even lower.

New Venture/IPO Investors: During the dot-com bust of 2001-2002, most companies that conducted IPO’s during the late 90’s failed. A less known fact: the companies that went public during the recessionary times of the early 90’s survived as phenomenal successes. Why? They had stood the test of time during the worst of times. The same applies now.

U.S. Stock Market Investors: During the late 90’s, the average P/E (price-earnings) ratio hit 25, very expensive by historical standards where 17 has been the long term average over 80 years. We’re now at a P/E ratio of 15. While I do believe we may be in for some more rough years, prices of U.S. stocks are no longer expensive. We may be in for a number of years before hitting previous highs. Use dollar cost averaging and you’ll be fine.

While it is impossible to time market bottoms perfectly, it appears that the environment is becoming more favorable for those willing to take the risks.

People often ask me which is the best franchise system. That’s a difficult question since franchising is represented in so many industry sectors.

There is one company that rises above them all whether we compare unit sales, customer loyalty, frequency of visits, customer service, employee turnover or productivity. If they open a location next door to your competing franchise, your next and best logical action would be to lock the doors, buy some plywood and board up your building to stop the hemorrhaging. If this company offered you a franchise, you’d beg, borrow and steal to buy one.

There’s only one problem. This tightly controlled, family run chain has never franchised their system since their founding in 1948.

Yes, we are talking about In-N-Out Burger.

Even if the company doesn’t offer franchises, all is not lost. There are a few In-N-Out attributes worth applying to every business such as:

Delivering Consistently High Quality Offerings – The Company’s founders never sacrificed quality for quantity. This is one of the reasons that In-N-Burger has expanded slowly over the last 60 years to just over 200 units. The company sources their food products from local farms. You can see the actual potato that will shortly become your french fries. Try that at Burger King or McDonald’s.

Providing Greater Value – People buy value, not necessarily low prices. In-N-Out Burger doesn’t need a “99 cent menu”, as evidenced by the large crowds that gather during peak times and drive-thru lines that wrap around the building.

Hiring Right - Employees are pleasant and cheerful with a genuine interest in serving you. Employees actually work diligently and efficiently, which is a little off-putting the first time one witnesses this phenomena in person. Is there something in the water? 

Contrast this with employees at a ubiquitous east coast donut and coffee chain offer classic service lines like “What youz want? (English translation: May I take your order?)” and “Zat it? (Does this complete your order?)”.

In-N-Out burger selects the right employees, not just warm bodies.

Compensating For Competence – There is a reason why In-N-Out Burger attracts a superior pool of candidates. The company compensates the right people well and provides unheard of benefits in their industry. Managers are promoted from within and receive compensation that commonly approaches and exceeds 6 figures.

Actually Caring – This is a tough one to teach, because you either have it or you don’t. You can’t teach people to care. At In-N-Out Burger, one gets the sense that the owners sincerely care about their employees. And guess what, the employees care back, take care of the customer and are actually happy and proud to work there.

Keeping It Simple – The simple menu doesn’t try to be all things to all people. This is quite reassuring in this day where they typical casual dining restaurant menu require a table of contents to navigate.

Simplicity means easier execution, reduced process time and fewer errors, resulting in greater consistency and excellence.

Developing a Cult Following –As a result of the above attributes, the company has made going to In-N-Out Burger a near-religious experience for its followers. The company even offers a secret menu for In-N-Out aficionado’s to add to the mystique.

Conclusion
None of these attributes are “secret”. Yet, few companies apply few of In N’ Out Burger’s competitive advantages.
If visiting an In-N-Out Burger isn’t on the list of 1001 places you’ve got to visit before you die, it should be. Visit and see what lessons you can glean from the ultimate un-franchise.

One common complaint a majority of franchising clients often site is the increasing cost and difficulty in finding suitable new franchisees. The reasons are many, but usually fall into one general idea: There are more franchise concepts all chasing the same pool of potential franchise buyers.

This three part series takes a look at how franchisors can reduce the cost of advertising, recruiting and selecting new franchisees. Part I discusses ways franchise companies can tweak their internal operations to increase their effectiveness in recruiting and granting franchisees, effectively reducing costs. Part II reviews the effectiveness of traditional franchise recruiting methods currently used. In Part III, I discuss innovative and alternative methods franchisors can effectively find the right franchisees.

At a recent franchise conference, franchise experts were touting the value of Internet advertising with one person boldly suggesting that if a company “only” had $100,000 to spend on franchise advertising(as if an advertising budget of $100,000 was small potatoes), to put it all into internet advertising.

At face value, the logic would seem to make sense. The proliferation of the Internet has made it easier for franchise candidates to conduct research, not only at the company’s website, but more likely at franchise opportunity sites where hundreds of opportunities are advertised. However, the internet’s convenience is a double-edged sword: the proliferation of information has made it difficult for many franchise systems to standout in a crowded marketplace. The result is an ever escalating cost of recruiting and selecting qualified franchisees.

When most emerging systems struggle to sell franchises even after spending significant funds on advertising, how can one explain the success of one particular franchise system that grew from 4 units to 200 units in less than 5 years with zero money spent on advertising? It certainly wasn’t their website which simply stated that franchises were offered “on an invitation only basis” and provided no contact information. Their industry is no cake walk. They are in a highly competitive and relatively mature industry. And it wasn’t a low initial investment that most people could afford with most locations costing at least $500,000 to open.

Don’t get me wrong, the Internet is a key place to advertise franchise opportunities. However, unless one has something good to offer, all the advertising in the world isn’t going to make the concept fly. In my work with emerging systems, clients and I evaluate existing operations before focusing on outside marketing and advertising venues.

Some of the best systems I have worked with have spent no money on advertising their franchise opportunity. In studying what made these companies successful, our research found that they each possess the following five attributes:

• Unique and Superior Business Model
• Professional and Differentiated Branding
• Strong Return On Investment and Time
• Effective Support Services/Economies of Scale
• Know Their Target Candidate

Unique and Superior Business Model
For many franchise systems, their main problem is that they simply do not provide a truly differentiated business model. With the unprecedented record number of franchise systems to choose from, it can be a great challenge to stand out in the crowded market place. New business models (online auction drop off sites, home meal preparation, etc) aren’t the only one’s affected. Old-line models (pizza, cleaning services, sandwich shops) face equal challenges.

In many cases, the leadership team has not taken enough time to ask the hard questions:

• What differentiates our concept from the competition? What makes us unique?
• What competitive advantages do we possess over the competition?
• How can our franchisees effectively utilize these advantages to trump the competition?
• How do we effectively communicate this competitive advantage with franchise candidates?

By the way, if your answer is “higher quality”, “greater value” or “more for the money”, you haven’t sufficiently answered the questions. Dig deeper, a lot deeper actually.

Professional and Differentiated Branding
If you want to know why so many franchise opportunities look derivative and tired, then look no further than at their branding. Usually the problem is one or more of the following

• The leadership team discounts the value of investing resources into branding because either they think that their branding is “good enough”
• They allocate their resources into other competing needs (like franchise opportunity advertising)
• The leadership team wouldn’t recognize a good brand if it smacked them in the head.

The bottom line is that many leaders would rather blow money on selling a mediocre franchise system than building an effective brand.

Mature systems appear to suffer from The Tired Brand Disease and yet their executives seem to be the only ones that are aware of this fact (ask most people about dining in casual dining restaurants and they’ll tell you that they are bored, if not fed up with the faux antiques hanging on the wall).

Want to stand out in the crowded franchise opportunity marketplace? Craft a differentiated brand that manages to unite the company’s culture and vision.

Strong Return on Investment AND Time
Many franchise systems use a modification of the mantra, “our franchisees are breaking even or losing money, but if we sell more franchises, we’ll make up for it in volume.” Apparently few former finance and accounting majors enter the franchise field.

Let me state the obvious: It’s much easier to grant franchises with profitable business models than marginal ones, earnings claim in place or not. Yet most franchise systems offer a marginal return for the capital and time invested.

The aforementioned franchise system has a very profitable business model resulting in people in their industry clamoring to buy into their franchise system. Success begets success. As franchisees began to make money, they want to open additional locations, resulting in greater sales to existing franchisees.

Continuously look for ways to increase the profitability of your franchise model. Questions to ask:

• How can we lower our cost of goods sold?
• What product/service mix will result in higher transaction prices and lower cost of sales?
• What expenses could be more efficiently handled centrally?
• What tools and technologies can our system employ to increase customer retention, increase frequency of use/visits, decrease staff time loads, reduce expenses, etc.?
• What methods can we utilize to shorten the time to breakeven?

Increasing the franchise model’s profits benefits both the franchisee AND the franchisor.

Effective Support Services/Centralization of Services
One of the keys to successful franchise systems is to centralize functions that offer greater economies of scale. Not only does this result in reduced costs and overhead for both the franchisee and franchisor, but it allows franchisees to more efficiently use their time to seek out new business, open new locations or simply to spend less time in their business increasing their profits/hours worked. The result is that franchisees make more money with less effort.

Whether the system is emerging or mature, we require that all clients revisit their support services annually as part of an overall strategic review of the business. The reasons are simple. The franchise system evolves and changes in response to market condition. Two, the company can utilize new technologies to make franchisees’ businesses more efficient. However, if you are not looking to improve, how will you know these systems exist?

During your strategy sessions, review what services, products, software, intellectual property that might be more effectively offered centrally to increase franchisee profits or reduce work demands.

A special note to mature systems: Watch your back. With the increased use of outsourcing for an ever increasing number of services, you don’t want to be left behind by a newer, scrappier, and more innovative competing franchise system.

Revisit Your Ideal Franchisee
If you want to catch fish, randomly throwing a line off the side of the boat won’t cut it (ask me, I’d starve if I relied on my fishing skills). Smart fishermen present the bait where the fish congregate and more importantly, when their hungry.

Whether the franchise system is a newbie or established, ask yourself, who is your ideal franchisee? Where does this targeted franchisee live and work? What are their worries, issues, psychological needs? Answering these questions will help you position your franchise system to solve the problems they are experiencing.

Once the franchise leadership team has completed a thorough review of internal operations, attention can be turned to reviewing traditional methods to attract and select the right franchisees. This will be the focus of Part II of this series.