3 Intentional Actions Reduce Your Franchise’s Risk
Business is risky. More than half of new companies don’t last 5 years. You have decreased your operational risks buying a franchise. The franchisor’s operations are tested and proven successful.
A Fire Chief’s Method to Identify and Minimize Inherent Risks
Business is risky. More than half of new companies don’t last 5 years. You have decreased your operational risks buying a franchise. The franchisor’s operations are tested and proven successful. However, even the most complete operations manuals do not eliminate the leadership challenges and risks you face. This article helps the successful franchisee develop systems to identify, evaluate, mitigate effectively, and sometimes use risk to your advantage.
The 3 general types of organizational risk as defined in the article Managing Risks: A New Framework by Robert S. Kaplan and Anette Mikes (June 2012) are:
- Internal controls, such as checklists and the operations manual details, broken down as minutely as possible for a given task, manage preventable risk.
- Your company’s missions and values play an essential role in keeping your employees focused. As a result, free-lancing within your franchise is reduced.
- Strategic risk is in your control. This risk includes your assumptions (as CEO of your franchise) on past performance to predict future growth. For example, from the outside, it appears Peloton committed significant resources based on the assumption that home gyms (required when gyms shuttered for the flu) are the growing trend. As mandates were rescinded and gyms re-opened, customers have proven Peloton’s assumptions invalid. Assumptions used to establish your business model need to constantly be challenged. Ask yourself and your staff, “What if we’re wrong? What is the franchise’s financial vulnerability if we are?”
- Systems are critical to determining your assumptions’ credibility when establishing future goals. In addition, higher-level analyses help the successful franchisee identify, evaluate, mitigate and contain risk events, i.e., create “pre-plans.”
- External risk is out of your control. Weather, politics, riots are not within your sphere of control. How your franchise prepares for external risk is ultimately your responsibility. In 2008, hurricane Ike blew through Ohio and left most of the region without electricity for 10 days. We had plans in place to overcome prolonged power outages. Our mission-critical alliances also had plans in place. As a result, we serviced our customers with minor disruption.
Be aware and openly discuss the 4 bias traps underlying all risk assessments:
- Superman bias is a franchise owner over-estimating their abilities and span of control. A brutally honest organizational assessment is required to understand your boundaries. Franchisees without self-awareness are bound to drift on the waves in the middle of the Pacific Ocean. They think they have the power to control the last 30’ wave that simply jostles them onto the next bigger wave.
- Range of Outcomes bias refers to underestimating the range of possible outcomes for a given situation. Adverse possible outcomes are especially troubling for your franchise if not considered. Open and respectful conflict is required to make fully informed decisions.
- Confirmation bias unjustifiably relies on information favorable to the organization’s position. Conflicting information is disregarded. Dismissing contradictory information leads to false justifications when unfavorable decisions are enacted. False justifications are the basis for the double-down effect so often witnessed with ineffective governmental policies. An overbearing franchisee exacerbates confirmation bias suppressing contradictory analysis and espousing “group-think” outcomes.
- An organization suffers results bias when warning signs (negative indicators) are dismissed as false alarms. The “false alarms” are ignored and fester into major organizational obstacles.
Identify and minimize the bias risks inherent in your strategies and decision-making.
Risk is embedded in your leadership decisions in addition to your company’s physical and intellectual assets:
- How do you know when your franchise is ready to expand its territory? Or when to hire an additional sales associate?
- When is the best time to purchase additional locations with the same franchisor?
- How can your company diversify its franchise portfolio?
- What assumptions are the basis for your strategic planning?
Ask the following 2 questions to help determine the range of risk in your decisions:
- What are the best and worst possible outcomes?
- Using metrics and experience available, what are the estimated probabilities of each extreme outcome occurring?
In 2006 ImageFIRST Cincinnati was profitable and steadily growing. As a result, I began discussions with the franchisor to expand the Cincinnati/N. Kentucky territory to include the Columbus region (90+ miles from our operations center).
The best-case scenario opened a more significant market opportunity and benefited from the increase in total market. My team identified 3 main risks:
- Cash flow concerns,
- A consistent sales and marketing presence,
- Impact on customer service scores.
The main worst-case outcome was identified as a significant drop in customer service scores due to the distance. However, my team understood the benefits to them and the company. We partnered with a local, reputable vehicle maintenance Company A. As a result, Company A could respond to a broken-down delivery vehicle within an hour of notification.
The total patient population doubled from 1.5M to 3M. The opportunity for steady growth was almost entirely in our control. The developed sales systems included having our salesperson in the area at least 2 days per week. A deal was worked out with a hotel to minimize cost AND ensure 2 full days of sales activity in the new territory.
ImageFIRST Cincinnati successfully expanded, and the Columbus region grew to 40% of total revenue.
3 steps to reduce your franchise’s risks:
Educate, train, and develop your employees and you to reduce preventable and strategic risks.
- You reduce the unknowns for your team. The franchisor’s operations manual is the best source for employee education.
- Experiment with your processes and systems. Start with small tests and scale when successful.
- Your employees’ confidence increases with proven professional development. Additionally, your confidence in your team increases.
Grow AND develop a deeper and wider network.
- A more robust network provides valuable resources and alliances.
- Hire a coach to expand your thought processes and hold you accountable for your actions. Franchisors base their advice to franchisees on the best practices of their mature operation and location. However, sometimes their best practices are not an option for franchisees.
- One-time transactional interactions are transformed into life-long personal investments when you grow and develop your network. Your developed network increases the depth of your available resources.
Practice your skills often and develop new ones.
- My daughters were competitive gymnasts for years. They would learn new skills and fail for weeks. Miss Robin was always there to ensure they didn’t get hurt and show them how success feels, spinning three times in the air and landing without a step. During each practice, Allie and Steff performed all skills. New skills were added as a part of each session also. Over time new skills weren’t new, and their confidence grew exponentially.
- Reading articles like this is only the start. Intentionally practice new skills you develop daily.
- Know when, where, and how to get help. Requesting help is not a natural skill for leaders. The best time to look for help is when everything is running smoothly. For example, develop more effective recruiting and interviewing skills before you need to hire a new high-performing salesperson.
- Identify and have a pre-plan for all risk events. For example, Terrace Park has 4 significant high-risk buildings in a fire event; a church, a school, a gas station, and an art restoration company with a processing room full of dangerous chemicals. Although the exact emergency isn’t known for a particular call-out, the Terrace Park Fire Department has pre-plans available to the company officer when called to each location. The pre-plans guide his decision-making for any emergency.
- Lessen the risks to your franchise by identifying each risk and how you can minimize adverse effects.
You can’t control all of the risk associated with owning a business. You can, however, prepare your business and have systems in place to lessen the impact and thrive. Develop risk assessment systems for your particular franchise. You’ll be better prepared to address risk of any kind with a system already established and proven.
Thank you for taking your time to read my work. I would appreciate a comment or send an email about one insight from this article that made you pause to think. Luke@BellaVistaExecutiveAdvisors.com Copyright 2022 Bella Vista Executive Advisors.
Luke Frey improves franchise owners’ businesses where corporate support alone fails. He brings 26+ years of varied professional experiences including 20 years as a franchise owner of ImageFIRST Cincinnati, 6 years as an industrial engineer for a Fortune 250 company (3 while living in Honduras, C.A.) and 19 years as a volunteer firefighter. All of these experiences, in addition to his drive to learn, have brought him to be a positive driving force for other franchise owners’ successes. Luke is currently a member of the Center for Executive Coaching and is in the final publishing phase of his first children’s book. To learn more about Luke and how Bella Vista Executive Advisors can help, please click HERE www.bellavistaexecutiveadvisors.com