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Bubble up economics

Four years ago, a Mama Fu’s restaurant in Charlotte, North Carolina, developed a better kids’ menu than the slightly exotic fare the Pan-Asian concept restaurant chain offered at the time. The new Dragon Tails (chicken tenders with macaroni and cheese) and Ninja Noodles (teriyaki chicken with noodles) were a smash hit, and soon became a staple at all 13 Mama Fu’s units. “That was one of the bigger franchisee ideas that helped our brand,” says Randy Murphy, president of Texas-based Mama Fu’s. “It really helped us become more of a family-friendly restaurant.”

Mama Fu’s kids’ menu joins the Big Mac and the Egg McMuffin as examples of franchisee innovations that improved a brand. But fostering franchisees’ ideas can conflict with the central advantage of franchising: closely adhering to a formula that works. Successful franchisors find a balance between the two opposing goals. After all, entrepreneurs looking to start their own business often buy into a franchise. But franchisors aren’t looking for entrepreneurs—they want operators, someone to stick to a formula and execute. Success often means figuring out how to channel those entrepreneurial energies into improving the brand as a whole. “It’s important that you support franchisee efforts and don’t squash them,” says Murphy. “Otherwise they might not follow you on the next change you tell them to make.”

Just keep talking

Good communication is key in this effort. “McDonald’s is a perfect example of a successful franchisor that has done an excellent job of working with its franchisees,” says Alisa Harrison, a spokesperson for the Washington, D.C.-based International Franchise Association. “There’s regular and constant communication, because both franchisee and franchisor clearly understand that they need each other.”

So how do they do it? According to Harrison, most large franchises establish an advisory board to ensure that ideas are exchanged productively. Some smaller franchisors create ad hoc committees to address particular ideas or issues. “As we look to make menu item improvements or system improvements, we create a committee and ask a handful of restaurants to participate,” says Ashley Morris, CEO of Las Vegas-based Capriotti’s Sandwich Shop. “We use them for feedback and testing, and they become an important link to the rest of the franchisees.”

Of course, not every franchisee idea will be the next Big Mac. The committee process allows franchisors a transparent way to assess and discard ideas that don’t work. Morris recalls one such instance involving a new breakfast menu. “A franchisee put together an entire breakfast menu and did all the recipes and planning,” he says. “We put a committee together and focus grouped it before ultimately deciding to table it.”

If distrust sets in, communication inevitably breaks down. That can lead to franchisees feeling neglected and potentially deciding to halt any efforts to better the brand. Worse yet, it can lead franchisees to take matters into their own hands by experimenting with products and services not approved by the franchisor. Both scenarios represent a fundamental breakdown of the franchise concept.

Build the brand

As the wheat bun incident shows, communication and trust aren’t enough to keep franchisees all pulling in the same direction.

Unless you want a revolt on your hands, franchisors must work to keep the brand fresh and moving forward. Most of the new ideas Morris has implemented in the last few years have come from the top down, rather than from the bottom up—something he does by design. “Franchisees notice that you are working hard to take care of the things they are concerned about,” says Morris. “That helps develop trust.”

Randy Murphy of Mama Fu’s has a unique perspective on the franchisor-franchisee relationship. He was a multi-unit Mama Fu’s franchisee before taking over the entire chain in 2008. He felt the brand was suffering under the previous franchisor, who he says took a laissez-faire attitude toward brand management. To protect his investment, he decided to take control of the entire brand.

He uses his past as a franchisee to strike what he sees as a fair balance. “We take an 80/20 approach to brand management,” says Murphy. “You know franchisees will follow 80 percent of the brand guidelines, and as long as the other 20 percent doesn’t detract from your brand, then it’s okay to let that happen.”

Julia’s playbook:

By nature franchisees are entrepreneurs.

In my experience that means they are creative, have a natural curiosity and always are looking to “raise the bar.” These are some of the traits I love about franchisees and why I prefer a franchise system. Franchisees naturally challenge the franchisor—and that is good for all concerned. They are always asking “what’s next?” or “how can you help me today?” They make our systems and processes better. In general, they make us better.

The key is that both parties must work collaboratively in a partnership based on trust, mutual respect and shared values. Neither franchisee nor franchisor has all the answers. A successful franchise system will encourage creativity and provide guardrails to work within. Whether the system is formal or informal, successful franchisors must provide the opportunity for their franchisees to share ideas and concepts. In the end it’s a win/win/win for franchisee, franchisor and the consumer.

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