Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 39: goals and benchmarks and effective development and communication of them 19

Posted in startups, strategy and planning by Timothy Platt on August 30, 2018

This is my 39th posting to a series that addresses the issues of planning for and developing the right business model, and both for initial small business needs and for scalability and capacity to evolve from there (see Business Strategy and Operations – 3 and its Page 4 and Page 5 continuations, postings 499 and loosely following for Parts 1-38.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

I began addressing three specific possible scenarios that a new business’ founders might pursue for their venture, in Part 33, that I have been successively discussing since then for how they illustrate more general issues and principles that any business has to face when transitioning from startup phase into their first real growth stage:

1. A new venture that has at least preliminarily proven itself as viable and as a source of profitability can go public and with all of the organizational change and all of the transparency and reporting requirements that this entails as they begin offering stock shares.
2. A new venture can transition from pursuing what at least begins as if pursuing an organic growth and development model (as would most likely at least initially be followed in exit strategy 1, above too) but with a goal of switching to one in which they seek out and acquire larger individually sourced outside capital investment resources, and particularly from venture capitalists.
3. A new venture, and certainly one that is built around a growth-oriented business model, might build its first bricks and mortar site, in effect as a prototype effort that it would refine with a goal of replication through, for example a franchise system. And there, licensing fees and ongoing franchise-sourced income going back to the parent company, would provide funds that could be used for further capital development, among other things, to keep a fiscal systems focus here on what I include in this list.

I have been discussing the third and last of these possibilities here since Part 37 and from both the franchise system parent company perspective, and from the perspective of the local franchise holder who buys into and invests their future in such a system. And one of the core areas of that line of discussion, as sketched out in Part 38 was that of how a balance might be arrived at, or not, between meeting the sometimes aligned and sometimes competing needs and priorities of the franchisee and the parent company that they report to and that owns the brand that they work under. And that line of analysis and discussion led me to a fundamental question that I posed at the end of that installment, and that I turn to address here:

• How can a franchise system parent company and their perhaps very widely dispersed franchisees with their local storefronts, reach and maintain a more optimized balance between what is systematically standardized across the entire system and in its overall branding and brand value, while also allowing for local diversity to address local community and related marketplace preferences and needs?

I began pointing towards at least an approach for resolving the issues raised in this type of question at the end of Part 38, where I stated that I would turn here to:

• Consider the issues of business-wide consistency, as well as storefront-level flexibility, and both in prototyping new product or service possibilities and in addressing local-to-store opportunities and challenges. What is and is not supported and even encouraged and rewarded in this?

And I add to that: how are those decisions made? And what types and sources of input are brought into that process when arriving at what would at least ideally be both locally and more generally applicable answers? And how are the results of these decision-making processes shared throughout the overall franchise company system?

I have posed these issues and questions in both franchise parent company and local franchise outlet contexts. But in reality these same issues, at least when more generally stated, can and do apply to any widely geographically dispersed business and certainly when it operates offices, manufacturing facilities, distribution or call centers or other locally staffed facilities in several or even many locals with each situated in its own distinct local cultural milieu and with each having to meet its own particular local and national legal system requirements – that can vary significantly for transnational corporations.

I am going to start to address the above-stated issues and questions with a specific case in point focus on franchise systems and on how they apply and play out there. Then I will step back to reframe those same questions and issues in a wider and more comprehensive context – and one that would apply to the first two business scenarios that I have been discussing here too. And I begin addressing the case in point example of franchise systems in this context by posing a set of thought piece questions of a type that would enter into essentially any effective due diligence review and analysis that would be entered into here:

• What are the key issues that have already risen to a level of prioritized significance for the parent company, at least some subset of their franchise license holders, or both as points of friction between them?

This is the fundamental starting point question, here posed in reactive response form. If there is discontent coming from the parent company, their franchise holders in the field or both, what are the basic issues that drive this? And the more precise and detailed the answer there, the more focused a response can be in addressing and resolving these issues, and with specific and hopefully effective longer-term solutions arrived at.

• How do the points of difference and disagreement, as identified while dealing with the above questions, impact on overall brand consistency for this business system and its key stakeholder participants?
• How do those friction points and their alternative approaches for running a business and providing products and services, impact on the quality of overall performance that these franchises or their overall parent company system can provide?
• And how would members of their collective customer base and of their potential customer base see this? What would be more likely to bring these people to these franchise outlets and bring them to make purchases there?
• And underlying all of this, how would pursuing one or the other of the divergent approaches at least initially preferred by franchise holders, and the parent company impact on the overall finances and profitability for them and on both organizational levels?

Picking up on the last of those questions at least to start here, I note that both the parent company and the local franchise holders who work with them and as participants in their system, seek to maximize their own bottom lines and their own net profits achieved. And while this dual perspective can lead to alignment and agreement, with one side benefiting if the other does too, this can also lead to conflicts and disagreement too.

I have already cited a hot button conflict issue that would lead to conflicts of interest in earlier series when I cited examples of parent companies that insist that their franchise holders only purchase their cleaning and other storefront maintenance supplies from them – and even as local franchise holders see that as avoidably adding to their expenses in order to pad the profits of the parent company. From a parent company perspective, this can mean quality control and it can be understandable, and certainly if they have a history of having had to deal with franchise holders cutting corners for this and in ways that would reflect badly on the brand itself. Still, most franchise holders do seek to maintain a high standard of cleanliness and appearance in their own local businesses. So how and where do you draw a line, as a parent company executive, in determining which franchise holders can and cannot be left to take care of details of this type for themselves? One answer would be to insist on a more centrally managed and overseen approach to carrying out onsite inspections and reviews from the parent company – or from local governmental agencies if they have found a problem with a local franchise. I cite the New York City Department of Health restaurant grading system as an example there. A fast food franchise operation that consistently scores A (the highest grade for quality of cleanliness) in such a system might be given a lot more autonomous leeway as to how they keep to those standards than a parent company would, or should afford to a franchise outlet that keeps being cited for at least minor health code violations and in sufficient numbers so as to recurringly have to post a B or lower grade by their front door. That affects that one franchise outlet; that also reflects badly and impacts badly upon the brand as a whole.

A more ham handed approach of forcing every franchise holder to buy these supplies centrally and to submit to ongoing supervision for basic storefront cleanliness and maintenance will, on the other hand just generate what should be completely avoidable resentment, while adding what should be avoidable costs to all participant sides in this.

Ultimately, the answers arrived at for all of the above check list questions should involve and include words such as “reasoned” and “nuanced.” And that applies where a single approach would be universally applied throughout a franchise system, as much as it does where local case in point and context-specific resolutions might make the most sense.

I could have cited the challenge of better meeting local marketplace and consumer taste here and that of prototyping new possible products in specific local markets too. The same questions that I have briefly sketched out and addressed here, and variations and elaborations to them apply to essentially any area of products or services offered, business operations and how they are prioritized and carried out, branding and how it is both centrally defined and locally expressed and more: essentially any area that would impact upon business strength and presence, or business finances. To cite one more example there, when McDonald’s opened its first storefront in Russia, in Moscow during the waning days of the Soviet Union, they insisted that all potatoes that would be used in their products sold there, had to be imported. And most if not all of them came from Poland. Yes, in principle the franchise holder of this outlet and the franchisees who ran others McDonald’s restaurants that followed, could have sourced their potatoes locally and at lower costs. But the parent company came to realize when planning and preparing for their entry into this new market, that it would have been impossible to secure locally sourced potatoes in Russia at that time, of sufficient quality, and in sufficient quantity and with sufficient supply chain reliability to meet their needs. It was a big deal when a business of this global stature did finally begin sourcing its key raw materials supplies such as the potatoes they used, from local Russian sources, as that offered a global corporate due diligence based imprimatur on Russian agricultural and food shipment systems as now meeting their standards of quality and reliability (see for example: McDonald’s in Russia to Phase Out Polish Potatoes.)

• And ultimately, as briefly noted above, comparable if more generally framed questions, and what amounts to the same reasoning as outlined above in a franchise system-specific context,
• Apply to wider business contexts too and essentially whenever a business grows into a geographically dispersed but still strongly interconnected whole, where local versus centralized perspectives can come to collide.

I am going to revisit the issues raised here in that much more general form, as promised above, in my next series installment. Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 5, and also at Page 1, Page 2, Page 3 and Page 4 of that directory. And you can find this and related material at my Startups and Early Stage Businesses directory too and at its Page 2 continuation.

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