These 3 Critical Factors Determine Whether Franchisees From the Same Brand Will Flourish or Flounder Nearly two decades of observing the franchise industry has helped me identify a formula that informs how successful a franchisee will be.
By Scott Greenberg •
This story appears in the January 2024 issue of Entrepreneur. Subscribe »
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I opened my first franchise in the summer of 2006. It was an Edible Arrangements in Los Angeles, serving the neighborhoods of West Hollywood and Beverly Hills. For 13 years before that, I'd been working full time as a motivational speaker for business leaders. I'd done well — presenting to leaders of many industries in all 50 states and around the world — but I wanted another stream of income. And more than that, I wanted a place to gain real-world leadership experience and develop strategies I could share with audiences. I didn't want my presentations to be based purely on theory or the work of others, as is often the case with motivational speakers.
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During the months between signing my franchise agreement and opening my store, I continued traveling and giving presentations. In every city that had an Edible Arrangements location, I stopped by, and I continued this practice even after we opened. I wanted to pick the brains of as many franchisees as possible. (Once, I was speaking in Jeddah, Saudi Arabia, and spotted an Edible Arrangements delivery van. I had my driver follow it back to the store so I could meet my Saudi counterparts.) Some of the franchisees I met were success stories, while others were cautionary tales. That's been the case with every franchise brand I've worked with: In the same system, running the same business, some people crush it, and others get crushed. Why?
Decades of observation have led me to this formula, which I outline in my book, The Wealthy Franchisee:
C + O + H = R (Circumstances + Operations + Humanity = Results)
These three factors — circumstances, operations, and humanity — combine to determine how successful you're going to be. Understanding how each of these factors impacts the rest of the equation is key to getting the results you want. Let's look at each of them in turn.
Circumstances
Your circumstances are all the external conditions affecting your business. These include factors such as the economy, the competition, government regulations, taxes, labor laws, and commercial real estate's "fair market value." Some businesses are impacted by the weather. I've worked with an ice cream franchise in Canada that slows down when temperatures drop and a soup franchise in Michigan that slows down when temperatures rise. One emergency restoration franchise I spoke with thrives after natural disasters.
I faced plenty of tough circumstances during my years as a franchisee, some minor and others major (and some that were somewhere in between). Two weeks before my first Valentine's Day at Edible Arrangements, torrential rains wreaked havoc on California's strawberry crops, impacting price and quality. When a new Edible Arrangements franchise opened nearby with a territory that overlapped mine, my numbers dropped. The same year, the economy collapsed. There were power outages, increased fuel prices, and ever-changing labor laws. For a while, a high-profile florist two blocks away started selling fruit arrangements. And on particularly hectic days, invariably the health inspector would show up for a surprise visit. I could go on.
But not all circumstances were bad. AIDS Walk Los Angeles decided to add our street to their course, routing thousands of hungry walkers right in front of my store. Just before building out our second location, I got a call about a closing restaurant looking to sell their walk-in cooler for pennies on the dollar. And that new competing Edible Arrangements I mentioned above? Right before the holidays, there was an explosion in their garage that shut them down for months. They were nice people and I felt bad for them, but it did redirect a lot of business to my location.
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What's important to understand about circumstantial factors is that they're totally out of your control, so it's tempting to blame any problems you're having on them. I can't tell you how many people have said to me, "This economy is killing us," or "I'm doing everything I can, but there's too much competition." They blame the government, scapegoat their franchisor, and curse a "lazy" younger generation of employees. Some even attribute their decline to a change in consumer taste: "They just don't like us anymore."
I appreciate the many real challenges franchisees face. I've faced them, too. But rarely do these circumstances tell the whole story of a business. It may be true that there's some new competition or an increase in the minimum wage. But usually, there's a lot more afflicting the business — and those are things struggling franchisees could control if they wanted to.
I'd like to suggest that if your business isn't doing well, it's probably your fault. I don't say that to insult you. It should excite you. You want your problems to be your fault, because if you're the problem, you can also be the solution.
Blame will not serve you. Taking responsibility will.
When a company brings me in to speak, I always ask to interview their superstars. By this I mean their top-performing franchisees—those with the highest profits and best lifestyles. After years of these conversations, I wrote The Wealthy Franchisee. And the good news is: Becoming a wealthy franchisee is a mindset anyone can adopt.
Wealthy franchisees know it's on them to find solutions to their challenges, and they'll look everywhere for them, including in the mirror. They rarely complain or blame. Instead, they open their minds, open their eyes, and get to work.
Some franchisees feel entitled to good fortune. Wealthy franchisees feel entitled to nothing. They don't whine about the rain. They just grab umbrellas — or sell them. Wealthy franchisees monitor their circumstances, but they don't use them to make excuses. They use them to make decisions. Their success is up to them. It won't come by accident, and they don't believe in luck.
It's true that some businesses are simply doomed. In the real world, there are such things as unbeatable competitors, losing locations, and unanticipated circumstances. But doom is rare. There are franchises in your company right now that are doing well despite fierce competition. There are plenty of poorly located operations that have found a way to make a profit right where they are. You're not a victim. You're a courageous business owner in partnership with a franchisor that wants you to succeed.
Circumstances matter. We need to keep an eye on them so we can respond appropriately when we do have control. Once we're clear about what's going on, we take action by focusing on the remaining two factors: operations and humanity.
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Operations
This is everything related to work. This includes your systems, policies, and tactics. It's your recipe for great waffles, your formula for carpet cleaner, and your method for teaching foreign languages. It's your branding, marketing, and pricing. It's your scheduling, cost control, and accounting. Operations are the things you pay your franchisor to teach you. It's everything that keeps you busy.
Operations are the heart of a franchise. Their unique, replicable systems for serving customers profitably enable franchisors to share the opportunity with franchisees. In most cases, you can come from an unrelated professional background and successfully implement the franchisor's systems.
The misconception in franchising is that fortune is born merely out of systems and sweat. So many franchisees buy into an incorrect, incomplete formula: Strategy + Effort = Success. They believe if they just follow the corporate manual, work hard, and work long, they will make money.
If only it were that simple.
I remember going through Edible Arrangements training in Connecticut with a large group of new franchisees. Many of them were also opening in Southern California. Over the course of five days, we all received the same training. We were given the same manual and taught identical procedures. Then we flew home and opened our businesses.
I visited many of my training buddies at their stores. The aesthetics of each location were identical. Our product line and pricing were the same, and we used the standard equipment. The locations varied a little in terms of exposure and demographics. But operationally, we all followed the same book.
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Some of my fellow trainees thrived, while others struggled. Some expanded, and some disappeared. The differences were not subtle. Some locations outperformed others by hundreds of thousands of dollars per year — running the same operation. One by one, almost all of the lower-performing locations were gobbled up and resurrected by better operators.
On the surface, it seemed like it had everything to do with location. But that wasn't really true. Some franchisees attributed their success to more marketing, since the best of the bunch definitely invested in promoting their business. That made a difference, but it wasn't the difference.
Maybe the top performers were putting in the most hours? Nope. Many of my struggling counterparts worked feverishly to keep their businesses going.
Perhaps the best franchisees were the most innovative? It wasn't that either. People called them all the time looking for their secrets, only to hear they weren't really doing things that differently. Usually they were working the same systems as everyone else.
Top franchisees do have to work hard and constantly try new things to improve their businesses. But those aren't the only reasons they thrive. Hard work and good ideas are not the secrets to success. They're the basics.
The wealthy franchisees I meet definitely have superior operations. But it isn't so much because they're doing things differently. They just do them better, and they do it with the help of a third factor that most people dismiss or are too busy to bother with.
This third factor isn't tangible. You can't quantify it. You can't deposit it in a bank. But it really is the distinguishing characteristic of wealthy franchisees. Look at the top people in your franchise, and you'll see this is the factor they have in common. If there's a secret to being a wealthy franchisee, it's this.
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Humanity
Nothing influences our performance more than the way we manage the human elements that flow through every aspect of our business. That means psychological discipline, emotional control, and grit. It includes patience, empathy, and social skills. It's all those human characteristics that, for better or worse, distinguish us from computers.
Wealthy franchisees are masters of their humanity. They have a strong mindset that drives every business decision. It's what makes them great.
But let's put aside the human factor for franchisees for a moment and look instead at customers. Consumers make all kinds of decisions based on emotion. Behavioral economics is a whole discipline focused on just that idea. It studies the cross-section of economics and psychology, and its guiding principle is that consumers behave irrationally. If computers were to make buying decisions, they'd simply do the calculus to find the option that maximizes quality while minimizing cost.
People act differently. We make all kinds of illogical but emotionally satisfying decisions. It's common knowledge that tap water in most industrialized countries is continuously tested and safer than bottled water. But many people spend more per ounce on bottled water than they do on gasoline. We forgo bigger payoffs later to get smaller payoffs sooner. (This is known as hyperbolic discounting.) The threat of losing what we have motivates us more than the promise of gaining something new of equivalent value (known as loss aversion). And we all know that now-popular term "FOMO": "fear of missing out."
Understanding the psychology of consumer behavior helps businesses market and sell their services. One might argue the first known behavioral economist was Aristotle. In his treatise Rhetoric, written 2,400 years ago, he described the three key elements for influencing human behavior: logos, ethos, and pathos. These modes of persuasion are still used today by companies, politicians, public speakers, and others trying to persuade people to take a specific action.
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Logos
Logos means "logic." This is where we use information, reasoning, and data to make our case. For a politician, this might mean sharing statistics and a five-point plan to fix a problem. For a company, it's describing the benefits of its products and services. Imagine an automobile commercial listing the features of the car, such as the engine size, miles per gallon, or its voice-operated entertainment system.
Ethos
Ethos means "ethics," but more important, it represents credibility. It's
explaining why you're the expert, or why your company is most qualified to offer a solution. It could be a politician discussing their relatable roots and legislative accomplishments, or a car manufacturer boasting about its J.D. Power awards and its No. 1 sales ranking in its class. If you're an established authority, you're worth believing.
Pathos
Pathos means "emotion." It's the human side. This is where we try to move people to action by getting them to feel something. Often this is done by telling a story or showing images that tug at your heartstrings. A politician might describe a vision for what's possible or scare people with what their country-destroying opponent might do. An ad could use a shot of the driver of that car getting attention as he pulls up to a fancy restaurant. Wouldn't it feel great if that were you? Or of the woman in the crowded elevator with dandruff falling onto her black coat. Wouldn't it be embarrassing if that were you? Think of a public service announcement getting your attention with images of starving children. If you feel something, you're more likely to act.
Sometimes I survey my audiences and ask which of the three is most powerful. Invariably, they say pathos. Humans are emotional beings. Tapping into their emotions is the most effective way to influence them.
So what does this mean for franchisees? Well, even though business owners are on the other side of the market as sellers rather than consumers, they can still be irrational. That doesn't mean they're weak. It just means their emotions still influence them. They're vulnerable to pathos. Their humanity is very much at play.
Wealthy franchisees don't deny their humanity. They just manage it. They control their pathos as much as possible so they can take action based on logos, their logic. Good business decisions are made with a cool head and clear data.
Some people are naturally levelheaded. They default to calm, cool thinking. I have a friend who jumps out of bed in the morning ready to face the day. She's an eternal optimist who believes anything is possible. When she runs into a problem, she automatically rolls up her sleeves and looks for solutions. She doesn't have to try to be this way. It's in her DNA.
I have another friend with discipline flowing through his veins. When he decided he'd like to learn how to play the piano, he bought an electric keyboard and a book, and practiced two hours every day for a year until he mastered it. There was no deviation from the schedule. That's also how he's written books and trained for a marathon. He decides to do something and doesn't stop until he's achieved it. When it comes to setting goals, the guy is all logos.
But my friends are not the norm. Most of us are more vulnerable to self-doubt and prone to distraction. That doesn't mean we can't improve our mindset—we just have to be more deliberate about it. Some people have naturally big muscles, while others must go to the gym five days a week. But the end result is the same.
Our human condition matters because it determines two things: first, how we react to our circumstances, and second, how we execute our operations.
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How reactions impact businesses
In my presentations, I always try to speak to the specific issues franchisees are facing. I need to know their challenges in order to offer solutions. Take a look at the survey responses I got from one brand when I asked what theyss believed to be the biggest factors impacting their business:
→"My local concerns have to do with hiring good people and retaining them. Millennials like to job- hop. We are also facing growth issues in our physical space."
→"Receivables, finding new business partners, maintaining pace with the technology."
→"Economics, employees, getting quality materials to produce final products."
→"The economy and online competitors selling at bottom-dollar prices."
→"Sales and marketing."
→"Recent influx of new competitors, finding the time to generate new sales through prospecting/networking."
→"Pricing, competition, staffing."
→"I believe that as an owner, I need to ensure that I ambprioritizing and staying positive."
→"Corporate."
→"The biggest factor to my success is how I make customers feel and how much time I spend selling."
→"Adversarial relationship with franchisor."
→"Price, price, price."
These responses are fairly typical. The franchisees are running identical operations, but their concerns vary considerably. This is understandable. Some locations have less square footage, while others face more competition. Not everything is equal from location to location.
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If we were to list all the issues referenced in the above responses, they would be:
→ Hiring
→ Retention
→ Physical space
→ Bad economy
→ Supply chain
→ Sales and marketing
→ Competition
→ Time management
→ Pricing
→ Franchise culture
→ Owner attitude
→ Customer service
Some of these are circumstantial, some are operational, and some are human. Now let's compare the differences in how a struggling franchisee and a wealthy franchisee might approach these issues.
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When it comes to hiring, for example, the struggling franchisee focuses on simply filling positions, while the wealthy franchisee works to build employee culture. When dealing with supply chain issues, the struggling franchisee complains to the supplier and franchisor, while the wealthy franchisee collaborates, sources, and monitors inventory. When it comes to time management, the struggling franchisee does too much or too little, while the wealthy franchisee trains, delegates, prioritizes, and creates systems for efficiency. When making pricing decisions, the struggling franchisee discounts to drive business, while the wealthy franchisee adds value and improves customer experience to drive repeat business. The struggling franchisee often resents the franchisor, and becomes insular or complains to other franchisees. The wealthy franchisee collaborates and communicates with the franchisor, and assists fellow franchisees.
The struggling franchisee is totally compliant with the system. They are working hard and addressing each issue in their own way. But their mindset is hindering their execution. Facing the same factors, the wealthy franchisee is far better equipped to excel.
Wealthy franchisees and struggling franchisees get different results because they react and execute differently. Their respective handling of the human elements is the important distinction.
If you think of C + O + H = R (Circumstances + Operations + Humanity = Results) as a recipe, most franchisees don't consider how important the ingredient "H" is. They may have a human mindset, but it doesn't enhance their business. For wealthy franchisees, H is the key ingredient. It's why they do so much better.
It's not enough to duplicate the circumstances and operations of wealthy franchisees.
If you want their results, you must also duplicate their human characteristics. You need the same mindset. Once you achieve that, you'll run a better business.
That doesn't mean you can neglect the other two factors, of course. You need to invest in a solid concept in a good territory and run it well. You need to market, you need to grow, and you need to work. Positivity is not a business plan.
But for most franchisees, the right mindset is the missing ingredient. And the best part is, it's completely under your control. It's one big change you can make to improve your business and your experience of running it.
The franchisor factor
Franchisees aren't always clear about what their franchisor's role will be. Often, their expectations exceed the scope of what's in the franchise agreement. It's important to understand your franchisor's function and limitations so you can plan accordingly. Let's break it down by the three factors we've already discussed.
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1. Circumstances
It's reasonable to expect your franchisor to monitor everything impacting the business climate. They should stay current on legislation, the competition, and consumer tastes. But like you, they can't control circumstances. They can only respond, hopefully quickly and effectively. And sometimes even that's not possible.
At its peak in the early 1980s, Fotomat had more than 4,000 locations (company-owned and franchised) offering overnight film development in their iconic yellow kiosks. Then competitors entered the market with larger outlets that could offer one-hour service, and digital photos finally put the entire film processing industry out to pasture. Circumstances changed radically and rapidly. Fotomat didn't stand a chance.
Our franchisors can't stop innovation, control the weather, or reduce the minimum wage. They don't control what the competition does. We should expect them to keep watch, work hard, and pivot as much as they can. But they're not fortune tellers or magicians. Stuff happens. We assume risk when we sign the franchise agreement. We can't pin it all on them.
That shouldn't scare you any more than going into business without a franchisor. At least in this model you have a team of people working on your behalf, who have information and contacts and resources. As they say in the franchise industry, "You're in business for yourself, but not by yourself." When circumstances turn against you, your odds are better when you're part of something larger. Just keep your expectations reasonable.
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2. Operations
This is where your franchisor provides the most value. They've figured out a system, and they're handing you the manual. When they improve the system, they give you the updates. They're constantly trying new things and testing them. They're hiring marketing personnel to help you get the word out and negotiating with vendors to get you better pricing.
The whole idea of buying a franchise is to have access to a proven system. If you replicate a process that has worked many times in many places, it's reasonable to expect it will work for you, too.
But many franchisees can't resist tinkering with the system. They do things a little differently. They paid for the recipe but swap out an ingredient or two, thinking they'll get a better result. Once they do that, they've raised their risk factor.
Tim Davis told me an interesting take on this when he was president of The UPS Store. He said, "One of the advantages of buying a franchise is to help mitigate risk. Your investment is safer when put into a proven system. When you deviate from that system, you expose yourself to the very risk you paid to avoid."
But sometimes it sure is tempting, especially for impassioned, proactive franchisees who are natural go-getters. "There are two sides to driven franchisees," Davis told me. "It's great that they're aggressive about their business, but sometimes that comes with a hunger to go beyond the system and start experimenting."
A good franchisor has a system for franchisees to submit ideas. Most franchisors will tell you some of their best ideas come from franchisees. Once you've really tried their system, it's good to make suggestions. But remember, the whole reason for buying into a franchise is to outsource innovation. Let your franchisor do the R&D. Let them experiment in their company-owned locations and figure it all out for you. The wealthy franchisees I've talked to thrive not from innovation but from execution. They strive to exceed brand standards but rarely deviate from them.
I had a great conversation about this with Rhoda Olsen, vice chair of Great Clips' board of directors. This franchisor has been in the hair salon business for decades: experimenting, testing, measuring, making mistakes, and making discoveries. They have an enormous pool of talent at their corporate office and in the field and they have data from thousands of locations. They always listen to franchisees, but generally speaking, they know their business. They've built a system, and it works extremely well for those who follow it. Olsen tells franchisees, with all due respect, "Your role is to do it. Our role is to think." After all, that's what franchisees are paying franchisors to do.
And so are you. Your franchisor's main job is to create and hone the systems you need to run your business. Hopefully you examined those systems prior to joining the brand. They should train you on these systems, improve upon them, and support you. All you have to do is execute.
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3. Humanity
Franchisors understand the need to master the human factors, but it's not part of their daily conversation with franchisees. Franchisors are not psychologists; they're experts in ice cream and home improvement. They know how to profitably sell sandwiches and oil changes. They're brilliant at tutoring and pest control. Franchisors specialize in developing reliable, replicable systems for selling specific products or services. Mindset enhancement is not part of the arrangement.
But this is what franchisees need most if they want to build their enterprise. Many franchisors have admitted to me that they could do more in this area. Others have said they've tried to have these conversations, but some franchisees aren't open to it. (I guarantee those aren't the wealthy ones.)
Some franchisors do provide more of this kind of support and are reaping the benefits. Kitchen Tune-Up and Bath Tune-Up president Heidi Morrissey noticed a major acceleration in unit growth when she started her daily five-minute motivational Tunify Your Day podcast, which more than 80% of her franchisees listen to. "Growth is not just about doing more jobs," Morrissey said. "Growth starts with you being able to decide that you can do more jobs."
Anytime Fitness founders Chuck Runyon and Dave Mortensen captured their balanced approach to work and franchise support in their book Love Work. Their philosophy for supporting franchisees centers on the four elements of "people, purpose, profit, play." They sent me the book before my first presentation for them to ensure I would support this philosophy. They don't just want to train their franchise partners. They want to inspire them.
Anytime Fitness is so big on the human components of its operation that Runyon and Mortensen actually named their parent company Self Esteem Brands, with a corporate mission of "improving the self-esteem of the world." That starts with their franchisees, and they clearly feel it. The result is more than a lovefest—Anytime Fitness is now the largest fitness chain on the planet.
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One of the real masters of the franchisee mindset is Jersey Mike's founder and CEO, Peter Cancro. Though very much a franchisor, Cancro has had the wealthy operator mindset since he purchased the original Mike's Subs as a teenager. Cancro shared his philosophy with me over breakfast in Laguna Beach.
He said, "I always knew we had so much more than a sandwich shop. We had an opportunity to touch people's lives. That's our mission, 'making a difference in someone's life.'"
And they do, through great customer experiences, support for franchisees and team members, and community involvement. With that focus, Cancro's one original shop has grown to thousands of locations that have generated billions of dollars in revenue, tens of millions of dollars for charity, and ownership opportunities for deserving store managers. Cancro has proved that you can make money while making a difference.
Cancro personally vets every franchisee candidate to ensure they're a cultural fit for Jersey Mike's. Ninety-five percent don't cut the mustard (my pun, not his). Those who do are treated like family.
"I tell my area directors, 'When you show up at a store, don't be a policeman. Be a fireman. Come with care, not a clipboard,'" he said.
These franchisors aren't just cheerleaders. They have rock-solid operations, crunch numbers, and hold their franchisees accountable. But they also realize that their franchisees experience their businesses emotionally as well as financially, and they want to build their confidence along with their competence.
This is what franchisees need. Not just knowledge of how to remodel a kitchen, market a fitness center, or reduce food waste. They also need to learn how to manage their emotions and think at a higher level.
Ideally, your franchisor will provide both operational and motivational support. But if I had to choose, I'd still choose a franchisor that excels at operational support. You need systems, branding, and a good product or service. You can find plenty of other resources to help you manage the human elements impacting your performance. Just remember to nourish your mind as much as your body.
Our best time is spent on the factors we can control. There's not much we can do about external circumstances. Operations, of course, is the core of the business. But the internal human factors determine how well we execute those external operations.
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