Sara Wilson had a good article, “How are Franchisees Dealing?” in the January ’09 Entrepreneur Magazine that interviewed four different franchise business owners on how they were dealing with obstacles during this current economic slump. It provided some great insight into how businesses are dealing with the recession and whether a franchise has certain advantages over other types of companies. I include my two cents on their tactics to give you a well rounded analysis of their business strategies. Maybe you will find some that make sense for you.

I. Floyd’s 99 Barbershop:  The franchisee, Jay Palmer, couldn’t find a loan for a new store.  He tried using his home and his parent’s home as collateral and no luck with banks, including trying to obtain an SBA or Corporate loan.

– The Solution:  Mr. Palmer found a personal investor (Angel Investor).  The investor came into the shop for a shave and a haircut when Mr. Palmer wasn’t around so he could get a good feel for the business.  He ended up investing $150,000 after seeing a steady stream of happy customers and happy, energetic employees.  This was a great move on Mr. Palmer’s part, using a track record of success and clearly showing a precipitous investor the real deal behind the potential success of his future business opportunity:  great service, great product, happy customers and content, energetic employees.  In just one site visit and the positive experience with the business’ services, the investor was ready to supply the needed capital even after multiple bank turn-downs.

II. Kitchen Solvers:  Franchisees, Carrie and John Borden Kircher, customer niche based changed.  Their customer market became price orientated, and the business offers premium kitchen and bath remodeling.  Leads dropped 19% and gross sales are down 25% over the last two years.

– The Solution:  Their solution is rebrand their vans, get new signs; increase letters to past customers; leave a gift with a customer after a job is complete; and working with their franchiser on the operational side of the business.  Ok, as a Business Consultant I am going to give my two cents on the Borden Kircher’s proposed solutions:

• Rebranding Vans and New Signage:  In my experienced opinion, this is a waste of money.  I would instead spend this money on a new Marketing Plan which focuss on two areas.
  • How to target higher wealth clients in the market area.
  • How to sell price based customers on why premium services and products can save them money in the long run.  Once the new Marketing Strategies bring in net profit, then it is a good time to upgrade signs and re-brand with those growth dollars.
• Increase Letters to Past Customers:  Ok, but what is the intent of a letter?  The time to ask for referrals is the day the job is completed.  When the client is happy with their new Kitchen or Bath. A newsletter with examples of completed jobs and customer testimonials, along with a favored customer discount voucher, may be more effective in obtaining an add-on sale with an existing customer.  A newsletter can also be a forum to introduce other services to current customers which they may not be aware, such as, having an article on the Design Services that Kitchen Solvers offers.  The most cost effective, normally highest bang for your marketing buck, are continuing sales to existing customers.
• Leaving a Gift Basket with a Customer Post Job Completion:  The Borden Kircher’s are looking to implement better customer service and they suppose customers are looking for the “Wow” factor.  Leaving a gift is not customer service, and the wow factor should be as a result of a beautifully completed job.  A Gift Basket will get neither.  Customer Service starts at the Sales and Design Stage and continues throughout the job.  The business owners showing up on the job to check on things and talk with the client is good customer service.  Meeting with the customer in person after a job is completed to go over everything and ensure the client is happy is good customer service (and a great time to drop off the latest company newsletter and ask for several referrals).  Customer Service is showing up on the job when the client is unhappy with the contractor’s work.  This type of highly motivated customer service will create the Wow factor for Kitchen Solvers, along with a quality, premium, beautiful look in the finished kitchen or bathroom, leaving a lasting impression.

• Work on the Operational Side with the Franchisor:  This is one of the fantastic advantages a Franchisee can leverage:  utilizing the experience and resources of the Franchisor.  Some Operational Tips I would make as a Business Consultant:

  • Analyze product costs and see where you can cut costs yet still retain a premium, high-end image with quality products and value added results.
  • Work on a Supplier Business Plan which strengthens your relationship with your suppliers, tapping their assistance, experience, resources and expertise to bring better product offerings to your customers.
  • As antecedently stated re-work the Marketing Plan, along with fashioning the resulting key changes in the Strategic Plan to better anticipate future market trends and adapt operations more proactively to those indicating trends.
  • Examine the Operational Aspects of the Business Plan to see how you can better bridge the gap between the design sale stage and the install.  Customers are more prone to pay a premium for a smooth, effective transition from concept and design to install and completion.
  • Incorporate add-on marketing into your Strategic Sales Plan for existing customers.  A happy customer is more apt to stick with the same company to continue remodeling, so be sure to have a built in process which engages customers and shows them other remodels you can accomplish for them.  Add-on selling takes very little marketing cost for a big return and ties in well with solid customer service.
  • Have the Franchisor see some sales and installs to see if areas for improvements can be identified.  Incorporate these improvements into your Business Plan. 
• My Best Advice:  Find a way to sell a premium product and service to higher wealth clientele and offer a product/ service which has a premium look and finish, yet appeals to price conscious customers.  Search for innovative suppliers who can help accomplish this mix.  Follow-up this new business model with strong customer service throughout all the sale and install stages.  Concentrate on a post-completion walk-through which asks for referrals and start the add-on sale process.  Follow up with a monthly newsletter which contains add-on ideas and offers a loyal customer discount.  The Borken Kircher’s have a lot of challenges in this economy, and as they said, “you can’t just sit around waiting for people to call.”  Use this rough patch as a learning experience in staying ahead of changing market trends, analyzing costs and making new plans for future success.  A premium product + great customer service + a quality install + great value = a viable business model in any economy.  Just don’t wait two years to make changes.

III. The Melting Pot Restaurant:  The challenge Franchisee Michael Frampton was facing during the Real Estate Crash in California was establishing the restaurant in a new shopping center when 10 other centers in the area were all opening at the same time.  On top of this important challenge, property taxes went up from $500 a month to $2,500, which meant $2000 a month cost comes straight off the bottom-line, never being budgeted for.

– Solutions:  Mr. Frampton shows why he is going to be a successful business owner.  Clear steps and strategies to overcome the current situation:

• Loyalty Cards:  This is a fantastic move.  Appreciate your regular customers during the hard times, and they will keep your doors open.
• Mass Mailing:  Targeted within a 10 mile radius as there are so many competing restaurants in the immediate area.  Targeted mailing is measurable, which is key during tough times.
• Analyze where you are spending money and the areas which can be controlled and managed (not necessarily cut):  Mr. Frampton actually saved $500 a month in focusing on linen costs for towels used to clean the restaurant.  He also analyzed energy cost:  when they turn on equipment and the length of time it’s used.  A third major cost area for restaurants is staffing, which Frampton cost analyzed as well.
• New Business Opportunity:  He started opening for lunch on Sundays.  Why?  Probably because customers come after church with their families to enjoy an upscale meal, as do the late weekend risers searching for a good brunch close to home.  One of the best analyses a restaurant can perform is looking at the average customer flow, food sales, alcohol sales and costs for each day of the week it is open to determine what days are best to be open and the reasons why.  Armed with that information, you can adapt staff schedules, open hours and food prep costs much more strategically.  Mr. Frampton apparently thinks the added costs of being open for lunch on Sunday is worth it, based on good cost analysis. 

IV. EmbroidMe:  Wendy and Todd Diskin own a franchise that specializes in promotional solutions for businesses, which includes decorating apparel and screen printing.  Their challenge has been rising costs from their suppliers.  They have experienced a 5% increase in the Cost of Goods over the last year.

– Solutions

• Competitive Pricing verses Solution Based:  The custom product industry is price competitive.  With rising costs, the Diskin’s have provided a more solution based approach so the buying decision isn’t just made on the quote.  For instance, if one of their customers is trying to increase readership, they figure out how EmbroidMe products or services can help the client attain that goal and come up with a program to do so.  Then the decision becomes one of “risk and reward and ROI instead of price…”  Selling solutions alongside your product and service offerings is a way you can separate your company from the competition and still retain premium pricing in a price based market. 
• Continuous Marketing Software:  This program sends letters and emails so the Diskin’s can “stay in front of their customers on a regular basis without a ton of effort….”  This software program keeps the company engaged with customers, giving EmbroidMe first opportunity to make another value added sale or track how customer market trends may be changing. 
• Good Vendor Relations:  Leveraging a strong advantage franchises have, EmbroidMe Corporate negotiates the best pricing and strategic relationships with suppliers for their franchises.  This is a huge advantage as it is a time consuming task and volume pricing from a Global Corporate level is much more advantageous than negotiating on your own as a single business unit.  So it is apparent that although COGs has risen, EmbroidMe is still very competitive and successful, even in a recession. 

My Concluding Advice

In this article I identified certain types of businesses which excel in an Economic Downturn and why they are successful. Here is some concluding advice for starting or operating a business during Recessionary times:

1. This Recession will have an impact for at least the next 2-3 years.  So keep that in mind when planning for your business.
2. Track Record, Experience, Niche Market Identification and Cash Flow are keys in raising funds for your business.
3. A solid Comprehensive Business Plan, along with realistic, precise Market Planning and Financial Forecasts are very critical during challenging economic times.  An effective Strategic Plan is integrally important in bridging the gap between a Marketing Strategy and Realistic Financial Forecasting. 
4. Out of the box thinking:  For Brick and Mortar Companies, key on strong local areas and or utilise the web to efficiently bring a product or service to the market.
5. Price Competitiveness becomes less important if you sell value-added business solutions to your customers and have tight controls on costs. 

About the Writer – Frank Goley of ABC Business Consulting

Frank Goley is a business consultant, business turnaround consultant and business plan consultant for ABC Business Consulting. He has been helping companies to succeed for many years. Frank wrote his first business plan over twenty years ago. He is an expert in developing business plans, marketing plans, funding plans, strategic plans, turnaround plans, web marketing strategies, and project specific business plans. Frank is also a business coach and a web development, web marketing and web seo consultant. Frank is the author of a business plan book, The Comprehensive Business Plan Workbook – A Step by Step Guide to Effective Business Planning, and he has over 50 published articles and e-books on business success strategies. He also writes the Business Success Strategies Blog.