To really understand franchising, you have to back up and look at the basic concepts of business first. There’s no magic in that. It’s just the only way to get clarity on what the franchising strategy actually is.

Here’s the distinction that trips people up: franchising is not a business. It’s a business strategy. It’s a system.

McDonald’s is in the fast food business — though plenty of people will tell you they’re really in real estate, and a few will argue entertainment. Whichever side of that you land on, they are not in the business of franchising. Schooley Mitchell is in the business of cost reduction for businesses. Ramada is in the business of operating properties. Snap-on Tools is in the business of selling tools.

Every one of them uses franchising as the strategy to penetrate and dominate a marketplace. But their core business is the products and services they deliver to customers. Franchising is just the mechanism for delivering those consistently.

If someone tells you they’re in the business of franchising, they don’t fully understand what they’re doing. It’s all about the customer, and if the focus isn’t on the customer and their needs, something is off. Customers don’t need a franchise. They need hamburgers, cost reduction, hotel rooms and tools.

The Customer Pays for Everything

It has to be about the customer, doesn’t it? The customer pays for everything else.

They pay the salaries. They pay the rent and the utilities. They pay the cost of delivering the product or service, and they pay the profit. In a franchised business, the customer pays the royalties. The customer pays for developing the system, including support and operations. Every day-to-day activity of both franchisor and franchisee is funded by the same source.

Peter Drucker made the point more elegantly than most: because the purpose of a business is to create a customer, the enterprise has only two basic functions, marketing and innovation. Everything else, in his framing, is overhead. As he put it, “marketing and innovation produce results; all the rest are costs.”

At Schooley Mitchell we have a credo: Good is the Enemy of Great. Not entirely original, but we’d like to think our approach to it is. If greatness is the goal, the focus has to be completely on the customer. We have to keep working until customers clamour for our services. Settle for being good at it and great never arrives.

The Purpose of Business

Let’s be direct about the purpose of a business: to make money.

It isn’t your vehicle for giving back to humanity — that’s a charity, and a worthy thing, just a different thing. People who go into business for themselves do it to make money. That shouldn’t surprise anyone.

So how does any business make money? By focusing on the customer. Which means the objectives of a business, and the purpose of its daily activity, boil down to four things:

Get new customers. Satisfy them. Keep them. And grow business, either with them or through them.

Get, satisfy, keep, grow. That’s it. These are the first set of four in what we call our 4×4 Concept at Schooley Mitchell. (The other four are a discussion for another day.)

Try to think of a single transaction in business that isn’t aimed at one of those four. You won’t find one. The key insight is that they are four distinct things, and if greatness is the goal, each one needs its own strategy built for excellence.

Get

Most people get this one. It’s sales and marketing.

What I’d suggest is that plenty of companies drift into contentment with the customers they already have. Or they land the big one, and all seems well.

That second scenario is more dangerous than it feels. It’s called over-trading. When a business leans too heavily on one source of revenue, it’s exposed — and the exposure only reveals itself when something goes wrong with that customer, at which point it’s too late to build a pipeline.

Without constant strategies to bring in new customers, new blood, stagnation follows. The fix isn’t rocket science: implement good “get” strategies and never stop running them. That’s a basic tenet of long-term survival.

General Motors should have been working out how to get Japanese customers in the 1970s. That exercise would have taught them how to keep their North American ones. Enough said.

Satisfy

A lot of people miss the boat here.

I recently watched a truck drive past with a slogan on the side, in proud bold letters: We Deliver Satisfied Customers. They appeared genuinely pleased about the fact that they provide what they sell.

Every customer of every business expects to be satisfied. Otherwise they wouldn’t complete the transaction in the first place. Boasting about it is roughly equivalent to announcing “we don’t rip you off.” Well — big deal, and thank you.

Satisfaction is a given. It’s required for survival. It’s absolutely one of the four objectives, but it’s the one most often misunderstood, because satisfaction is what people buy. It’s the product, not a bonus.

And here’s the part that should genuinely unsettle you.

In one of the most-cited pieces of customer research ever published, Thomas Jones and W. Earl Sasser Jr. reported in the Harvard Business Review on a discovery at Xerox that overturned conventional thinking. When Xerox measured satisfaction on a one-to-five scale, its completely satisfied customers — the 5s — were roughly six times more likely to repurchase over the following 18 months than its merely satisfied customers, the 4s.

Sit with that. A 4 out of 5 looks like a win on a dashboard. Executives present those numbers in board meetings and everyone nods. But the 4s were walking out the door at six times the rate of the 5s. Jones and Sasser’s conclusion was blunt: in markets where customers have real choice, merely satisfying them is not enough to keep them. The only genuinely loyal customers are the completely satisfied ones.

So the standard keeps rising. As Michael Vickers observes, whichever company sets the bar in customer service “moves the bar up for all of us” — regardless of what industry they’re in. Your customers’ expectations are being reset by their best experience anywhere, not their best experience in your category.

Robert Kriegel made a related point in If It Ain’t Broke — Break It!, arguing that the only constant is change, and that skills, knowledge and products age far faster than we expect. His example was the overnight letter: the great innovation of the 1980s, later reserved for when you weren’t in a hurry. He wrote that more than 25 years ago, and it holds up. We have to keep re-tooling just to hold our satisfaction position.

Satisfaction, then. Essential, expensive, ever-rising, and nothing to brag about. It’s just what you sell.

Keep

If satisfaction is a moving target requiring ever-increasing effort, then keeping customers takes more than satisfying them.

Customers expect satisfaction. They buy satisfaction. And competitors will copy satisfaction. If satisfaction is all you offer, the conversation collapses to price, and price is a losing game in any industry.

Long-term trusting relationships require providing more than what the customer purchased. Michael Vickers frames it as taking a standard service offering and up-levelling it. That’s what your “keep” strategies have to do. Ignore this one and you get stagnation, then decline.

The economics reward the effort generously. The research most often cited here traces back to Frederick Reichheld and W. Earl Sasser’s work at Bain, which found that improving customer retention by 5% lifted profits substantially — the widely quoted range is 25% to 95%, varying a great deal by industry. Treat that as a directional finding rather than a precise measurement, because the range is enormous and the underlying studies were industry-specific. The direction, though, is not in dispute. The same body of work is where the estimate comes from that acquiring a new customer costs somewhere between five and 25 times what it costs to retain an existing one.

Retention is where the profit hides. It’s just quieter work than winning new accounts, so it tends to get less attention than it earns.

Grow

Most of us have heard it’s cheaper to do more business with existing customers than to find new ones. My belief is you must do both.

The numbers explain the appeal. Standard marketing texts put the probability of selling to an existing customer at roughly 60% to 70%, against something like 5% to 20% for a new prospect. Those are not close.

But growing with existing customers doesn’t happen by accident. You need consistent strategies to educate them about new products and services. You need to understand their business — particularly as it changes — so that it becomes obvious when your offering applies. You need to spot new needs as they surface and determine whether you can meet them.

And you need to ask for more business. Complacency is far too often the norm when the opportunity is sitting right in front of us.

The other half of “grow” is growing through your customers. Ask them to support your growth with others: referrals, testimonial letters, agreeing to act as a reference, introductions to their associations. It’s surprising how many people are willing to help when they’re actually asked.

There’s good evidence this is worth building a process around. Philipp Schmitt, Bernd Skiera and Christophe Van den Bulte tracked roughly 10,000 customers at a German bank for nearly three years and found that referred customers carried higher contribution margins, retained at higher rates, and were worth at least 16% more than comparable customers acquired by other means. Referred customers aren’t just cheaper to acquire. They’re better customers.

Bringing It Back to Franchising

So there you have it. Four basic objectives for any business.

You need strategies and formulas to continually get new customers, to satisfy them against an elusive and constantly rising standard, to keep them by delivering more than what you’re paid for, and to grow business with them and through them.

These are the basic concepts of business. They have to sit at the heart of any good business and any good franchise system.

Which gives you a practical test when you’re evaluating a franchise opportunity. Ask the franchisor how the system handles each of the four. Not in general terms — specifically. What are the “get” strategies, and are they still being developed or were they set a decade ago? How does the system measure satisfaction, and does it distinguish between merely satisfied and completely satisfied? What does the system provide beyond what customers pay for? What processes exist for growing accounts and generating referrals?

A franchisor who can answer all four crisply has thought about the business. One who answers “we have a great brand” has thought about the marketing.

You’re looking for the first kind.

Interested in learning more about a franchise models that prioritize long-term wealth creation over short-term cashflow? Consider what your “future self” five years from now would want you to choose today. Book a call to learn more about the Schooley Mitchell franchise opportunity here: https://schooleymitchellfranchise.com/contact/