Colonel Harlan Sanders perfected the secret recipe for his Kentucky Fried Chicken in 1939 after more than a decade of experimenting. Sanders was so convinced that his chicken was a winning business idea that he wanted to feature it in restaurants around the nation. But how could one small-business owner find the human resources and financial capital to realize his plans? The answer was simple: franchising.

"The success of Kentucky Fried Chicken [KFC] came from its very dedicated franchisees," says Jackie Trujillo of the Harman Management Corporation, a Kentucky Fried Chicken franchisee, located in Los Altos, California. "The Colonel met some good people who took the product and ran with it."

Trujillo should know. She first learned about Kentucky Fried Chicken back in 1953, when she was working as a carhop at Harman's Cafe in Salt Lake City. Harman's became the first franchise to sell Kentucky Fried Chicken — now referred to as KFC — and owner Pete Harman went on to found Harman Management Corporation (HMC). Today, HMC operates 267 KFC franchises and Trujillo serves as chairperson of its board.

The KFC/Harman/Trujillo story may be an extreme example of the benefits of franchising for the franchiser, the franchisees and their employees. But hundreds of other restaurateurs have successfully franchised a dizzying array of concepts. In 1993, the International Franchise Association (IFA) counted 435 restaurant-franchise concepts as members. Five years later, the IFA counted 552 restaurant-franchise concepts in its ranks — a 25 percent increase.

"The biggest advantage to becoming a franchiser is that it solves the two biggest expansion problems: people and money," says Don DeBolt, president of the IFA. "Many people find it a much better solution than going public or finding venture capital."

But franchising a concept isn't for every restaurateur or every concept. Unless a franchiser follows a time-tested path of action, the chances of successfully franchising a concept can be slim.

"You've got to be careful," says DeBolt. "When you franchise your concept you're basically in two businesses. You're in the restaurant business, but you're also in the business of franchising, and you've got to be willing to take on the second business."

Duplication dos and don'ts

A successful franchise — just like a house — must be built upon a solid foundation, or, in this case, a concept. The concept must be unique, but not necessarily unseen on the dining scene. For example, the IFA had 76 pizza concepts in 1993. By 1998, the IFA had 97 pizza concepts. No doubt there were some similarities among the new pizza concepts.

So how can the restaurant industry support roughly four new pizza concepts a year? One explanation is the public's growing desire to dine out and willingness to try new restaurants. But franchisers can't count on hungry patrons alone to sustain a successful concept. Instead, it's important for franchisers to develop a business-operating system that is easily duplicated by franchisees. "The heart of the franchise will be in its proprietary operating system and the trademark," says DeBolt. "The operating system is necessary to maintain the standards and consistency of the product and service."

Trujillo knows the value of codifying a concept on paper. She wrote the first training program and operations manuals for Harman. "It was easier to start a franchise back then," she says. "Today you definitely have more details to watch. You have to implement operations standards and guidelines, incentive programs, advertising guidelines and a lot more."

Standardizing operations is also important for Chevys Fresh Mex, an 83-unit chain based in San Francisco. Chevys bills itself as the only Mexican concept that uses all fresh ingredients. In order to keep the taste of its food consistent at locations across the nation, systemizing its recipes and food-preparation techniques is key. "You have to have a unique and proprietary concept that can be taught to franchisees," says French Gray, who is responsible for new-business development for Chevys.

Sticking to the script is also important for FMS Management Systems, a Miami-based franchisee of International House of Pancakes (IHOP). "If your chef is making a lot of recipes from scratch, you probably don't have a franchisable concept," says Bob Leonard, vice president and chief operating officer for FMS. "You need to be able to train people. A franchiser is going to have standard recipes that can be executed by production facilities."

Does the concept have legs?

Franchisers won't be successful if their concept has little appeal outside its original market. In order to be introduced successfully around the nation, a concept must be market-tested and appeal to a broad spectrum of consumers. If a concept has little appeal outside its market, a franchiser might have to be satisfied with a regionally successful one.

"You should open up two or three company-owned [units] before starting to franchise," says DeBolt. "That demonstrates whether the concept can be replicated." DeBolt has a simple test for potential franchisers: "Would you buy your concept?"

When Sidney Feltenstein led a group that purchased A&W Restaurants, Inc., of Farmington Hills, Michigan, in 1995, A&W had shrunk to a little more than 600 units from a high of 2,400 units in the mid-1970s. Despite the loss of stores, it still boasted locations around the nation. In the three years since his group bought the company, A&W has added approximately 400 new franchisees. "We bought it under the belief that it is very difficult to kill a great brand," says Feltenstein.

Feltenstein says the franchisees saved A&W. "The problem wasn't the franchisees," he says. "They were the ones who kept this company going. The goal was to learn from the brand's heritage, not change it."

Chevys entered the crowded franchising market in July 1997. In less than a year it has opened 14 franchises and has six more under construction. But with 69 company-owned establishments already in operation around the country, Chevys' management had reason to be confident about its aggressive franchising plan. "Everybody is going to try a new restaurant," says Gray. "But you have to do something to keep them coming back. That's why we have to make the food unique."

Chevys adapted its menu to appeal to local tastes. "We've learned," says Gray. "We have hundreds of fresh menu items but use different items based on the tastes in different regions."

Picking the proper partners

It's important for every franchisee to be a winning business partner. But for a fledgling franchiser, the first franchisees are the most important. "If your first franchisees aren't successful, they're going to kill future franchising opportunities by bad word of mouth," says DeBolt.

DeBolt says that it's not critical for franchisees to have prior restaurant experience. If they don't have a restaurant background, they do need to bring a broad range of business skills to the partnership, including sales, marketing and management experience.

A franchisee's personality might be the most important ingredient to a successful partnership, according to DeBolt. He says franchisees need to temper their entrepreneurial spirit with pragmatism and discipline. "They have to be the type of people who will follow your operating system," he says. "If they spend all their time reinventing the wheel, they're probably going to fail. And franchisees shouldn't have a 'stars-in-their-eyes' approach. There's a lot of blood, sweat and tears and they've got to be realistic about it."

Part of A&W's growth strategy is to open new units in nontraditional settings, like truck stops, colleges and convenience stores. Some new A&W units are kiosks that take up a mere 200 square feet. Those smaller units don't take on as much risk, so A&W can award them to franchisees who have little or no restaurant experience. "We don't shy away from anyone," says Feltenstein. "But these nontraditional owners have to be willing to listen to corporate headquarters to make their stores profitable."

Feltenstein does look for franchisees with significant restaurant experience to handle A&W's more traditional locations. "We look for financial resources and then we look at their business plan," he says. "If we are satisfied with how they are going to organize and run things, we probably can work together."

Chevys, on the other hand, does look specifically for restaurant experience in its franchisees. "Our criteria for franchises is threefold: operations, development and finance," says Gray. "Operations is most important. We look for highly successful multiunit restaurateurs; it doesn't matter if they're independent or experienced franchisees." To make sure franchise applicants are qualified, Chevys sends mystery diners to the restaurants they are currently running. Chevys applicants must also know their local real estate and construction markets. As Gray puts it, "We know where they should build [the city] and they know the area [the market]." In addition, all applicants meet with Chevys' executive management, and if one member of management doesn't like the applicant, he or she is declined.

Putting money where your concept is

When restaurant operators decide to franchise their concepts, they sometimes rely too heavily on quick money from franchising fees. Those fees, the thinking goes, will provide the extra cash necessary to keep expanding. DeBolt says franchisers should recruit franchisees with the idea that they will provide a long-term business partnership and not for a quick financial fix.

"Franchisers need to provide adequate financing for the startup phase of franchising so the business is not dependent on franchise fees to operate," says DeBolt. "The reason is that a franchise fee may influence you more than the franchisee's capability to operate the franchise."

Chevys focuses so heavily on the long-term potential of franchise applicants that financing and franchise fees usually are not an issue when a franchisee is approved. "The easiest part of the whole thing is always the money," says Gray. "We're in it for the long-term relationship. We know our concept has legs. We just need to fill in the gaps around the country, and one person can't do this."

Jackie Trujillo also advises franchisers to assess whether franchise applicants have the financial capability required to run a successful operation. "People sometimes don't have the history of the right economics that's needed to help keep your business growing," she says. "Sometimes people will open up a franchise and go with leases, because they can't afford to buy property, for example. But the leases will be at such a high rate that they will not support the restaurant. So you've got to look at the whole picture of your franchisee."

Bob Leonard echoes Trujillo's advice. "The biggest mistake being made by franchisees today is overpaying for land and buildings," he says. "That makes the break-even point above their average sales. They're not going to last."

Investing in franchisees' success

Once franchisees are up and running, it's in the best interest of everyone for a franchiser to lend as much support as possible. After all, restaurant employees require constant training, so why shouldn't franchisees? Franchisees need help in many areas, not just financial aid, but also in marketing, managing and training.

Leonard, a former franchisee himself, believes that balancing the company's interests with the natural entrepreneurial spirit of the franchisees is the biggest challenge he faces. "The pure entrepreneur is not happy about franchising, but some can fit into the corporate structure," he says. "Once they're on board, there's a period of one to two years where the franchisee relies on the franchiser for help and guidance. During that time, we allow them a little local creativity to satisfy their entrepreneurial desires."

But franchisees soon learn why they bought into the company in the first place: The system works. "For example, they learn that blackboard specials don't sell," says Leonard. "But you don't want your franchiser talking down to your franchisee."

So what can franchisers do to keep their franchisees happy and productive? Constant recognition is key, according to Leonard and Trujillo. IHOP has a board of advisors that consists of elected franchisees. This board meets with IHOP senior management to consult on business matters. "The key is to get management and the franchisees talking to each other," says Leonard.

For A&W, the profitability of franchisees is paramount. In fact, part of A&W's vision statement is to improve average restaurant-dollar profits 50 percent by the year 2000. "The single most important thing if you're going to be a successful franchiser is to have profitable franchisees," says Feltenstein. "Because in the long run, you can't be a successful franchiser unless your franchisees make money."

Every other year A&W holds a convention for its franchisees, to recognize their efforts and provide new ideas and motivation. Under Feltenstein, A&W tripled the size of its franchisee support staff, and it created a national liability-insurance program that saves franchisees an average of $2,000 a year. "That money goes straight to their bottom line," he says.

Perhaps most important, these restaurant professionals say, is that franchisers need to be fair and ethical. "The key words in franchising are trustworthiness and consistency," says Gray. "You've got to be dependable, because these people are investing their lives in you."

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