In its struggle to improve results and bring more customers back to its locations, McDonald’s has ignored a traditional source of innovation — the franchisees. These are the people who invented the Big Mac, Egg McMuffin, and Fillet-o-Fish.

McDonald’s may have largely pulled back from trusting its franchisees, instead focusing on keeping the thousands of restaurant locations it owns and leases to franchisees filled. But Fractured Prune Doughnuts, a small franchise doughnut operation trying to double its size for the second year running, is betting heavily on both franchisee innovation and a dunk-it-your-way approach to customizing treats for consumers.

The chain has an unusual way of working in a number of ways, according to CEO Dan Brinton, who had been a franchise owner of a different doughnut brand for 17 years. He and his partner bought the business three years ago, are currently at 33 locations, and expect to hit 160 soon.

Unlike many franchisors, they don’t own any of the stores. There is no corporate office, just the two partners on the road for more than 200 days a year, going from one store to the other, and a number of service providers in marketing and supply chain management to handle operations.

Those aren’t necessarily good signs, according to some experts. In the past, I spoke with a managing partner at a boutique investment bank heavily focused on franchises. He suggested entrepreneurs keep their eyes open when a franchisor didn’t own stores (to say nothing of eschewing having headquarters) because then the chain couldn’t develop new products, easily collect data, or feel the pain of franchise owners.

And that may be, but Brinton says that, as a result, all the innovation comes through the franchisees. “In every food industry today, especially in the restaurant world., the trend line has been for people to be able to customize what they want,” Brinton said. “People really do want choices.” That could mean a regional specialty or the ability to choose an ingredient mix or toppings.

Fractured Prune does both. Customers can request a particular set of toppings and glaze. Similarly, franchise owners can create their own specialties. “What we say is it has to be executable across all of our stores,” Brinton said. If the new idea can’t work within the overall supply chain or equipment that franchisees have, then it breaks outside the brand. “If you want it in a milkshake in Maryland, you have to be able to put it in a milkshake in California.”

And, yes, they do have milkshakes modeled on the doughnut flavors.

Not that sharing innovation is painless. There have to be provisions so the company can continue to license the rights to a popular product to all the other franchisees and not see it walk out the door with the inventor.

There will be some significant challenges to scaling up the number of franchisees and whether the company’s current approach can support significantly larger operations. However, if nothing else, a focus on the ingenuity of entrepreneurs has got to be an improvement over the “we know all” approach.

Published on: Sep 15, 2015
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