"Tom Kron has passed the most critical test in franchising," says Raymond Burch, a Wilmette, Ill., management consultant who specializes in franchising. "He has found the unique product, the winning idea." Burch, who is a former president of the Washington, D.C.-based International Franchise Association (IFA) and is chairman of Illinois's Franchise Advisory Board, gives Kron credit for refusing to compromise quality by expanding too fast. He also applauds Kron's decision to withdraw from retailing so he could give all his attention to production, quality control, and product development.
But Burch thinks Kron's approach is an anachronism of the 1950s when franchising pioneers had no viable models and had to refine operations as they went along. Says Burch: "Too-generous territories were cut back, royalties revised, and performance requirements spelled out. Many contracts were 'renegotiated' in courtrooms across the country."
Burch is mystified that "this resourceful entrepreneur would embark on such a time-consuming, risk-laden, outdated approach to franchise development. Granting franchises for entire states is almost unheard of and totally baffling for a company with Kron's bargaining power." Expecting franchisees to stay happy, perform well, and pay royalties for 20 years without field support or ongoing supervision from the franchisor is not valid, he adds.
"And whether the long-range plan envisions 20 retail outlets or 2,000, an organized development plan enables a franchisor to pace growth to match increases in production capacity and management capability," he says. Because Kron has no such plan, Burch predicts problems in the next two years.
Joseph Koach, who heads his own consulting firm in Arlington, Va., and serves as regional vice-president of The Franchise Architects, a Chicago-based consulting firm, agrees: Kron was right to seek "slow, deliberate growth. And he was wise in taking less money up front to assure that his franchisees made money." But, he says, Kron's big mistake was "going into franchising piecemeal, with no overall development plan... The realistic way to set a franchise fee is to calculate the total costs of setting up the entire retail network -- legal and accounting fees, registration of disclosure statements, opening costs, training of franchisees and support staff, plus advertising and an operations manual. Then each franchise fee should be a percentage of the total start-up costs."
Koach also questions Kron's minimal advertising requirements -- most franchisors require an advertising budget of 1% to 2% of gross sales for national advertising with provisions for local ads sometimes, as well -- and feels there's a lack of ongoing supervision by Kron. He predicts that differences in the various contracts will plague Kron's relationship with his franchisees and views the franchisees' own loosely organized group with trepidation. "It's far better for the franchisor to initiate some mechanism for maintaining a dialogue and good relations. The last thing you want is an adversary relationship either among franchisees or between them and you." Koach also thinks Kron should evaluate prospective franchisees more thoroughly. In addition to assessment of personality and of financial stability -- an ability to make the initial investment and be self-supporting for three months after opening the new outlet -- Koach recommends both credit and character references. Koach believes Kron had the right product at the right time, but that success came the hard way, creating pitfalls that will continue to complicate his business life. He views Kron's European faith in one-to-one contact as not suited for the United States, "where everybody sues everybody."
If Thomas Kron wants to continue managing his franchises personally, Burch suggests, he might well seek experienced counsel, available to smaller entrepreneurs at a modest fee. The IFA offers regular seminars and workshops in major cities for less than $500. These help with individual problems.
Burch adds that Kron, like many franchise founders, may conclude that franchise development and supervision isn't his forte, after all, and decide to delegate tasks to a business manager.Koach feels it is a big mistake not to consult a specialized franchise attorney from the beginning, but he acknowledges that such services, at $100 to $350 per hour, might well be beyond the reach of a still-small business owner.
The most practical approach, says Koach, is consult an expert first -- a franchising or business consultant, an accountant, or a bank officer -- to develop the overall business plan and explore different franchising provisions. The franchisor will them require far less of a specialized attorney's time to draw up a franchise contract that embodies his business goals.