Welcome to my "Franchising In The Movies" series. For those of you that have been here before, welcome back. For my new readers, a brief explanation: this series is the marriage between my passion (the movies) and my career (I am a franchise attorney). Don't take any of this literally, because none of the analogies in this series are perfect. With that disclaimer, I do think there are some interesting comparisons between movies and real-life lessons in franchising and small business. As an added bonus, these entries are fun to write.
As I write this in December 2012, we are back into the beginning of Hollywood's "awards season": the time when the studios release the movies that they consider to be contenders for the industry's top film awards. At the end of every year, my wife and I make a list of all of the movies we saw that year (our present 2012 count is 125) and create a list, ranking our top 10 and bottom 10 movies for that year.
Last year, the movie at the top of both of our lists was the eventual Best Picture Oscar® winner, The Artist. I thought The Artist had all of the characteristics of a great movie: well-written characters, engaging story, a beautiful score, excellent actors, flawless direction, etc. As I think about the great movies from 2011 in comparison to those I've seen in 2012, I am continually reminded of The Artist. If you haven't seen it yet, you should. It's a magical movie about making movies.
(Spoilers follow; stop reading if you haven't seen the movie and plan to do so. Click here to continue reading).
A brief synopsis of the plot: it's the 1920s, and George Valentin is a famous silent-film actor who is at the top of his game. He is a huge box office draw and the darling of the movie studio. At a red-carpet premiere of one of his films, he literally bumps in to his adoring admirer, Peppy Miller. Peppy, an aspiring actress, auditions for and is cast in a backup dancer role in one of George's films. Peppy is fired by the film's producer (who is concerned about protecting his star from bad press), but George intercedes on her behalf and she keeps her job.
George is a star, but the film industry is changing: sound is being introduced to movies through "talkies." The studio wants to put George in talkies, but George balks — he dislikes the new innovation and prefers making silent films. Having committed to making only talkies, the studio cuts George loose and he is left without a job.
Convinced that audiences will still come to see silent films, George puts everything he has into producing, directing, and starring in his own silent film. The film flops, George loses his home, and is left to struggle to make ends meet.
During this time, Peppy, a great actress in her own right, has slowly risen through the system and become a featured performer in talkies. She is now the big star, but has not forgotten George and his kindness. Without him knowing, Peppy supports George. When George is nearly killed in a fire in his apartment, Peppy comes to his aid and helps nurse him back to health. When George's health returns, he learns that Peppy has been supporting him behind the scenes and is too proud to continue to accept her aid. But, eventually relents and Peppy — using her pull – encourages the studio to find a way for George to return to the movies in a talkie.
The final scene has Peppy and George tap-dancing together in front of the camera as George returns to the screen, sound and all. At the end, we learn why George refused to work in talkies: he has a heavy French accent, and he's working in Hollywood.
The Artist is an excellent illustration of how changing times and changing customer demand can leave behind those who refuse to change with them. In the business world, retailers and service providers are subject to the evolution of public tastes and desires. Those companies that don't see / don't understand the way public tastes are changing, and those that simply refuse to evolve themselves to respond to these changes are at risk of losing business or being left behind.
A number of franchise systems illustrate this point, none better than McDonald's. McDonald's operates a system that has continually evolved to respond to changing customer tastes and attitudes. For example, in the 1980s McDonald's realized that there was significant consumer demand in the market for a fast-food breakfast product. Responding to this demand, McDonald's became the first major chain to introduce breakfast (it was an instant hit, and today accounts for a significant part of the chain's revenue). Other fast food chains realized the significant demand in the market and added their own breakfast products to compete.
Another example of how McDonald's has changed with the times: the McCafe. It wasn't long ago that the McCafe didn't exist. McDonald's realized that customers' coffee drinking habits were evolving; the emergence and dominance of Starbucks represented a shift from traditional coffee products to gourmet. McDonald's saw that customers were making a choice during their morning commute: either stop at Starbucks and get a gourmet coffee (and a breakfast pastry), or go to McDonald's and get average coffee and a classic McDonald's breakfast sandwich. Realizing that it was losing business to Starbuck's, McDonald's introduced the McCafe to respond to customer demand for higher-end, gourmet coffee drinks and was able to regain / retain a share of the breakfast market.
As technology continues to improve, opportunities for system evolution are constantly presented. Some franchise chains have embraced technological change by incorporating new devices into their operations. A number of systems have integrated the iPad into their businesses in a variety of ways — like modernizing menus and ordering systems, and helping staff better manage inventory. Other businesses have created apps that help their customers place orders and track the status of those orders through their smartphones. Saavy businesses appreciate the importance of social media like Twitter and Facebook as a way to interact with customers and build brand loyalty. Indeed, those companies that don't have a Facebook account or a Twitter feed can suffer, particularly among those customers who might perceive them as out-of-touch.
Because it's important for businesses to be able to evolve over time, it's equally important for franchisors to ensure that they have the right tools to require franchisees to change with them. The best tool for the job is a well-written franchise agreement that contemplates the likelihood that the system will evolve and change over time, and requires the franchisee to adopt and incorporate any such changes into the franchisee's business within a reasonable period of time. From a franchisee's perspective, it's important that the franchisor recognize the need for system evolution to respond to customer need. A prospective franchisee should satisfy her or himself that the franchisor's leadership understands the importance of system change, and is well-equipped to recognize and adapt to changing tastes.
Although set in the film industry, the lessons of The Artist apply equally to all types of businesses. Like George Valentin in The Artist, the business that fails to recognize and respond to changing customer demands risks obsolecence.