Q&A: Why Should Dynamics Partners Franchise? (UPDATED)

Kristi Hofer, U.S. Partner Channel manager for Microsoft Dynamics, has crisscrossed the country talking up Microsoft's proposed plan that would create a franchise model for Dynamics partners. While she emphasizes the plan is still in draft mode, it appears likely some sort of program that emulates franchising will come to fruition.

UPDATED 4/1/11: After this article's publication, Microsoft announced that it plans to shelve its Dynamics franchising plan for now. Read the full story here.

What kind of feedback have you gotten from partners?
The feedback that we've gotten from the potential franchisors has been some positive and some negative. The biggest piece that people are concerned about is giving up their name, and they're concerned they'll lose control of their customers. And there are the requirements of the franchisees. It's the three-person requirement that people had concerns about. There are a lot of folks that are really small and they'd like to go on without meeting the SPA [Solution Provider Agreement] requirement.

  "You want the franchisees to be able to leverage that really powerful brand, and we want the franchisors to build a very powerful brand for the franchisees to leverage."

Kristi Hofer, Microsoft Dynamics U.S. Channel Manager

Is there anything that can be done to ameliorate that?
We're getting feedback from a ton of different people. This is in no way shape or form nailed down; we could very easily change [things], but that's probably the biggest piece of feedback I've heard so far.

You said the role of the franchisees would be primarily to sell. Who under this model would provide implementation services and support to the franchisees' customers?
That's not something that Microsoft will be able to or wants to dictate. A lot of that is going to be determined by the franchisor and how they want to set up their organization. We think that we'd be setting them up for success if the franchisor has a centralized group of resources that the franchisees can dip into. The franchisee still has to pass the SPA requirements, so they'll still have those certified individuals sitting at their individual organizations, but if they need a heavy hitter on a specific type of technology or if they have to pull someone in who's a non-Dynamics implementation -- SQL or SharePoint or anything else -- we think what's going to happen is the franchisors will have that centralized group of resources that the franchisees can dip into to do some of that consultant work.

So it would be on a case-by-case basis?
Exactly. Like everything, every deal is different in the Dynamics channel, so it will definitely depend. It will also depend on how the franchisor sets up the organization. So from a Microsoft perspective, we're not going to say the franchisor does all the implementation and the franchisee does only selling; that's really not our place. But we think that to have a lean franchisee model, they aren't going to have as many heavy hitters that do implementations. For example, they might not have a guy that sits there and all he does is a very specific skill set -- he's very high cost [but] he's on the bench half the time because they don't have enough to keep them busy with. Instead of doing that model, we think that it will make sense to centralize some of those resources so that the franchisees can leverage from a central pool.

You said contracts could be established so franchisees could maintain ownership of their clients, but some have questioned whether that's feasible in reality.
I'd be very surprised if a franchisor came up with a model that didn't allow the franchisee to keep their customers. I don't think anyone would sign up for that model. My own opinion is the franchisee will absolutely be able to keep their customers when they leave. With that said, the franchisor would be liable for the customers in this model because Microsoft would look to the franchisor to own the customer liability.

What's your time frame for gathering this feedback and moving forward?
It's really going to be framed by how much feedback we get. We've been getting a lot of feedback from potential franchisees, so I don't want to pull the trigger before we get all that feedback. In my mind, I know we'll have an answer on how we'll move forward by the end of our fiscal year, which means by the end of June.

Do early indications suggest this is a feasible model to move forward with?
Absolutely. Yes.

How many partners do you envision becoming franchisors and franchisees, presuming you do move forward with it?
We think a very small number of partners will be franchisors; we're thinking definitely in the single digits within the entire Microsoft Dynamics channel. We think it's probably going to be something like two to five franchisors across the entire channel. And then the franchisees, it really depends on how well the franchisors implement. There are going to be a number of partners in the existing channel that migrate toward them because this is a great option for them, and then there's going to be new guys that aren't in the existing channel that we don't even have visibility right now who come and join. So it's really going to be dependent on how well the franchisors recruit the franchisees.

Are there any working examples of partners doing anything like this right now? Is it modeled after anything that exists either in the Dynamics channel or elsewhere?
There's none that are doing it exactly like this. There are definitely some partners that are starting -- even the M&A model, you see a lot of consolidation and they grow that way, and that's how they stay lean. There are some partners in the channel that centralize things and work together, but there's nothing that models what we're trying to do here in the Dynamics channel.

Would the Dynamics team be open to working with any existing IT franchisors -- something like a Geek Squad type of model?
That's not really something we've explored. The idea is the franchisor needs to have a very good understanding of the Dynamics business and needs to have a proven track record within the Dynamics business so they know how to take their secret sauce and give it to their franchisees, so I think that recruiting a franchisor from outside the Dynamics channel would be very difficult.

What do you see happening to small partners' technical talent under this proposal? Would they get hired by the franchisor?
Some technical talent will still sit at the franchisees. To meet the SPA requirement they have to have some technical talent sitting there. They have to be competent with the Dynamics products. Additional folks will have options. Some will become straight up consultants. They might go work for a consulting firm that's already in the Dynamics channel or they might create their own consulting firm. And of course they might work for a different partner within the Dynamics channel that's not the franchisor. I think there are a lot of options for them, but I think within the Dynamics channel we're seeing the consultants group growing a lot, and that's probably what those folks' roles will sort of gravitate toward.

How will the business models change for the franchisees?
We think the franchisees will be doing less work around things that can be centralized. So for example, operations, product development, brand marketing; that type of stuff they'll be doing less of. That will be done by the franchisor. The franchisee is going to be spending more time selling, No. 1. They'll be doing some implementation, and they'll be doing some existing customer relationship stuff. What we think the franchisee will gravitate away from is the stuff that a lot of folks consider overhead and more toward stuff that actually generates revenue directly.

If this plan went into effect and was wildly successful, how much of the Dynamics channel could it ultimately represent? For example, would Microsoft be looking at 30 percent of the Dynamics channel sales coming through these franchises? What's the upper limit you see?
I don't think I have a good enough feel for what that would be because the model isn't fully baked yet. I'd have a hard time giving a percentage on that.

What is the aim of the program from Microsoft's perspective? Is it to grow the pie and bring in new sales for more efficient sales processes, or is it more about trying to avoid losing the Dynamics customers and sales that would disappear if a bunch of small Dynamics partners went under or gave up because of the MPN changes?
I think at the end of the day it's all about helping partners become more productive and more profitable. So it's helping partners, giving all of our partners -- our smaller partners as a franchisee and our larger partners as franchisors -- one more option to grow and become more profitable.

Some of the partners that aren't happy about this have been Dynamics partners for 10 to 20 years, and feel they're having their businesses taken away from them. What can you say to some of those partners?
They've got choices. We're not telling any partner they need to join this model. We're not doing that at all. It's just like we're not telling any partner they need to go sell in the cloud. If a partner chooses not to sell in the cloud, that's up to them. We're telling them, "Here's another option that you can pursue," and we think it will be profitable if it fits their goals and mindsets. All of the options that were presented with Dynamics MPN are still there. If we decide to launch this it will be just one more option for them to consider.