When you open your branch and your first customers start coming in, you look forward with mixed emotions to the next few years. What will be the future of your investment? How will you become a suitable franchisee?
Here’s a tip: Keep your relations with your franchiser healthy, and you’ll get your money’s worth. For starters, understand the growth pattern of franchise relations to prepare you for the challenges ahead and to help you put certain events and circumstances in their proper perspective.
RELYING TOO MUCH ON THE FRANCHISER
If there’s ever a time that franchisees are bound to say “Wow!”. This is in the first year of the relationship. When they get all the attention of the franchiser. During this period, the franchisees also feel that the franchiser’s system is the best they’ve ever had. They ensure the franchiser’s system is followed to the letter and regularly call the latter to clarify points, even if just to ensure they’re doing the right thing. On the other hand, the franchiser takes the nurturing parent position. However, he may tend to get annoyed with this overdependent of the franchisees.
During this early stage, the franchisee’s openness to the system’s advantage should be explored through further meetings and training that could reinforce positive attitudes towards the system. The franchiser should remember that over-dependence will pass, and he must not be negative about it.
VEERING AWAY FROM THE SYSTEM
After about a year of operating the business, the franchisee learns to understand the business. It begins to explore other ways of managing the branch. The franchisee even begins experimenting with some deviations from the franchiser’s methods and harbors questions about the franchise system.
The deviation may be very tempting at this phase. Still, the franchisee should remember that he has invested in an entire system that has been proven to work for years.
At this point, the franchiser should be helpful and sensitive to the deviations the franchisee may be taking. It’s likewise important for the franchiser to clarify the superiority of the franchiser’s franchise system over the deviations the franchisee has implemented.
There was a franchiser who had grown used to the almost daily calls of a franchisee. After some time, the calls started dwindling, and worried about what was going on, the franchiser visited the franchisee unannounced.
The primary operational flow was still according to standards, except that there was a manager the franchiser had never seen before. The franchiser reminded the franchisee of the company’s policy requiring managers to be trained before they start working in the branch. He explained that the manager needed to know the business concept and system of the franchiser to enable him to operate the branch successfully.
MANAGING THE PAINS OF GROWTH
When the business becomes profitable, the franchisee faces the challenges of growth. The franchisee hires more people and discovers he must learn employee management, not simply the franchise’s operations.
Franchisees must realize that the new challenges are part of growing the business. At this point, the franchiser can be the big brother he could call on to assist him. After all, one reason why franchising is usually a successful mode of entry to a business is that the franchiser has experienced these problems and knows what to recommend.
A licensee of a foreign franchise once consulted us about one franchisee that had piled up about half a million in accounts payable. What surprised us was that the order for supplies was regular and high. We could not think of a reason for the non-payment. And recommended an unannounced visit was astonishing. The franchisee had recently renovated his house and turned it into a mansion; he had also replaced his rickety old Toyota with a new Mercedes Benz. We suggested that the franchiser stop all deliveries.
MAKING A MEANINGFUL CONTRIBUTION TO THE SYSTEM
Eventually, the franchisee feels competent enough to manage the branch. Yet there’s a downside: The franchisee may belittle the franchiser’s contribution to the store’s success, resulting in strained communications between the two. It may be difficult to talk to the franchisee because he thinks he can stand independently.
When a franchisee becomes aware of this phase, he can turn his competence into a means of providing constructive input to the system. A franchisee should realize that the contribution of the franchiser is forever embedded into the system.
A homegrown food franchise has made millionaires out of friends and relatives who have invested in the business. One particular franchisee, who now owns over 10 branches, has prospered from being a simple employee to a very successful businessman as a result of the franchise. Emboldened by the number of his branches, he felt that franchiser support was no longer needed. He became the questioning and doubting Thomas from among the ranks of the franchisees. There was nothing the franchiser could do right. His litany of complaints was endless. His attacks on the franchiser were unprofessional and even involved personal issues.
We were asked to intervene and talk to the franchisee. Before the talk, however, we discussed with the franchise what we could do about the problem. We were surprised that he was willing to terminate the agreement. And release the franchisee of the agreement’s non-compete clause, meaning that he would allow the franchisee to continue with the business minus the franchiser’s trade name and trademarks.
We met with the franchisee and discussed the termination and release of the non-compete clause. He was more than willing to cancel the agreement. Shortly after, the trademarks and trade name were removed, and he continued operating the business. After about a year, the franchiser called us to ask whether he should welcome back that same franchisee because all his branches had folded up. We said no, pointing out that it could set a precedent for other erring franchisees and that the basic principle of trust in a franchise relationship had been violated.
RESOLVING CONFLICTS
This phase presupposes that after the defiance stage, the franchiser and franchisee devise a compromise on what to do with the relationship. This could involve renewal of the franchise term or the action to be taken when there are significant defaults in the agreement.
Before a franchisee applies for renewal, I recommend thinking a hundred times – just as he did before investing in the franchise the first time around. It’s important that the franchisee review what has happened during the term of the franchise. What did he feel then? What does he feel now? Would he want to spend another five years working with the franchiser and the business concept? Was the franchise concept worth the investment of his time and resources? Can he give the same focus and commitment to the franchise business? Has he had a truly fulfilling personal relationship with the franchiser? If the answers are positive, then, by all means, write the renewal letter. There should be no buts or ifs when deciding to continue the relationship.
If, in the end, the resolution calls for the parting of ways, I recommend that both try to part amicably. Remember those earlier decisions to enter into the relationship were voluntary acts of both parties. Whatever happened, something good must have resulted from the partnership.
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You may contact Armando “Butz” Bartolome for questions and more information.
By email: aob@gmb.ph
FB Page: Armando Bartolome
Linkedin: https://www.linkedin.com/in/franguru/
Website: https://www.gmb.ph
