On Franchises and Getting it all Wrong

Franchises.  They seem to be popping up everywhere. 

Image source: National Franchise Associates Inc.

Image source: National Franchise Associates Inc.

BUT, are they all they are cracked up to be and what do you need to consider when you’re looking at getting in to a franchise?

In recent months, we have been in the position of reviewing a number of Franchise Agreements for a number of our customers who are looking at getting into the market as Franchisees.  All good as they know that any business needs a system and all businesses need support to enable them to be their best.  The franchise model can work incredibly well as the platform to do this. 

The big problem that we have seen over many years (and seems to be becoming much more prevalent of late) is that the franchise model is becoming all about the Franchisor. 

Now, forgive me if I am wrong, but would common sense not indicate that if the franchisees are doing well, the franchisor will, in turn, do very well?  From what I have seen in recent months, the franchisors don’t seem to “get” this part of the model.  I have seen situations like this over many years with a range of what turned out to be unsuccessful franchised businesses.  In effect the franchisor didn’t really give a stuff about the franchisee or their success.  They effectively “churned and burned” them.

To my simple way of approaching things, the franchisor should be making it easy for the franchisee to run and operate their business and should be supporting them in growing and developing their business.  They should be able to provide all sorts of assistance and guidance as part of that support and have, as their raison detre, the ultimate success and creation of wealth for the franchisee.  This will then create a sustainable and desirable franchising base for the franchisor that makes their offering attractive to other potential franchisees.

Some of the recent agreements had some mind-numbingly stupid clauses in them.  The philosophy behind the approach appeared to be the protection of the franchisor at any cost with nothing provided to the franchisee apart from obligations and massive cost burdens (over which the franchisee had very little, if any, control).

I get that the franchise model is based on a “brand and process” that the franchisor leverages through their franchisees to create a bigger footprint and network.  This makes good sense and enables the “love” to be shared.  However, when the franchisee gets little if anything by way of support, coaching, encouragement or development, you need to question what the potential franchisee is actually getting for their investment.

If you are considering getting in to a franchised business or looking at franchising your business, you need to do your due diligence and ensure that what is being offered is what you’re seeking or what you’re offering is meeting potential franchisee needs.  This should include a raft of areas but, at a minimum, the following:

  • Training and support (initial and ongoing);
  • Development of your business skills (including sales, HR, cashflow and profit/margin management);
  • Realistic and timely reporting of your perfromance against established KPI’s with suggestions for improvement from within the franchise network;
  • Merchandising and marketing;
  • Product and service knowledge (including your people);
  • Network support with and across other franshisees; and
  • Capacity to expand the franchise into other areas/regions where the franchisee has proven themselves.

I recently reviewed a franchise agreement which actually enabled the franchisor to sell into the market via the internet in direct competition with the franchisees.  The franchisees would then be required to fulfill internet orders processed through the franchisor with their compensation for the work in meeting this obligation being “in such manner as [Franchisor] considers fair and reasonable”.  For mine, this is simply unsustainable.  Not surprisingly, ouor client has decided not to proceed as they would be in direct competition with their Franchisor and they would bear the cost of delivering the product with no guarantee of any worthwhile remuneration associated with it.  Common sense has taken a holiday from the franchsior’s office.

McDonalds is seen as an exceptional franchise business and are highly sought after as franchise businesses.  Knowing quite a few McDonalds Franchisees, they have detailed the support and encouragement they receive from McDonalds.  They know that their franchisor is interested and passionate about having their franchisees make a worthwhile living and helps them achieve great things – it is therefore no surprise that the model operated by McDonalds is so successful.

It is a great pity that more franchsiors (and their advisors) do not appear to understand this.  They are doing themselves, but more particularly their franchisees, a great disservice.

If any franchisors or franchisees (actual or prospective) would like to have a discussion about where they can go right in their model and approach, more than  happy to have a chat.

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