5 Keys to a Strong Franchisee/Franchisor Relationship
By Dan Monaghan
To many, the world of franchising is an attractive business model to follow because it offers a proven system with tangible results already in place. At first glance, it appears to be a “plug and play” scenario; one simply has to add themselves to the system and open their doors to achieve success. But like any business, it’s not that simple, despite so much of the foundational work already having been done by the franchisor.
There is a lot at stake on each side of the relationship: the franchisor is protecting its brand, and franchisees are protecting their investments and livelihoods.
A Very Unique Business Relationship
The franchisee/franchisor relationship is a unique one in business. Often you will see franchising described as a parent/child relationship, with the franchisor (the parent) offering guidance and direction, and willing the franchisee (the child) to succeed.
While this is true, it’s a little misleading because that comparison compartmentalizes the franchisee into a secondary role. It’s also not accurate to describe the relationship as a marriage, where there is an equal partnership. The franchisor is providing a structure for the franchisee to follow, yet it’s up to the franchisee to take responsibility for his or her business growth and success.
The franchisor will not jeopardize the greater good of the entire franchise system to see one franchisee succeed, especially if that franchisee is on a path that does not adhere to the one laid out by the franchisor. This is where the parent-child or marriage analogy falls apart; each franchisee is an independent business owner. The efforts of the franchisee will ultimately determine whether he or she succeeds or fails with the franchise.
Understanding this relationship can be an adjustment, especially to someone who is coming out of a traditional employer/employee work environment. There can be a lot of discontent in a franchise relationship due to miscommunication, false expectations, or a lack of/too much involvement. If each side does its part, the relationship can be a long and healthy one, and can even take the franchise owner from a single-unit owner to multi-unit powerhouse.
Let’s take a look at the top five keys to building a healthy, successful, and long-term franchisee/franchisor relationship:
1. Do Your Research Well
This happens on both sides of the franchising equation. Franchisors are going to thoroughly research every serious prospective franchisee. They will scrutinize personal and financial backgrounds. They will carefully evaluate each candidate’s potential for success in their system. In many cases, depending on the size of the franchise network, there will be in-person meetings at the regional level and with a team from headquarters.
For franchisees, it is important to research as much about the franchise opportunity as possible:
- Search online, starting with the main company website followed by a thorough Google search. Spend some time researching the company on websites of franchise organizations and associations. Look for information both positive and negative about the company.
- Talk to existing franchise owners to get their perspective. Go on a site visit.
- Contact the franchisor to express interest in becoming a franchisee. Carefully review all materials provided with an understanding that they will present a very positive picture of the business. Attend a discovery day.
- Ask about training and support materials.
- Understand the comprehensive financial investment that is required, which will include the initial franchisee fee, equipment or location costs, ongoing monthly fees, and advertising fees.
- Find out what level of support headquarters offers once the franchise is open.
- The Franchise Disclosure Document (FDD) and the Franchise Agreement are the two most important documents prospective franchise owners will receive once they’ve progressed towards becoming franchisees. These documents spell out every aspect of the relationship in extreme detail, which makes them daunting. Take time to review all documents provided in great detail, and also have an attorney review them.
2. Open Communication and Trust
In a franchisee/franchisor relationship, clear communication and trust are critical to success. This is about sharing ideas and best practices, and having a method for feedback and input. It is having the tools to allow the franchisor to communicate with the franchisee (things like newsletters, daily bulletins, Intranet portals, regional meetings, and conventions) and for the franchisee to provide feedback (dedicated call lines, feedback forms, direct access to decision makers, regional meetings, and conventions).
Franchisees are the ones in the field working with the tools, systems, and products, and interacting with the customers. They can provide accurate feedback about what is working and what is not working, and offer suggestions for improvement or new product innovations. There are countless examples where some of the most successful campaigns or products came from within the network of franchise owners.
In turn, the franchisor needs to communicate any changes or improvements that will be implemented, or notify the system of any updates.
3. Having the Right Tools to Succeed
Since franchisees are buying into a successful business model, it is important that they have the proper tools and systems to replicate that success. This will include things like:
- An initial training program
- Training manuals and support materials
- Operating systems
- Ongoing training (at headquarters or in the field)
- Access to the supplier network
- Guidance on staff training and hiring (templates for job ads and ideas for where to recruit the best job candidates)
- Access to the advertising and marketing programs and materials
4. Taking Responsibility
A franchise relationship will be successful when each side lives up to their responsibilities. The franchisor has an obligation to:
- Provide each franchisee with the necessary systems, materials, and training to succeed.
- Keep up with changing times in terms of technology, customers, trends, tastes, and systems.
- Understand that what may have worked when they started franchising may not be as successful today.
- Conduct regular site evaluations (unplanned or scheduled) to ensure standards are being met.
The franchisee has the obligation to:
- Follow the outlined systems and training and adhere to operational standards.
- Hire staff.
- Supplement any franchisor advertising with local marketing.
- Determine employee pay structure.
- Possibly set their pricing structure (this can vary regionally across the country, but always within franchisor recommendations).
- Handle timely and accurate reporting of sales to the franchisor.
- Participate in advertising campaigns by honoring product or service promotions and discounts, and maintaining product/service quality standards.
5. Following the Plan With a Commitment to Succeed
Systems and procedures have been put in place for a reason. The franchisor has already done the groundwork, testing and experimenting to build a successful business model. The company has developed standards that define its brand to the public, and has put systems in place to ensure that those standards are met and adhered to by each franchise owner. If the franchise owner commits to following that lead, the chances of being a successful franchise owner will increase.
Franchise networks are unique. Sure there is competition between franchise owners–there is the inevitable ranking of the most successful owners, the drive and reward to be the top producer. But there is a sense of cooperation and wanting to see the entire system succeed; there is a sharing of ideas and best practices.
The stronger the individual franchisee, the stronger the entire franchise system. By understanding these five keys to a successful franchisee/franchisor relationship, the focus can be on overall strength rather than individual discontent.
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