This article appeared in Issue 3#4 (May/June 2009) of Business Franchise Australia & New Zealand
The franchising relationship is often described as being something akin to a marriage. This is because the relationship is planned to be long-term and both parties are dependant upon each other. Keys to a successful marriage include commitment, support and respect, all of which need to exist for a good franchisor/franchisee relationship.
I believe that the maintenance of a good franchising relationship is critical to achieving happiness and a wealth creating focus. Let’s face it, you do not buy a franchised business unless you want to make money and, although there are lots of other skills that a franchisee needs to possess to make money, having impediments such as a poor relationship with a franchisor, can often water down or eliminate the other great business skills that the franchisee might possess.
In my practice as a lawyer, I am often confronted with franchisees and franchisors in conflict. Rarely is the conflict a legal conflict (i.e. the interpretation of a clause in a franchise agreement or some legal principle applicable to franchising). Rather, the large majority of franchising cases I handle stem from poor relationships between the franchisee and the franchisor; some caused primarily by the franchisee, others caused primarily by the franchisor and many caused by both.
In this article, I will outline some tips for a franchisee establishing and maintaining a good relationship with a franchisor; tips that I have learned from my many years practising as a franchising lawyer. In one sense, this article is one sided, because I am not specifically dealing with tips for a franchisor, but in saying this, many of the tips below apply equally to franchisors.
1. Understand that the franchisor has different business imperatives to you
As a franchisee, your goal will usually be to run a profitable business so that there is plenty of money coming into your household and the value of your investment in your business grows. To achieve this you must have good customer relations skills so that you can develop a base of happy repeat customers.
The franchisor’s goals, whilst profit driven, often are quite different. Good franchisors focus upon the enhancement and protection and the strategic position of the brand. They want the brand to become well known and well respected and believe that if this occurs, this will attract increased sales and profit for franchisees, more royalties for them and many new franchisee enquiries, increasing the possibility of their network expanding.
Franchisees need to understand these differences, just as a groom realises that his bride may be quite different to himself. A failure to understand these differences is a recipe for conflict and financial disaster. Ideally this understanding must be gained before a decision to buy a franchised business is made.
2. Communicate clearly
In my experience, the majority of commercial and personal/family disputes arise from poor communication.
If the communication is unclear, it may be interpreted in a way that was not intended.
Rather than just starting a rambling email, letter or conversation, STOP, take a breath and even jot down the point you want to get across, before tapping out your email or letter or opening your mouth.
If you are on the receiving end of an oral communication, take notes and, at the end of the conversation, recap your understanding of the discussion and ask the other person to confirm that your understanding was correct.
Never assume anything. Expect that the other person has a poor memory of past events or discussions.
Consider confirming your understanding of a discussion in a follow up email or letter. This can often be of use and benefit in the future if the contents of the discussion are disputed or called into question (particularly if the other person did not respond or dispute your understanding of the discussion).
3. Use the most appropriate form of communication
If you were angry with your young child because he or she spilt cordial on the new lounge suite, would you send them an email or letter outlining your displeasure? Certainly not.
If you were exercising your option to renew your lease, would you just ring your landlord’s agent and tell him you would like to do so, or would you do so in writing? Given the importance of the communication, you would do the latter.
The point that I am making is that there are many forms of communication but not all are suited for a given circumstance.
I have seen dozens of lengthy email exchanges between a franchisee and a franchisor that have started out as simple requests for information and ended up in aggressive and personal attacks on the integrity and honesty of those involved, which have then escalated to relationship destroying litigation.
My first point is, beware of emails or letters – they are very capable of sending the wrong message because they are confined and very often do not identify the needs of the writer nor do they enable proper emotional expression.
So don’t be afraid to talk face to face or get on the telephone. But if you do this, make sure your listen to what the other person has to say – take notes away and consider what you have heard before deciding what to so next.
If you lack the confidence to being involved in what might be a difficult or confrontational conversation, do a “dry run” with a friend or family member. You will be amazed at how well you perform during the dry run and later during the real discussion.
4. Never be dishonest or misleading
This is a golden rule!
If you have made a mistake or error of judgment and you are confronted by your franchisor, do not tell lies to try and avoid consequences. Avoid going into denial.
Most franchisors acknowledge that franchisees make mistakes and they are more concerned about what the franchisee learns from the mistake and how they are going to conduct themselves going forward.
Remember, honesty is always the best policy.
5. Become involved in the franchise network
By this I mean not closeting yourself in just running your own business. Make the effort to attend annual conferences and franchisee forums and mix not only with your fellow franchisees, but also the key head office staff of the franchisor.
Don’t just attend these functions, actively participate in them. Offer to become a speaker or panel member.
Consider joining any Franchise Advisory Council or Marketing Committee or Buying Committee. Many franchise systems encourage franchisee involvement in groups such as these.
Offer to assist the franchisor in training prospective franchisees. Become a mentor to new franchisees.
Involvement in the above things will impress your franchisor, but most importantly it will give you a far greater insight into how the network is running across the board and the challenges it faces. This will enable you to better prepare your business for those challenges.
6. Work closely with Field Representatives
Usually, field representatives perform a number of functions. As the conduit of the franchisor they will check for system compliance (and sometimes be nit picky), expand on any of the franchisor’s policy changes that might have been announced, but most importantly, provide you with some tips to help improve your business.
Treat your field representative visits as key events in your business. Do not make yourself unavailable. Create a pleasant environment. Make the field representative think that you really believe his or her visits are key events in your business.
Even if you feel that the field representative is not giving you good value for money, you should remain respectful and courteous. You can always take up your concerns about that person’s competence at a different level later. The last thing you want is the field representative, in the exercise of his or her discretion, making decisions that could be adverse to your business or writing unfair and biased reports to the franchisor about you and your business.
7. Respect your franchisor
This goes without saying, but I have met many franchisees who have absolutely no respect for their franchisor because they feel that the franchisor is incompetent.
Remember, the franchisor is trying to make money as well.
If you are dissatisfied with the franchisor, request a private meeting with the CEO, Managing Director or other senior officer. Prepare for the meeting (this may entail getting advice from a lawyer or accountant beforehand) and be measured in what you have to say. Make sure you get all your points across, but concentrate on the main points. For example, if you main concern is about the effect of franchisor marketing activities on your business, do not complain about the field representative always being late for visits. Focus on the main game. Listen to what is said in response.
More often than not the person with whom you meet will not know all the facts and will offer to investigate them further.
Be tolerant and patient. Be thankful for the meeting.
8. Avoid being the ring leader or a trouble maker
There is one thing that franchisors hate more than franchisees ganging up on them. It is the person who is driving that gang attack.
The simple rule is: don’t do it.
If there are issues that are affecting your business that might also apply across the board, attempt to resolve them at a micro level, rather than involving the whole group. Remember, a franchisor is more likely to make some confidential concessions to one franchisee than to the whole group of franchisees.
Avoid copying in the whole network or even a small number of franchisees with emails or letters where you may be complaining or being critical of the franchisor. This has the potential of undermining the network and ultimately causing far more harm to your business.
Remember, you are number one and number one must take precedence. Keep your concerns with the franchisor confidential and make it known to the franchisor you are doing so. The franchisor will appreciate that and may be more amenable to giving ground.
Bear in mind also that a franchisor usually has significant powers and discretions in the franchise agreement. They will offer no favours to ring leaders or trouble makers.
9. Talk, talk and talk again
This tip flows from many of the tips above.
Ultimately you want a degree of satisfaction from your discussion. You might get exactly what you want, nothing of what you want or something completely different. Usually, the important thing is that you are appeased. Sometimes this takes a while and can entail a number of discussions or written communications.
If you receive feedback that is critical or unfair, all types of reactions are possible. You may feel indignant or angry. You may think the other person is a fool. You may want to attack or criticise the other person or fault their logic. You may want to walk out of the meeting or hang up the phone. You may even feel guilty or believe you were stupid or incompetent to raise the issue.
When you receive feedback that you perceive is critical or unfair, make sure you ask why. If you are uncomfortable, you may wish to take a break. Alternatively you may treat the feedback as valuable.
But it is important that the issue not be left as unresolved and more talk often brings out the solution.
Conclusion
The importance of the relationship between a franchisee and franchisor cannot be underestimated.
The very lengthy franchise agreement that will, in most cases, set out the rights and obligations of the franchisor and franchisee, does not explicitly deal with the real relationship that must exist for a successful franchising relationship. It does not say, “we will trust and respect each other and always try and sort out our problems”.
For this reason, my view is that the franchise agreement, once signed, should be tucked away in the bottom drawer of your desk, only to be checked for key dates etc.
A sure sign of a relationship problem is when you have to reach into the bottom drawer and pull out the franchise agreement and ascertain your legal rights.
The fact that the relationship aspects of franchising are so important supports the view that, like marriages, a courting period must occur before the legally binding commitment to each other is made. Not only must there be courting, but substantial enquiry needs to be made of current and former franchisees of the network, to determine whether the franchisor and its key people are people with whom the franchisees really wants to start a relationship.
Philip Colman
MASON SIER TURNBULL LAWYERS
315 Ferntree Gully Road
Mount Waverley Vic 3149
T: +61 3 8540 0240
+61 417 438 259
philip.colman@mst.com.au