Training: the key to minimising litigation and business failure

Whilst there is a high success rate amongst franchisees, the amount of legal disputes is still high, with 21 per cent of franchisors involved in disputes, and a median of 2 franchisees in dispute with a franchisor - the main reason being lack of franchise compliance. [1] Unfortunately, the end result of some of these disputes is business failure.

Ralph Anania, an executive member of MyAFSA (Australia’s first Franchise Alliance) said many people purchase a franchise upon retirement investing millions to “buy themselves a job”. But without the necessary business skills and knowledge there is the potential for litigation, or at the very worst - the loss of life savings.

“In the past, some franchisors have had the attitude of ‘my job is done once I’ve sold a franchise and handed it over to the Franchisee, with no more responsibility taken’. But franchisees need training, marketing and business support in order to succeed,” said Ralph.

One of the reasons McDonalds franchises are so successful is the training McDonalds offers. Hamburger University, founded in 1961, emphasises consistent restaurant operations procedures, service, quality and cleanliness. It has become the company’s global centre of excellence for McDonald’s operations training and leadership development, graduating restaurant managers, mid-managers and owner/operators. [2]

But many franchisors lack the budget, resources and knowledge to offer good quality training for their franchisees. So franchisees often experience a business knowledge gap, and this can result in litigation - or worse - business failure.

The Federal, State Government and the ACCC have sought to rectify the issue of franchisors and franchisees not acting in good faith by introducing amendments to the Franchising Code of Conduct, and enforcing the changes with penalties of up to $51,000, infringement notices of up to $8,500, and giving the ACCC the power to enforce amendments and penalty system without seeking to obtain a court order.

Whilst these changes have been necessary to streamline the franchise industry, the knowledge and business skill-set gap remains, and training has become even more important than ever. Ralph Anania trained on the job with his father from an early age in their family owned business – ‘Anania’s Quality Fruit Centre’ in St Marys.

“Growing up, I worked before and after school. My father was my greatest teacher, and this is when I learnt some of my greatest lessons, particularly around respect and integrity.

“During those early years, I observed my father’s business skills like a hawk, not realising that many years later, this would help pave the way for my own entrepreneurial future. I remember going to the Sydney Markets early each morning and watching my father negotiate with suppliers and then explaining to me how important it was to make sure you paid the right price for produce. This taught me to respect money as you have to work hard for it. I also learnt how important it is to employ good staff that share the same values and levels of respect.”

Ralph Anania (left) at his award winning Harris Farm fruit market franchiseBy the time Ralph was 20 he had bought his own store (a Harris Farm fruit market franchise) with sales of $1million per year. Five years later, in 1989, it rated in the top ten produce stores in the state with sales approaching $10 million. He credits this success to selling quality produce,
excellent customer care, and giving the customers a good experience, which brings the customers back.

Ralph then went on to enter the wholesale sector, and in 1994 he was approached by an IGA supermarket franchise owner for guidance on taking his business to the next level. Ralph’s changes doubled the store’s fresh produce sales within four weeks.

In 1999, after months of negotiations, Ralph acquired his biggest competitor and took his company sales to $25 million a year, servicing the IGA supermarket franchise chain. Using his wealth of experience, sales quickly approached $50 million.

This success saw Ralph searching the world for the most efficient distribution facilities. He then went on to build a state-of-the-art distribution facility in Sydney in 2004. This centre is still regarded as a leader in fresh produce logistics. And in 2006, Ralph was awarded ‘Entrepreneur of the Year’.

Integral to the success of this distribution centre was a fully equipped training centre which helped Ralph’s customers, fresh produce retail outlets and franchises, grow their own businesses, a concept that grew his company’s annual sales towards $130 million.

After decades of business success, Ralph has developed a talent and a passion for teaching and motivating others. He now travels the world running training programs and is sought after as a business mentor.

He is also giving back to the franchise industry. As a MyAFSA Executive, Ralph will be presenting regular webinars on the MyAFSA website about how to manage and grow a successful franchise. The webinars will be structured in a logical order and there will be various topics aimed at franchisors around effective leadership and how to better collaborate with franchisees, marketing, understanding your competition, the importance of key staff, etc.

The webinars also give franchisors an effective training platform to offer their franchisees. Giving franchisors a central location where their franchisees can get important business knowledge any time of the day or week to fit in with their busy business schedules.

Their franchisees can benefit from webinar training around creating and maintaining a good work culture, negotiating, local area marketing, sales, understanding your demographic, understanding your product and developing business and marketing plans, etc.

Webinar Topics like - effective leadership for Franchisors; how to follow the direction of your Franchisor whilst also being given the opportunity to work in a collaborative manner; and creating and maintaining a good work culture in small business; are just some of the topics that will harness harmonious relationships between franchisors and franchisees, with the result being happy franchisees and ultimately business success.

Steven Clare, LLM Honours, Founder and CEO of MyAFSA, brings a wealth of knowledge to MyAFSA. He advises Boards on legal and business strategy, presents information about franchising and has been published in Business Review Weekly.

MyAFSA is Australia’s first Franchise Support Alliance bringing Franchisors, Franchisees and SMEs together. It’s an online business accelerator platform for all those who join as a subscriber, bringing together thought leaders and more into the one place to help franchisors and franchisees succeed in their business.

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[1] Franchising Australia 2014, Lorelle Frazer, Griffith University