What makes a good franchisor?

Much is written about what makes a good franchise owner, with online tests and profiling available. However less information is available on what makes a good franchisor. Nicola Broadhurst, of Stevens & Bolton LLP reports on what personality traits defines whether someone is cut out to become a franchisor – an issue of paramount importance.

As a recent Kall Kwik mediation showed, even a well-established “super brand” can run into difficulties where management style changes to the perceived detriment of the franchised network. Although a franchise is often called a partnership, it is by no means equal. A franchisor has wider interests to protect, namely the brand, its intellectual property and the franchised network. A franchise owner tends to be only concerned with their franchised business. It is not a level playing field as amply demonstrated in one-sided and lengthy franchise agreements that are designed to protect franchisors. There is a latent tension in the relationship from the outset that requires trust from a franchise owner. Often a franchisor’s standard response to a contractual query raised by a prospect is “we would never act unreasonably or in that way.” – Franchise owners who take this at face value do so at their own risk. Not everyone is cut out to be a franchisor with all of the challenges that this brings. It requires determination and excellent people skills. An ideal profile can be assessed by the elimination of the traits that cause the most issues in my personal experience.

Inability to communicate

Too often franchisors fail to communicate proposed changes effectively or work with the franchised network to ensure early franchise owner engagement. Where a change requires franchise owner expenditure on new technology, or equipment or on re-branding or marketing, it is not sufficient for a franchisor to simply rely on its contractual ability to impose a change with a minimum of warning. Any change will need to be justified and the benefits clearly outlined to the franchises. Some franchisors do not see the need to explain their actions, which seems to be inexcusable arrogance.

Inability to listen

Some franchisors simply fail or refuse to listen to issues raised by franchise owners, either because the issues raised are valid but do not conform with the franchisor’s management strategy or because it feels it does not have to and franchise owners should follow the system without question. The latter is justifiable, provided the system works and no recent changes have been introduced that have not been successfully trialled. However, to ignore valid issues that have a common theme seems foolish in the extreme. This attitude can result in frustrated franchise owners bringing class actions and, occasionally, a complete meltdown of the franchise relationship and break up of the network.
Structured forums where franchise owners can air their views and regular conferences where changes can be explained and support garnered are invaluable. It is not a weakness to share ideas and visions – after all, most franchise agreements promote this and, on occasion, franchisors should expect to be challenged. Although an autocratic management style by a franchisor may at first glance appear to be strong leadership, this is rarely inspirational in the long run.

Greed

Some franchisors have proved slow to respond or have failed to respond at all to the challenging economic conditions faced by its franchise network, which is surprising given the success of a franchise owner results ultimately in the success of a franchisor. Too often franchisors are perceived as wanting to squeeze as much money out of its franchise owners as possible with scant regard for the franchise owner’s dwindling profits. There have been some clear examples of this where venture capitalists have become involved with a franchisor without fully appreciating the constraints of the franchise model. The pressure is then on the franchisor to deliver profits within a short time frame at the expense of the franchise owners, who lose faith in the franchisor as a result. Relentlessly chasing improvements to the bottom line can also lead to franchisor accepting the wrong franchise owner on the basis of network expansion alone. A franchisor that picks a franchise owner purely on the basis of available capital is in danger of letting inadequately qualified individuals into the network that will, over time, dilute the brand and its success.

Inconsistency

It is an accepted principle of ethical UK franchising that franchise owners should be treated equally and fairly as far as possible. However some franchisors fail to understand this. Behaviour towards franchise owners can be inconsistent with some being kept sweet to keep the peace and others treated in an arbitrary manner. The term “it’s unfair” resonates just as strongly in a franchised network as it does in the playground with all of the accompanying feelings of anger and frustration.

Apathy

A franchisor that is not passionate about the business and the success of the franchise owners often fails to provide the level of support and commitment to the network that is expected and even demanded under the franchise agreement. Too many claims are brought by franchise owners, arguing a complete lack of support by the franchisor. Support is a critical element of a franchise and a franchisor that cannot be bothered will result in a disaffected network. Equally a franchisor that is able to take strong action when required to protect the brand and the network as a whole gives a good deal of reassurance to a franchise owner.

In order to assess these qualities, a prospective franchise owner should ask the following questions:

  • How have my queries been dealt with in pre-contractual negotiations – were the responses fair and reasonable?
  • What do the other franchise owners say about the franchisor?
  • How often do the franchise owners meet with the franchisor?
  • Is there a franchise forum or council where views can be aired and heard?
  • Who owns the franchisor and what is the franchisor’s exit strategy?
  • How hands on is the franchisor in the business, does it understand the pressures faced by franchise owners?
  • How does the franchisor deal with franchise owners that have breached their agreement?

In an ideal world a franchisor would be shrewd, commercial, fair, principled, inspirational and committed, with superb people management and communication skills – a tall order. However there are many excellent franchisors that exhibit many if not all of these qualities. As a result their brands are synonymous with quality and profitability and their franchised systems have withstood the difficult economic conditions with little fall out and will doubtless continue to thrive.