'Victory goes not to the strongman but to the relationship builder'
Franchising is based upon a long-term business relationship between franchisor and franchisee. Both must collaborate for the franchise business to reach its potential, and both have an interest in seeing it succeed. FDS Northern Consultant Tony Urwin reports
When you purchase a sofa, your relationship with the furniture store most likely ends at the door. You may see your car dealer again, but only for warranty repairs. Buy a franchise, however, and your relationship with a franchisor begins in earnest. Franchising is not about a single transaction, but a series of transactions - informational, commercial, and personal - that take place every day in the life of a franchise business.
Franchising is based upon a long-term business relationship between franchisor and franchisee. The franchisor has the proven business formula. The franchisee has the will and wherewithal to use this to build a business. Both must collaborate for the franchise business to reach its potential, and both have an interest in seeing it succeed. Not everyone understands the collaborative nature of franchising. Sadly, this includes some franchisors and franchisees.
FDS Northern recently helped establish an exciting new franchise system based on an international brand estate agency. As with all its clients, FDS helped the company set fees that made it possible for all to succeed. Not surprisingly, its offering generated a great deal of interest. The company will have four franchisees in its first training class this month, an impressive number. It could have been five.
One individual investigated the company's opportunity and found it worthwhile. He completed the initial inquiry forms, met with the Franchise Manager, reviewed the Franchise Information Memorandum, and asked to proceed. He was provided with the Franchise Agreement, which he duly reviewed. He informed the Franchise Manager that he agreed with the terms, and was ready to sign. When the appointed day came, he refused to sign unless the franchisor gave him his business for free.
Offers of financing and special payment arrangements were to no avail: the gentleman wanted all or nothing. The company was faced with a choice: waive its fees for one franchisee and grow its system by 25 per cent, or satisfy itself with a smaller class of franchisees with whom it can work on equal terms. To its credit, the company opted for the latter.
This prospective franchisee attempted to strong-arm the franchisor out of fees, to which it is rightfully due, and deliberately wasted the company's time and resources. Had the franchisor acceded to the gentleman's demands, the company would be asking for trouble. One slip of this franchisee's lips would undermine the franchisor's relationship with other franchisees. Worse, this gentleman may have other tricks up his sleeve.
Clearly, the company understood the spirit of franchising, while the individual did not. His cheeky negotiating ploy showed no regard for its effects on his relationship with Head Office nor its possible effect on the franchise system as a whole. In short, his behaviour was wholly inappropriate for the world of franchising.
Franchisors have acted just as foolishly. One well-established UK franchisor was recently found to be charging some franchisees higher service fees than others. While no current law prohibits the practice, varying service fees is widely discouraged in the franchising industry, and with good reason.
First, every franchisee in a franchise system deserves an equal opportunity to succeed. Individual energy, enthusiasm, skills, and market conditions may vary, but each franchisee is supposed to be working from the same business model. Varying the franchise fee makes it costlier to run for some than it is for others. Some franchisees therefore enjoy an undisclosed financial advantage over others.
Secondly, it is unjustifiable. Issues as fundamental as Management Service Fees must be decided before the franchise offering. Adjusting fees after franchises have been sold discloses errors in the franchisor's initial projections, or worse, greed. Neither inspire confidence.
Finally, it creates a condition, which, when uncovered, will sour relations between the affected individuals and the franchisor and spoil team spirit within the franchise system.
These are but two recent examples. Do yourself a favour, and do not provide us with others. Current and future franchisees: just as you want your franchisor to deal with you in fairness, show your franchisor the same respect. Don't bite the hand that will be feeding you valuable information! Current and future franchisors: you hold the pen that writes the Franchise Agreement, but wield it wisely. Treat your franchisees equally because eventually, the truth will out! Franchising is about alliances, not one-off transactions. Victory goes not to the strongman, but to the relationship-builder.
If you have any questions about franchising your business or would like more information about our proven franchise development programme, contact us today.