Franchising can be a very effective way to grow a business but like any other business, it presents its own unique set of challenges to both franchisor and franchisee. The use here of the word “challenges” instead of “problems” is deliberate, for the author believes that problems are actually challenges in disguise—challenges that can often be dealt with successfully when approached in the proper perspective.
RELATIONSHIP OF PARTIES
An intrinsic challenge in franchising is developing a functional relationship between the franchisor and the franchisee, then making that relationship really work. It is important to understand that as established by their franchise agreement, a franchisee is a business partner who invests in the business concept of the franchisor. Thus, although the franchisee owns and operates the business, he or she has to adopt and follow the business system and standards specified by the franchisor.
Typically, however, a franchisee joins the franchise network with his or her own unique business experience, expertise, and outlook. It is therefore not uncommon for a franchisee to have a business point of view that runs counter to the franchisor’s business system, and these differences can be a major source of conflict between the franchiser and the franchisee. The challenge to the franchisor therefore is to convince the franchisee that to succeed in the business, it is best to strictly follow the business system of the franchise to the letter.
To work together effectively and harmoniously, both the franchiser and the franchisee need to fully understand the nature and intricacy of their franchise relationship. Initiating efforts to bring their understanding to this level is, of course, the primary responsibility of the franchiser. On the other hand, the franchisee needs to keep an open mind about the franchise business system even if there are aspects of it that he finds difficult to agree with in the beginning.
When a franchised business becomes initially successful, some franchisees may be tempted to put the franchise on autopilot and just wait for the profits to come. In the case of the franchisors, they may begin to think that the simple act of franchising the business would automatically fatten their bank accounts. These expectations from a franchise are unrealistic and are a surefire formula for failure.
At the very start of the franchise application process, both franchiser and franchisee should clearly verbalize and document their expectations from their business relationship. Precisely what does each party expect when they sign the franchise agreement? These expectations will typically cover the following aspects of a franchised business: financials like profit-and-loss, day-to-day management, the franchisor’s support and assistance, and, most important, marketing. Details of all of these aspects should be sufficiently spelled out.
TWO DIFFERENT PERSPECTIVES
A very common source of conflict in a franchise system is the difference in perspective between franchisor and franchisee. Obviously, a franchisor will typically make decisions that take the entire franchise system into account, while a franchisee typically will assess the benefits of such decisions only in relation to his or her franchised branch. In particular, many franchisees might feel that efforts for system-wide promotions and brand-building efforts don’t really benefit them that much, so they either participate only halfheartedly in such marketing efforts or not at all.
This is particularly true when the promotional effort entails selling products of the franchise with other high-cost goods or requires the franchisee to put up additional inventory. When this happens, a particular marketing promotion will only be implemented in the branches that decide to cooperate. In branches where the franchisee sees no relevance or benefit in the promotion, customers will simply be told that the promo products have run out of stock.