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Understanding Franchise Releationships in a Franchised Business

Understanding Franchise Releationships in a Franchised Business
Author: Lance Winslow

Now that you have invested your time, energy and money in buying a franchise, how do you work within the system? How do you take advantage of all your franchisor has to offer? How do you deal with your counterparts, other franchisees?

In this chapter, I will give you tips that will help you thrive and prosper in your new business.

Communication

In any franchise organization, it’s important to maintain open communications lines. A franchise is like a marriage. You are now married to your franchisor and communication is the key.

Communication in a franchise relationship occurs in numerous ways. You should remember to keep communication friendly, helpful, upbeat and honest. Too many times a franchisor/franchisee relationship will become adversarial, hostile and aggressive. If this happens, communications lines tend to go down and everyone suffers. You as the franchisee have the power to keep communications on a positive note. There are many things that can be done to help your franchisor communicate with you.

Try not to be a chronic complainer. If you have a legitimate complaint, perhaps you could offer some praise first. Something that is being done right and how happy your are. Then mention the little something that’s caused a stress for you at your business. If you think you might have a solution – offer it or offer to sit down and brainstorm a little with a regional director or company representative. Offer to meet them at your store, your point of power so you can negotiate from a stronger position. Be friendly. Try to meet when you’re having peak hours. Show the franchisor or their representative how efficient you are, how clean your place is and how you are following standards to a tee. Treat it like a military inspection. Then explain the problem. Tell them your suggestions and ask what should you do? Remember:

The art of diplomacy is letting someone else get your way.

Regional Directors

Chances are your regional director has encountered your same problem in one of the other franchised outlets or perhaps many other outlets. Your regional director can tell you what other franchisees did to improve that problem and which solutions worked best and which ones didn’t work at all. Also, which solutions were approved by the company and which ones were not and why. Any solutions you might have could be of great interest to your regional director because even if your solution may not work at this time, it may be a missing puzzle piece to a long-term solution which will work system wide. Staying on good terms with your regional director can be very valuable.

Let’s say your franchisor want s to test a new product in a certain region and they ask the regional director in that region which outlet would be the easiest to use for the test market. If you are on good terms with corporate office staff and your local regional director, then you might be picked. Franchisors take test markets of new products very seriously. They usually:

Spend lots of money in local marketing

Set up well designed store signage

Re-do menus, brochures etc.

This will help you attract new business to your store and pay for new signage. Even if the test market fails and the new product or service is never implemented system wide, you still win because you now have a larger customer base and more local awareness of your business. By the way, over 50% of new products fail and it’s certainly nice to have someone else pay for it. It might put a small non-franchised company out of business if they had a new product failure.

Assist Your Franchisor

Due to the expansion rates of franchisors, sometimes they will have to call on franchisee for help. To move fast in the market place you need a strong team. Franchisors know this and no one is more dedicated than individual small business owners. That’s exactly what franchisees are. Sometimes there is not enough time to gear up to meet the demand of a growing system. Franchisors must call on franchisees to help in:

Training
Product Development
Sales of New Units
Streamlining Systems
Marketing of Services
Etc.

Usually the franchisors are willing to pay for this help. If the franchisor out sources some of it’s services to franchisees, it’s really outsourcing in house. There are many reasons behind this strategy:

It costs less than if the franchisor does it

It improves franchisees profit since the franchisees are paid for their help

Secrets are not lost to industry wide consultants

You as a franchisee have a vested interest to make sure the system succeeds, therefore you will do a better job

It builds a "teamwork" atmosphere in the system

Of course, if you are a chronic complainer and a problem franchisee, none of these extra perks of belonging to a system will be available to you.

So how do you maintain a positive relationship with your franchisor and promote a win/win situation? The answer is very simple. Almost too simple to write in a book, yet it is so important and few franchisees do it.

Be Nice To Office Staff, Vendors And Consultants

We have talked about regional directors who are the personal arm of the franchisor. The one on one human side. This is not the only contact you will have with your franchisor. Your franchisor will have office staff, vendors and consultants, all of which are there to assist you in your business. Each of these groups should be treated differently, but all should be treated with respect. Treat them like you want your customers to treat you, because essentially you are their customers and they work for you. If you have ever gone out of your way to help a good customer, then you have an idea of why you should try to be on good terms with your franchisor’s office staff, vendors and consultants.

Office staff at franchisor headquarters are usually very efficient and very sharp individuals. They have to be to keep up with the busy schedules and fast moving pace of a franchisor. As a matter of fact, a lazy or inefficient employee would never survive in the hectic day to day operations of a franchisor. Every one is calling, e-mailing, faxing, in a hurry to get things done. They realize that you are equally busy in your outlet and don’t have time to be left on hold. You need to run your business. However, don’t take your frustrations out on office staff. They are as busy as you. Think about it this way: fifteen other people just like you who are very stressed and very short while on the phone. If you are very sincere, polite, upbeat and thankful when you call, you quite possibly could be the only person who was nice all day. They will remember that. If you are abrupt, rude, arrogant, etc. your request may be placed at the bottom of the pile, which at a franchisor’s headquarters may be a long way down.

What if you need a new piece of equipment for your store and all you need from headquarters is something faxed to your bank from the franchisor’s office staff. If you’re nice, the staff person may simply walk down the hall and pull out your file and fax it right then. If you’re rude, they might put your request in a basket of things to do and wait for required signatures which might take a week. Either way is most likely within accordance of the Franchise Agreement. It’s really up to you. I suggest you make things easy on yourself. Try to get on the unspoken, unwritten "good franchisees" list.

Vendor’s of the franchisor can make a lot of money by working with franchisors. It’s like having a captured market with guaranteed volumes and sales. Unfortunately, sometimes vendors bid so low to get the account and the opportunity to have that captured market that they make very little on each individual franchisee. You should realize that their money is in the volume. If they help you with too much personal service, then they will lose money on you and the best to hope for is that they’ll make it up with orders from other franchisees.

Now this doesn’t mean you shouldn’t demand to get what you pay for. It means to demand in a nice way. Explain your situation in detail. Invite them to your store. Show them the problem. This may be the insight they’ve needed not only to serve you better but also your entire system. They may even think of ways to build their units more efficiently, more practical and less costly. Vendors of franchisors, once they’ve landed the big account, want to keep it. After all they’ve probably:

Re-Tooled
Hired More Staff
Borrowed Money
Restructured Their Operations

In order to take on the franchisor’s business. You shouldn’t use this knowledge to threaten to go to your franchisor if the vendor doesn’t give you what you want. That is counter productive. You should understand the vendor’s situation as they try to help you and your system.

Consultants of the franchisor usually work on billable hours. You should help them with their search for knowledge. Remember, whatever they recommend to the franchisor might be implemented. So if you deny them reasonable access to your business or purposely hide things from them, you run up consulting costs and any recommendations may be worthless. Worse yet, whatever is implemented by the franchisor from the consultant’s recommendations will effect your outlet.

Let’s say your franchisor has hired a computer consultant to look over the computer system and how the franchisees are using it. Chances are your franchisor hired a great computer consultant who bills at a rate of $200 per hour. If he/she comes to your store for a scheduled appointment, you should have your computer turned on and booted up and offer them a cup of coffee when they walk in. You should allow yourself free time to talk with the consultant without being interrupted. You should tell them what you like and dislike about the current system and what should be improved. By doing this, you’ll make it easy to give input and make a big difference in the computer consultant’s recommendations and save money. Not only is this the ethical thing to do, but it’s also the attitude you need to survive and prosper within a franchise system.

All franchisors are not the same. Some have a very corporate attitude and some are very down to earth and almost folksy. No matter what type you belong to, communication is still the key. With a small franchisor, you may be able to call the president or founder directly. A franchisor with fewer than thirty units needs your input at the top level. He or she will still be working out administrative and organizational bugs in the system. Your success is a very serious issue with them. They can’t afford very many franchisee failures this early in the game. Your problems and suggestions take precedence over all other aspects of their business. If you fail, it will effect future sales. It is important for the Founder to know how the franchised model performs in different locations, demographics and local economic environments. If they can solve these problems at a unit level now, it will insure the success of the future units one hundred fold.

In medium sized franchises, you may not have the opportunity to be on a first name basis with the Founder or President. However, you will certainly get the chance to meet them. You most likely will be dealing with a master franchise and a regional director who will most likely mirror the attitude of the Founder or President. You should get to know your master franchise operator and regional director on a first name basis. They will be concerned about your outlet because a regional director may receive incentives for your performance and a master franchise actually receives part of your royalty payments. Therefore, the more money you generate, the more money they make.

A large franchisor will have layers of corporate management and possibly a combination of master franchises, international franchises and lots of regional directors assigned to different areas or run out of regional master franchise areas. Some large franchisors may not have a Founder any more. The original Founder may have sold most of their stake in the company and no longer oversees any part of the actual franchisor’s operation. Many large franchisors may be publicly traded companies that may also own other franchise systems and may during your franchise term either buy more franchisors out or sell their interests to another franchisor. Since this may happen at any time, it’s even more important to know your master franchise operator or regional director and be on good terms with them. They will still be there tomorrow no matter who buys, sells or trades stock ownership or rights at corporate headquarters.

Franchisee Initiative

Now that you’ve learned how to get along within the system, you are probably wondering ‘What else can I do with all this knowledge?’ The following are some examples of things you can do:

Help With Public Relations

Let’s say you sponsor a little league team that wins the county championship or you sponsor a contestant in a city wide beauty contest who becomes Miss Any Town. Tell your franchisor. They’ll want to put it in their newsletter and send it to all the other franchisees. They will show it as an example of good local public relations.

Improve Efficiency

In your day to day operations you may design a form on your computer to help you increase efficiency at your store. Fax it to the Vice President of Operations with a note:

Bob – This form helps us run more efficiently. Perhaps other franchisees might like it. Do you want me to mail you a disk with the file on it? I used Microsoft Excel 7.0

Help With Your Expansion

If you want to expand your area and add another store, do some preliminary demographic work and a financing study. Ask your franchisor to review it and call you to talk. You’ll definitely improve your chances of being approved. Also include a schedule of estimated increased income from royalties and purchases in your package to the franchisor. Show them how you can help them.

Volunteer To Help With Teamwork

If your franchisor has a franchisee advisory board, offer to join and help franchisor/franchisee relations.

If you are in default of your Franchise Agreement, talk with your franchisor. Develop a time line that you can live with to come back into compliance. Franchisors don’t want to terminate good franchisees.

Franchisee Relations

Now that you’ve learned about franchisor relations, let’s discuss the rest of the team. Think of the franchisor as your coach and the other franchisees as your team mates.

Remember: TEAM is an acronym.

T E A M = Together Everyone Accomplishes More

How can you boost your relationship with other franchisees? This is relatively easy and her ...