The Franchisor-Franchisee Relationship: A Tale of a Failed Store
By Elizabeth McGregor
There is sometimes a pattern among failed franchise stores. This article
deals with the results that can arise when an owner becomes complacent or
disengaged with their franchise and how to prevent it.
Keeping the relationship of the franchisor-franchisee harmonious usually
seems to fall on the franchisor. Some franchisees crave constant communication,
regular updates, new and innovative ideas and as much support as they can get.
Working for a franchisor, I have seen the results of a broken relationship that
can lead to the untimely demise of a once-successful franchise store. This
article is not directed at all franchisees, but rather those who do not take
full advantage of what the franchisor has to offer. When a franchise owner loses
their way, they may fail to recognize where they are and what went wrong.
Many times we have seen the excitement and energy during the training
program, the new owner's commitment to follow the program and to make royalty
payments at agreed upon times.
After training, the new owner, with the support of the franchise staff, has a
successful grand opening. Momentum continues to build over the first few years.
The thirst for success, the determination to eventually open another or multiple
locations in the future, and the self-satisfaction of learning an industry they
knew little about is palpable. The franchisor-franchisee relationship
flourishes, as does their business.
The storeowner progresses over the next few years, excited about franchisor
field visits, seeking the advice from astute franchisor professionals, and
following the program to a "T." Franchisee royalty payments are made on time and
with satisfaction, because higher royal payments mean their once-infantile
business is growing!
The honeymoon phase can continue for a number of years. As time marches on,
self-satisfaction and financial gratification become intertwined with feelings
of self-entitlement. The owner's obvious hard work has paid off! With a smooth
running operation, hiring someone to manage their franchise will allow more time
with family, on the golf course, and hopefully lead to an early retirement.
Carefully and thoughtfully, the owner chooses a manager. Once the manager is
trained, the owner commits to maintaining constant contact and working in the
store three or four days per week.
As the new manager hones their professional skills, the owner is confident
their weekly presence in the store is no longer required. Bookwork and ordering
can be done from home, freeing up more time to reap the benefits of their
As time passes on the franchisee visits their store less and less. Frequent
emails and phone calls to the franchisor have been reduced to infrequent
communication often taking place during field visits. The franchisor field
representative offers constructive criticism and urges the franchisee to "get
back on the original program." Although the franchisor works with the new
manager and owner during the visit, the owner unwittingly becomes defensive and
wonders: With a solid manager and a positive cash flow, why is the franchisor
being critical of my successful operation? After the franchisor leaves, their
suggestions are never implemented.
A short time after the visit, the owner is surprised when the franchisor
reports signs that the store is not doing well. The franchisor is concerned
because the owner's sales are trending down, building maintenance is suffering,
the staff appears apathetic, costs are up, and inventory numbers are
unavailable. Feeling embarrassed, ashamed, and angry about the criticism, the
owner becomes defensive. This anger at feeling disparaged leads to more
Over the next several months, royalty payments begin to arrive late.
Franchisor calls to the franchisee to help arrange a solution are met with
excuses about the economy, competition, poor workforce, overdue bills, the lack
of help etc.
The owner becomes overwhelmed by this change in status and is reluctant to
acknowledge the true cause, namely the franchisee has basically ignored his
franchise. Franchisor's attempts to reach out to the franchisee may be met with
opposition. Their feelings may give way to misplaced blame. This must be the
franchisor's fault. Since the franchisees are the ones writing the royalty
check, the franchisor becomes the enemy by proxy.
However, if the owner stops and asks this question and answers honestly, this
failure could have been prevented. What changed from day one when my store
opened? Did the core of the franchise program change or did I change? If the
owner recognizes there are other owners in the program that are thriving in
spite of the economy or competition, their own fate could be reversed. The owner
can rally and recommit to their business.
If the owner decides to sell the franchise, it can be too late since the
financials paint a grim picture to potential buyers. Too often, the store will
continue its downward spiral and close.
No franchisor is perfect. Communication, innovation, and relationship
building can always be improved. If a franchisee understands that the franchisor
has a vested interest in the success of all their franchisees, they will have a
different understanding of the relationship. Franchisees have to make a profit
to stay in business. Profit is not a dirty word; it is a necessity for both
parties. Just as it takes two make a marriage work; it takes two to make a
franchise relationship work.
How a franchisee can succeed?
- Keep the lines of communication open, as they were at the
beginning of the relationship.
- Work your store. It is your investment. It is only a
paycheck for part-timers
- Take constructive criticism from the experts that provide
it. What may seem "petty" to you is what the program was built
- Invest time and energy into learning from other successful
- Do your homework. Don’t rely totally on franchisor memos and
industry news. Learn by investing your time researching your
industry. Embrace your industry and become an expert.
- Hoping, dreaming, and wanting are not strategies. Building
the business, attending trade shows, and networking are
- Make the franchisor your own personal consultant. When you
call for help, they will help.
- Only hire people that smile, have a passion, and are
trustworthy. You can train them to run a cash register; you
cannot train happiness, optimism, or honesty.
- Don't gripe about a royalty payment. Remember when you first
looked at the franchise opportunity. You saw the potential
revenue, calculated the royalty payments and your potential
profits, and chose to invest. Profit is not a dirty word…not for
the franchisee or franchisor.
- If you think you might be losing your passion, your drive,
or your stamina to work your business, and then get out with a
profit. Yes, it can be done but only when sales are up not when
they are trending down.
A relationship is a two way street without stop signs. Yield if you must, but
do not stop.
The author may be contacted at