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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. 

Absentee Owners

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 investment! 

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 inaction.

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?

  1. Keep the lines of communication open, as they were at the beginning of the relationship.
  2. Work your store. It is your investment. It is only a paycheck for part-timers
  3. Take constructive criticism from the experts that provide it. What may seem "petty" to you is what the program was built around.
  4. Invest time and energy into learning from other successful franchisees.
  5. 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.
  6. Hoping, dreaming, and wanting are not strategies. Building the business, attending trade shows, and networking are strategies.  
  7. Make the franchisor your own personal consultant. When you call for help, they will help.
  8. 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.
  9. 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.
  10. 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 elizabeth.b.mcgregor@gmail.com

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