What a franchisee is looking for in a business relationship with a franchisor

Miracle Tub
What a franchisee is looking for in a business relationship with a franchisor

F. Georges Sayegh, A.S.D., C. Adm., Fellow CMC of Quebec and Ontario, is an expert- consultant in franchising and technology transfer. He is also the author of 18 books on franchising and related businesses. To reach him: gsayegh@gsayegh.com; Tel: (514) 216-8458.

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When we think of franchising, the first thing that comes to mind is a commercial relationship where a franchisor grants the franchisee the use of its brand, its commercial name, and assists in its operations in exchange for payment of an initial franchise fee for pre-opening services and a royalty payment for ongoing services.

In addition, we picture a symbiotic relationship involving mutual interdependence. On one hand, franchisor and franchisees are linked by their common goals and mutual interests. However, divergent interests and viewpoints may arise from time to time. Hence the importance of recognizing that, to be successful, franchisors and franchisees must maximize their shared objectives and minimize areas of disagreement in order to function properly and efficiently.

That said, the idea may seem simple, but it is more complicated than it sounds. Just as the franchisee expects the franchisor to scrutinize his application before granting the right to operate his franchise in order to guarantee protection of his brand, the franchisee must also do his due diligence to obtain the promises made by the franchisor to ensure long-term profitability. This will require in-depth analysis of the relationship between franchisor and franchisee which will be the cornerstone of the entire relationship.

To do this, the franchisee will want to make sure that the pre-contractual information communicated by the franchisor represents the actual situation that will prompt him to sign the franchise agreement, particularly in terms of the following:

a) Does the franchisor have a business brand that has been proven over time?

b) Does the franchisor have the ability to negotiate the best prices and services from approved suppliers?

c) Does the franchisor's team have the capacity to carry out the research and development necessary to identify new product lines to ensure maximum profitability of the franchisee’s operations?

d) Does the franchisor's team have the knowledge necessary to negotiate the terms of the lease properly, taking into account exemption periods during construction of the leased premises, authorized use of the product lines to be maintained, conditions for termination of the lease in the event of fire or business interruption?

e) Does the franchisor's team have the knowledge required to guide the franchisee in accessing financing to ensure sound management of the business?

f) Does the franchisor's team have experience supervising construction work within a balanced budget?

g) Does the training team have the skills and knowledge to help the potential franchisee improve his or her weaknesses in planning, administration, finance, cash management, inventory management, comparative studies of the company's financial results, human resources management, information security, personnel and customer safety, customer service, and communication with various stakeholders (bankers, customers, employees, suppliers, etc.)?

h) Does the franchisor's staff have the know-how that they are supposed to transmit to the franchisee in order to operate their franchise in a healthy and profitable manner?

i) Has the franchisor's team prepared a cooperative advertising program for major events at various times of the year?

j) How long has the franchisor been in business?

k) How many corporate units and franchises are currently in operation?

l) In the past five years, how many units have closed their doors or been taken over by the franchisor?

m) What is the franchisor's competitive advantage over competitors in the same field?

Most of the above information can be obtained from the franchisor, but other information can be obtained by questioning franchisees within the network, particularly with regard to the following:

i) How does the franchisor help people align their collective direction, execute their strategic plans and continually renew their organization?

ii)  What is the franchisor's participative attitude towards the Franchise Advisory Board for improving communication with the general public (the consumer)?

iii) Does the franchisor offer ongoing training and courses to ensure that content is easily kept current, quick to implement, and highly customizable so that franchisees can adapt the courses to their own business and thereby secure their own success?

iv) Does the franchisor create events that add value to the franchise network's brand while protecting its value to the business?

v) Does the franchisor continuously revamp his operations system to keep up with the changing landscape of franchising, notably to:

  • Analyze and identify gaps in the current operating systems?

  • Prioritize which gaps need immediate attention?

  • Identify strategies and tactics to close those gaps?

  • Establish follow-up processes to ensure progress is being made on closing the gaps?

  • Train and develop personnel with the necessary skills, knowledge and abilities to make their behaviors more effective and to sustain performance over time?

vi) Does the franchisor create a positive culture that has a direct impact on business productivity and profitability by enhancing the team’s commitment to the goals of the enterprise?

vi) Does the franchisor offer franchisees the opportunity to express their views on issues that are important to their business and to the franchise system as a whole?

In conclusion, the questions above represent a few key elements which will enable the potential franchisee to understand the foundation of the company with which he or she is entering into a business relationship that may last between 5 and 20 years. The foundation of this commitment will be based on the following three key elements:

  • The mission, which clearly indicates the company's raison d'être and how it differentiates itself from its competitors;

  • The vision, which represents the company's future; and

  • The core values of the organization that underlie these two statements. These are the organization's moral commitments to its employees, customers, franchisees and shareholders. They serve as "rules of behavior" and are taken into account in all major company policies and decisions.

In many ways, franchise organizations are even more dependent on a positive culture than other business models. The franchisee group is made up of independent business owners, generally with an entrepreneurial spirit. Franchisees are tied to the franchisor, yet independent, generally entrepreneurial and less inclined to follow instructions than typical employees and managers. They must be persuaded, and their teams of employees must be persuaded, to:

  • conform to corporate culture; 

  • follow the franchise model because it is the right thing to do for the underlying brand and will benefit the franchise;

  • commit to adopting a strong, positive culture, followed by the entire franchise organization, that will deliver positive results for the whole organization.