More and more my
practice seems to be shifting to meeting the challenges presented to
franchisees by opportunistic franchisors who see the cure for all ills as
taking more money out of the relationship with their franchisees. If they
did this without diminishing the net revenue of the franchisees, it might
not be so desperate a matter. However, in the present tense, the taking is
completely without regard to franchisee profitability. It seems, at least
on the surface, as though many franchisors really don’t give a damn
whether the franchisees survive or not. The immediate concern is the
franchisor’s bottom line and the devil take the hind most. Of course this
isn’t so with all franchisors, but it is with enough for the impact to
drive franchisee groups in my direction.
On the other hand,
there are many franchisors that cherish the survivability of their
franchisees. It is the core of the value of their portfolio of franchise
agreements. Agreements with dead people – financially speaking – aren’t
worth much. These companies are long view companies, what franchising is
supposed to be all about. These companies also tend to have effective
franchisee associations with whom they work for their mutual benefit. So
much of what is good comes from the field, where the rubber meets the
road, that the franchisee association is a positive force for optimizing
the likelihood that the system will remain relevant and viable. Alas,
there are too few of these. The others have to be trained to accept the
prospect that franchisees are not property to be disposed of for the sake
of short term expediencies. They can only be trained by people who have
the fortitude to deal with the realities of having signed tough agreements
with unworthy people.
A determined group
of franchisees, with proper guidance, can accomplish a great deal by way
of relationship improvement. It requires participation and support by a
substantial percentage of a system’s franchisee population and a level of
mental toughness that is rare amongst people who are essentially business
people conditioned to doing what is supposed to enable one to get along in
a business relationship. While many franchisees are ex military, they
don’t expect to have to hunker down locked and loaded to manage a
competent civilian business relationship in which their livelihood is
produced. That isn’t what it is supposed to be about and they were all
told that they were going to belong to a franchise “family” chock a block
with mutual respect and support. Rah Rah Rah, Sis Boom Bah! In so many
instances, however, it just aint so. The benevolent senior family member
and supporter, mentor turns out to be an ogre with a tough contract that
was signed by people who thought they were dealing with a warm and fair
human being.
To these
franchisors, and to many courts, what is fair is anything that is
permitted by the language of the agreement you signed when you didn’t have
a gun to your head. Having agreed to tough terms, you get what you agreed
to – tough terms.
The only way to manage
the situation when nice old Uncle Daddy turns ugly is to form and support
an independent franchisee association. And that requires mental toughness
as well as money. Actually, if you wait until Uncle Daddy turns ugly, it
will take more money and more mental toughness to get the job done. If
franchisees are astute enough to get the association established and
supported before Uncle Daddy turns on them, it can be practically
impossible for Uncle Daddy to get away with it. Usually, if the
franchisees have early on established positive relationship protecting
respect, Uncle Daddy somehow manages not to fall over the edge. That early
on investment in a franchisee association is worth so much more that it is
impossible to compare the two situations. Imagine a relationship in which
the franchisor never gets to threaten franchisee profitability. Does that
sound impossible? Well, it isn’t. What you have to do is get the job done
while it can still be done without having to wage war. War is expensive.
War can also be dangerous. When it has already turned bad, much more
mental toughness and more money is required – usually at a time when money
is tighter.
Most franchisees have no
idea what an independent franchisee association is supposed to do. They
think that if they can get the membership cost down to where no one will
think twice about the cost of joining, they are home. Forgetaboutit! An
army runs on its stomach. It has an appetite. It must be fed and it must
be supported. A Franchisee association is not a social organization. You
can’t just pick a name, start printing tee shirts and expect relationship
improvements and respect. With a tough franchisor, you get respect by
taking it. It is not otherwise bestowed. Power in such a relationship
comes from strength, including financial strength. There is no free lunch
when you are dealing with thugs. To be sure, there is never any free
lunch. But the price of walking through a tough neighborhood is higher
than normal. If you don’t include the cost of effective vigilance in your
budgets, the thugs will have your guts for garters – and they do every day
with hundreds of weak willed franchisees.
Franchisees have notions
about how franchisee associations ought to work that have nothing to do
with reality. They see it more as a social organization that has the
protection of their business interests as a secondary goal. They want to
be officers and directors, to go places and have conventions and meetings,
and to have toys, like bulletin boards and blog sites. They were
conditioned to think this was proper by organizations that specialized in
telling them what they wanted to hear in order to get small contributions
out of them that afforded nothing of substance when the rubber had to meet
the road. They gave out awards and held conventions with songs and dances
– all total bullshit. And of course nothing came of it that was ever of
significant use to franchisees in need of competent representation of
their interests. Meetings, songs and toys have no place in this picture.
Meetings can be had less expensively if confined to meetings of those
needed to come to decisions and the meetings are held over the telephone.
If you want to get together with your friends and socialize, drink, dance
and sing, do it at your local pub. Bulletin boards and blog sites are
poisonous artifices at which franchisees say things that their franchisors
can later use against them. The franchisors always infiltrate these
places. Judas franchisees are always reporting what is said, done and
posted as well as giving out their user ID and passwords to the
franchisors so that direct monitoring can be done. No franchisee
association is ever without a Judas or two who thinks he can feather his
own nest by selling out his brothers and sisters. Toys are dangerous. The
organization that used to provide them was run by people with no competent
appreciation of how to deal with confrontation. They believed you could
just talk bad people out of doing bad things. That is absurd and the
organization was absurd. Reality is the only approach in dealing with
tough people with whom you signed tough contracts.
I will admit that once
the franchisee association has been well established and has accomplished
much of its goals, celebration may be in order. After success celebration
is justified. Before success conventions are exactly like George Bush
flying onto the Aircraft Carrier Abraham Lincoln and declaring victory in
Iraq – ridiculous and the subject of endless jokes about his stupidity.
Until goals are met in significant measure, there is nothing to celebrate.
It’s about goals, not about just setting up an association. Focus on the
goals. Focus on getting broader membership. Focus on screening your own
leadership for their own vulnerability.
The leadership of a
franchisee association needs to be gig proof. They need to be in
compliance with their franchise agreements. If they are subject to simply
being defaulted out of the system, your association will not get
established, as the franchisor can simply scare them off. After the
association is up and running, you still need to vet your leadership to
assure that you are not allowing non compliance to become one of your
resource consuming issues. You can’t let the leadership consume
association resources to defend their own non compliant positions. This
happens more often than you would think, and bad franchisees sometimes try
to highjack associations for their own agendas. Your credibility is also
undermined when you allow bozo franchisees to come into positions of
influence in the association.
In thinking about setting
up an independent franchisee association, it is important to appreciate
that everything about it will immediately become known to the franchisor.
There are some things that can be done about that at the very beginning,
but the fact that some Judas will rat out the association whenever he can
must be dealt with in real terms. For that reason, when I first work with
the initial leadership group in trying to set up an association, I do it
as an attorney-client project, not as an association project. What that
means is that once we come to a decision about what the initial message to
the franchisee population at large is to say, it is said by me on my
letterhead on behalf of unnamed franchisees who are my clients. That
initial work costs relatively little, and if it does not get sufficient
support then my clients are not named and they know that they should not
risk problems with the franchisor on behalf of people who will not help
themselves. If there is not adequate support, we simply go no further.
Their communications with me are privileged and confidential. They have
taken no public position for which they are out on a limb, so to speak. Of
course, if they have already put themselves out on a limb before they came
to me, I can’t stuff that back into the horse (as we say in Texas). It is
better to come for guidance before you run your mouth in public. But even
if you have, my initial approach does not change. We don’t go out for
franchisee membership support with people who have their own high exposure
for not doing what they agreed to do. The franchisees can appreciate that
I have required my clients to deal up front with their own exposures
before going public with problem franchisees and asking the others to get
on board with them.
You would be amazed at
how often there is no adequate support. Franchisees that yell and complain
about being abused and about lack of profitability frequently want someone
else to just hand them workable solutions without their having to support
the work or help bankroll the project. It doesn’t work that way. The
franchisees must get on board or the problems will eat them alive. That is
an axiomatic truth.
Consider the following
illustrative situation. Many franchises are sold on representations of
buying power inherent in group purchasing. Most of the time those
representations are false. They are false because in the beginning a small
group of franchisees have no buying power. Large groups have buying power.
However, in most such situations the franchise contract provides for the
franchisor designating vendors. That provides a whole other revenue stream
for a franchisor, as the right to restrict vendors is the right to extract
fees from the vendors for the privilege of a monopoly vendor price
opportunity. The franchisees never get competitive pricing. In all of
those scenarios – yes, all of them – there are rather standardized quality
benchmarks for that particular business and vendors make their products to
those standards generally. Franchise vendor restriction is not required
for quality control. A simple requirement that purchases be to standard
will suffice.
When buying power is
achieved in this kind of franchise, the value of the buying power does not
go to the franchisees, but rather it goes to the franchisor. That is what
makes the buying power representations false.
This is a frequent point
of contention for the formation of franchisee associations. They want
access to competitive pricing and they want the promotional money to come
to the franchisees instead of being siphoned off by the franchisor. In
short, they want a normal situation rather than the artificial restricted
vendor situation provided for in the franchise agreement. The antitrust
laws no longer provide a remedy for that. If it was disclosed at the
outset, franchise disclosure laws may not provide a remedy either. Only
self help is left as a remedy for this rip off.
The franchisor in this
situation will not give up this cash flow because it is preventing the
franchisees from greater profitability, and he can’t be talked or sued out
of it in most instances. But he can be made to face irresistible business
pressure from a competently organized and militant franchisee association.
Issues that can’t simply be thwarted by threat can be linked to other
issues that the franchisor needs cooperation with, and in that manner a
sensible and livable middle road can be reached. But that solution is not
available without a competent franchisee association.
This one illustration by
itself should suffice to show even the most reluctant franchisee group
that a good franchisee association more than pays for itself over time.
Such a group must be ready to fight to protect itself in order to get to
that stage of effectiveness, as that kind of franchisor will try to kill
it. The franchisor must come to understand that his franchisees have
established and adequately funded the wherewithal to make him accept the
association through direct confrontation if need be. Militancy must be a
demonstrated feature of every new franchisee association as well as a
given in opposing a mature association, The more obvious capable militancy
is, the less likely it will be that the fight no one wants will have to be
waged.
The franchisor will soon
learn the amount of support behind the organizing effort. He will know how
many are in the group and he will know how much the group has put up in
resources to fund the association. If there is not widespread support and
sufficient resources to accomplish what is needed and protect the group
from attack, the franchisor will attack. But he won’t attack widespread
support. No matter how bad he may be, he can’t fight everybody. What needs
to be recognized is that if there is very widespread support and a
competent treasury, you win. Conversely, if there is not widespread
support and a competent treasury, you lose. It’s that bloody simple. It
must be like a rising tide. The impact of rising tide organization, lots
of force in a very short span of time, cannot be thwarted by a bozo
franchisor. Moreover, the new FTC franchise rule requires franchisor
recognition of the association in its FDD given to all new franchisee
prospects. These potential franchise investors, unless they are incredibly
stupid, will come to the association for guidance and will, if properly
handled, join the association immediately. They will be educated to
appreciate that if they are not in the association, they will be out in
the cold without the support of their fellow franchisees. With a
competently managed association only fools decline to join.
It is an eternal truth
that, while no one wants confrontation, being ready for confrontation is
the best way to avoid it. One never gives assurance that the association
is not being formed without confrontation being part of the equation if
confrontation is what it takes to get the point across. No bad aggressive
franchisor would ever have any reason to come to the table if he had
nothing to fear. He must be motivated. He has the right to confront you
and would never give you any non confrontation assurances. Similarly, you
cannot take that card off the table and expect not to be eaten alive. This
isn’t a tea party. You also cannot raise membership by telling your fellow
franchisees that confrontation is not what the association is about. They
must know and support the position that, while the association is not
being created for purposes of confrontation, confrontation will be
provided if it is necessary to accomplish the goals of the franchisees. If
you do not have militancy as one of the ingredients in your association
formula you are doomed to failure. You may get some members, but you will
never accomplish anything that you need to accomplish to protect the value
of your franchise investment. The militant attitude cannot be left out. I
am old enough to remember the attempts to appease the worst dictator of
the 20th Century, and dealing with a rogue franchisor is no different. If
he thinks you are weak, he will consume you.
Unfortunately, most of
the franchisees that come to me for association guidance do not have the
support of their brothers and sisters. People find it unpleasant to accept
the prospect that they have to spend scarce resources to deal with
problems that should not be part of any civilized business relationship.
They are right. It is unpleasant. But the consequences of not doing it are
more unpleasant. Will franchisee attitudes change so that more and more of
them stand up for themselves and get better results? As this era of
franchise abuse worsens, I think they will. No one wants to be part of
another Quiznos, Dunkin Donuts, UPS scenario. The suffering of those
franchisees ought to be sufficient to galvanize franchisees into action.
Anyone wishing to learn about their historical agonies can see almost all
of it on www.BlueMauMau.org .
Early establishment of effective independent franchisee associations could
have prevented those horror stories. There are many positive business
management opportunities within any franchise system that can be
facilitated by independent franchisee associations. The money spent on
them returns many fold over time.
Wealth comes from
strength. Remember that! |
