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The balance between the franchise relationship as a straight business arrangement, versus as a touchy, feely, family kind of thing, is always a guessing game in any franchise organization. The more established the system the more business like it should become, with the franchisees giving each other more of the "family thing" kind of moral support. But in the newer, younger franchise organization, the perceived tendency is to hit the filial aspect with more crescendo. I have no quarrel with this. But, when you feel that the system is well established and if there is no major battle going on due to franchisee failures, it is better to get over to being more objectively business like.
Three franchise systems that I have had extensive experience with serve as good examples of this suggestion's merit. Of course they shall remain nameless here, but will no doubt recognize themselves in these histories.
In one system the attitude was all business. There was great demand for the products and services and everyone was making good money. There was absolutely no reason to soft soap anyone about anything. Payment was there when it was due or you got a termination notice. No ifs, no ands, and no buts! As long as this healthy business climate prevailed there were no serious problems. This was during the introduction phase and the growth phase of the franchisor's life cycle.
Eventually, as is always the case, competition raised its hideous head, profits fell and payments were late. Lawyers started to spring up out of the earth like bugs from under rocks in a drought. Four years later (the franchisor having missed the boat on adjusting to the changing market they served), the system became just one more over the hill, moribund operation. Would it have been any different had there been more "family values" in the relationship? I think not. The end problems did not occur because of inadequate sensitivity, but for reasons of market changes and the inability to adjust to meet them.
The second situation involved a very sensitivity focused, paternalistic relationship in which the franchisees were encouraged to think of the franchisor as a parent figure. The president of the franchisor lost sleep and had great anxiety every time one of the franchisees had difficulty getting up to speed financially. The franchisor let substantial arrearages accrue with under performing franchisees, even, eventually, taking promissory notes for past due royalties, to be picked up at the end of the term. Hopefully, this 'loan' (in an economic sense, at least), would be the boost that would get the slow starters up to speed. In some cases it was the boost that made the critical difference and the franchisees paid off the note later on. In some cases it simply wasn't enough. The franchisee failed and the franchisor ate the promissory note for dessert. But in many more, the franchisee succeeded because of that extraordinary help, which the franchisor was not in any way obligated to extend, misrepresented his financial condition and his ability to repay, and joined in the first lawsuit that came along, hoping to escape his obligations. Love's labor lost. "Blow, blow thou winter wind. Thou art not so unkind as man's ingratitude." Might not that franchisor have been better off to terminate non performing franchisees and let the system prove itself in its 'best mode' by purging underperformers? Underperformers usually do not provide customers with the best experience anyway. Success is never guaranteed, and there ought to be a limit to what extremes a franchisor should go to save a drowning unit.
In the third scenario, maybe offered here as much for its humor as its lesson, involves a franchise system that always had a stormy history even at its best. Despite the rough and tumble that was an everyday fact of its life, franchisees kept on buying franchises, over and over again. In recognition of the troublesome relationship, every time an existing franchisee wanted to buy another franchise, he had to appear at a meeting of a franchise advisory committee for a recorded interview. In this interview he was always asked whether there were any problems, and if there were, to get them out on the table and straightened out before they were compounded by the sale of another franchise to a disgruntled franchisee. They also signed releases at each new purchase, concerning the theretofore past relationship history.
Eventually, of course, there was big time litigation with a breakaway group of franchisees. One such litigant, on the witness stand, a multi store owner, was reminded that his direct testimony about all the bad news visited upon him by his franchisor seemed a bit at odds with what he had told the franchise advisory committee each time he bought another franchise. Asked to reconcile these apparently conflicting scenarios, he replied 'I wasn't under oath then.' Go Figure!
Part Two of this article.
Copyright 1997 - 2008 || Richard A. Solomon
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