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 Professor Lorelle Frazer, from the Department of Marketing at Griffith University, says one of the most critical factors in terms of the success of a franchise hinges on the suitability of the franchisee. “The average franchising agreement is for five years, so this is a long time to be stuck with an unsuitable franchisee.”
Richard Evans, CEO for the Franchise Council of Australia, agrees and says one of the biggest issues concerning franchisors is the shortage of good franchisees. “They have the money to put into the business, but not necessarily good business skills or knowledge.”
And while it’s not necessarily the role of the franchisor to teach these skills, once the franchisees have been signed up there should be ongoing involvement to ensure they are getting the best from their franchisees and maintaining the integrity of their brand.
As Greg Nathan says in his best-selling book Profitable Partnerships, “Franchise chains are only as strong as their weakest link.”
He says the franchiser’s role is broken into three key areas of responsibility:
- provide clear, positive leadership
- help franchisees achieve their financial and personal goals
- protect the strategic position of the brand
Nathan says franchisors can improve the success of franchisees by
- ensuring their franchise systems, marketing program, and field support add value to the franchisee’s business
- improving profitability through supplier negotiations and continuous improvement initiatives, and
- encouraging opportunities for franchisee feedback and ideas to improve their franchise.
Keys to Success – communication and flexibility
Evans believes the key to successful franchising is direct and indirect communication, which includes IT and operations developments and updates. “It’s not good enough to simply follow the manual.”
By maintaining a positive and ongoing line of communication, the franchisor will be able to ensure their franchisees are getting the most up-to-date information and assistance, while the franchisee gets the benefits of ongoing support.
Not all franchisees perform at the same level and so they need individual assistance, and franchisors need flexibility to be able to offer tailored support. “Franchisors should provide tailored business planning services to franchisees. Research has shown that top performing franchisees need the franchisor for its brand and reputation, whereas lower performing franchisees are more dependent upon the day-to-day services franchisors provide.”
She adds that because the franchisees go through various stages of dependence on the franchisors over the course of the relationship, this requires greater flexibility on the part of the franchiser. There is also an onus on the franchisees here, as they need to be proactive about seeking assistance from the franchiser.
Franchising Pitfalls
According to FCA research, the common disputes between franchisors and franchisees result from non-compliance with the system. Evans says that about 50% of disputes occur because franchisees deviate from the system set out by the franchiser. “Many think they can do better,” he says, “and they forget that the branding is what is helping them. Some get a little ahead of themselves.”
Frazer agrees, and adds that other contributing factors are non-payment of fees, communication problems (not addressing problems early), and alleged misrepresentation on the part of the franchisor distorting how much money the franchisee might make.
“This is why mediation has been so successful under the Franchising Code of Conduct,” Frazer says. “The Franchising Australia 2004 study showed 58% of franchisees preferred face-to-face dealings with the franchisor over other methods (such as group meetings, emails)”.
Support & Ideas
Successful franchisors and franchisees are those who are able to maintain a good relationship. Vicki and Gary Delves run their Bike Force franchise in southern Perth. After winning the state franchisee of the year award two years running, they won the national award this year. They believe their success stems from a commitment to gaining as much knowledge as possible within their franchise system and about franchise systems in general. “In the last 12 months we have adapted many ideas from other franchise systems and utilised them within our own system,” says Vicki.
To maintain a good relationship, the Delves attribute open communication and a “listening culture”, which ensures the franchisor is more receptive to ideas of change that may reshape the game plan. “Perhaps our strongest area of relationship enhancement is in the area of leadership and desire to break down many of the perceived barriers between franchisors and franchisees,” says Vicki. “We always ensure that we convey our feelings, thoughts and ideas promptly and honestly.”
Benefits of Networking
Because both the franchisor and the franchisee are reliant on each other for a successful franchise, Evans says the relationship between them is vitally important when franchising. He also believes the relationship and support from other franchisees is imperative in improving the success of the franchise. This is made easier given that other franchisees are not competing with them for business or expertise and can therefore offer a better support network for franchisees.
The franchisee is reliant on the franchisor for ongoing support, he says, and the franchisor is reliant on the franchisee to make sure they are maintaining the integrity of the brand. “You don’t want to damage the brand you’ve created.”
Commercially, Nathan says good relationships help to keep communication channels open, maintain high levels of motivation and commitment for continuous improvement, and help prevent disagreements that may lead to costly legal disputes.
Frazer says the reason franchising is successful is because of standardisation, which enables the concept to be replicated. “Franchisees who recognise this are usually the top performers. Even within a standardised system there is plenty of room for the franchisee’s entrepreneurship, providing the communication lines between franchisee and franchisor remain open.”
In his book Nathan says that when conducting field visits, franchisors need to encourage honest feedback from their franchisees. While both Evans and Frazer agree it is best to stick to the systems and operations put in place, there are opportunities for changes to the plan. As they both point out, the franchisees are in the marketplace and can see indictors of changing trends. This is where communication between the franchisee and franchisor is paramount to meet the changing demand of the marketplace.
Source: DSB Magazine (Jan 05)
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