Many challenges in franchise systems can be avoided if franchisors and franchisees have more open and frequent communication, mutual respect and transparency.
By Charles S. Modell, CFE
Retailers say that if you have a product people want to buy, the three most important elements to success are “location, location and location.” Experienced franchisors and franchise attorneys will say that if you have a good franchise concept, the most important elements for a successful franchise system are building trust, being trustworthy and maintaining trust.
The International Franchise Association’s Code of Ethics emphasizes to franchisors and franchisees alike that the “Foundations of Franchising” begin with “trust, truth and honesty.” While these words may all convey a similar message, the fact that each appears independently is likely not accidental.
“Being honest goes beyond simply telling the truth”
, and anyone who has been in any relationship knows that building and maintaining trust goes well beyond simply being an honest person. Moreover, what it takes to build and maintain trust varies between a start-up franchisor, an emerging franchisor and a mature franchisor.
Devil in the Details
Building trust in a franchise relationship should be easy. When franchisees join a system, they place their faith and their futures in the hands of the franchisor. However, “the devil is in the details,” and for a start-up franchisor, those first contacts with prospective franchisees are most critical.
Is the advertising you run for prospective franchisees honest, or does it promise more than you can deliver? It is important for franchisors to review the marketing materials provided to potential franchisees to make sure that the franchisor can (and will) deliver on the promises made in those materials. Failure to follow through on these initial promises will, at a minimum, start the relationship off on the wrong foot, and could eventually lead to costly litigation.
Once your salespeople make contact with a franchise candidate, do they qualify prospects, or do they take anyone who can write a check? Are your salespeople not only honest, but also careful not to over promise? When was the last time you trained your salespeople on these issues, or reviewed their sales presentations? The contacts your franchise salespeople have with prospective franchisees will set the tone for the entire relationship.
As soon as you sign the franchise agreement, the building part of the trust relationship begins. The initial weeks and months following the signing of the franchise agreement are critical periods for building trust and confidence in the system. Franchisees frequently have buyer’s remorse aftersigning their franchise agreement. Mature systems can involve existing franchisees in helping new franchisees overcome their concerns, but start-up franchisors who do not have a track record must pay careful attention to their franchisees through the initial phase of development of the business. If those franchisees still have buyer’s remorse after attending training, or during the first week of operation, the franchise relationship is bound to be a rocky one.
Prevent Franchisee Shortcuts
While the goal of the initial training and assistance you provide to new franchisees may be to get their business open, the establishment of trust in the franchise relationship requires much more. In fact, you would not be doing your franchisees any favor if you simply handed them a turnkey business. Rather, your new franchisees need to learn how to operate their business before they ever open their doors. Just as importantly, they need to understand why each element of the business plan is important. The initial training program, and all the initial assistance provided, should focus on helping franchisees understand how and why your business plan works. Otherwise, it is only a matter of time before they look for shortcuts or alternative methods, which becomes the first step toward a deterioration of the relationship.
Once franchisees have opened their businesses, they continue to expect to receive follow-up attention from the franchisor. Mature systems understand this point, but newer franchisors with limited resources tend to turn their focus to the next sale, if not as soon as the ink is dry on the first one, then when their first franchisees open their doors. Start-up franchisors need to understand that the first months of operation are critical periods for new franchisees and a successful franchise relationship requires the franchisor to do what is necessary to get new franchisees up and running. Ultimately, those franchisees become the best salespeople you can have with future prospects. However, if existing franchisees feel you care more about opening new units than building the sales of existing franchisees, trust dissipates quickly.
As systems mature, the franchisor’s relationships with others will affect the trust between it and its franchisees. Franchisors operate in a “fish bowl” due to the many contacts franchisees have with other people with whom the franchisor does business, be they employees of the franchisor, suppliers to the system, or other franchisees. As a result, your relationships with these people are as important as your relationships with your franchisees. After all, if your franchisees see you being dishonest or cheating on your suppliers or with other franchisees, they will start wondering whether you have been forthright with them.
There are No Secrets
Being trustworthy often means also being transparent in your dealings. The IFA’s Code of Ethics recognizes this principle: “Honesty embodies openness, candor and truthfulness.”
There are times when the franchisor needs to act quietly and discretely, but more often than not, the better policy will be to put everything in front of franchisees, so there is no question as to the franchisor’s motivation, or end goal. In a world where almost everyone communicates by e-mail, and many franchise systems have an intranet through which franchisees communicate, there really are no secrets. Some franchisors have even found that their policies and communications with franchisees have made headlines on franchisee blogs. The more forthcoming you are with franchisees, the less time they will spend second guessing you, or worse, telling the world their problems.
Similarly, franchisees should be involved in decision-making that affects the system. That does not mean that you should cede decisions to them. Indeed, franchisees do not, and should not, be running the system. However, they want to know they have been heard, and their input taken into account. Successful franchisors who secure “buy-in” from as many franchisees as possible are able to seamlessly implement policies for the benefit of the entire system.
For mature systems that have proven themselves to franchisees, one of the easiest ways to lose trust is to fail to follow up with franchisees. Are calls returned promptly? Are promises to follow up or provide additional assistance being kept? The failure to follow up with a franchisee might be the result of causes having nothing to do with the individual, but while the franchisee is waiting to hear from you, he is left to wonder about your motives for not getting back to him.
Imbed Traits into Company Culture
Much of what has been written to this point should be second nature for most franchise executives. Unfortunately, those executives are not the ones who typically have day-to-day contact with franchisees. The people you employ in that capacity will come with many different personality traits which reflect on the franchisor. One would hope that honesty comes naturally to all employees, but transparency may not. Likewise, there are many procrastinators among us, and there are people who do not have a very good follow-up system in their personal lives, let alone their business lives. Thus, when thinking about how to maintain trust with franchisees, do not forget to provide proper training and guidance to all your employees, and most importantly, to those who will interact with franchisees. Better yet, imbed these traits into the culture and fabric of your entire company.
One may wonder why a business attorney would be writing about trust. Thirty years ago, I asked a law clerk to research all the franchise cases he could find. His findings were maybe an inch thick. Today, the transfer binders of the lawsuits reported by Business Franchise Guide take up three shelves in my office. Most of those cases, and hundreds of millions of dollars of legal fees, could have been avoided if franchisors and franchisees had more open and frequent communication, mutual respect and transparency; the hallmarks to building and retaining trust, and ultimately, a successful franchise system.
Charles S. Modell, CFE, is chairman of the Franchise Group at Larkin
Hoffman Daly & Lindgren Ltd., in Minneapolis, USA. He has 32 years
of experience representing franchisors on a variety of issues. He can
be reached at 952-896-3341 or firstname.lastname@example.org