Letting franchisees go is probably the hardest thing a franchisor has to do. But how do you do that when all your other franchisees love them?

 

He's funny. He's affable. He's popular with all the other franchisees because he's fun to be with. Hell, you enjoy his company too. But you know something the others don't know. He couldn't run a business to save his life. You've given him more training, support, advice and encouragement than you've given any other franchisee. But he's just not working out.


You know that if you don't let him go now, he'll crash and burn all by himself, losing much more and damaging the brand much more than if you cut the cord sooner rather than later.

But what will all the other franchisees think when you do? Will they understand? Will it affect franchisee morale? Or should you hold off just a bit longer in case this one comes right?


As franchisors and franchise managers, we've all had franchisees like this. Or franchisees who have become role models for the other franchisees because they give the appearance of being successful – but really aren't. Or franchisees who are political animals and spend more time lobbying and hectoring other franchisees than putting their own businesses to rights.


The problem with franchisees like these is that if you give them enough rope, they'll not only hang themselves - but they'll try to hang you too. When it becomes obvious to the whole franchise network that they're failing, they'll start pointing the finger at you. The business model is faulty.

You never provided them with enough support. The market in their territory is different from everywhere else and the franchise system wasn’t adaptable enough. Or all of the above. It’s human nature for business people who are failing to blame everyone but themselves, but for franchisees, it’s human nature to lay the blame at just one door – the franchisor’s.


The worst-case scenario is a franchisee going into bankruptcy. Both the franchisee and franchisor lose control of the business when that happens, and the receivers take over. They’re not bound by the franchise agreement and they have no loyalty to the brand.


Because of this, best-practice franchisors move quickly when one of their franchisees is in trouble. First they send in the paramedics to find out whether the patient can be saved. If so, detailed diagnostics and specialist aid may be offered. If not, or the patient is not cooperative, an exit plan designed to ease the pain for both the franchisee and the franchise as a whole is put into place.


For many franchisors, an exit plan means terminating the troubled franchise and replacing the franchisee with another as quickly and smoothly as possible. But there are other options available, including:


  1. Buy back the franchise and keep running it under management or sell it
  2. Help the franchisee to sell the business
  3. Assist a promising partner or employee of the franchisee to buy or buy into the franchised business


In cases where there are disputes between franchisors and franchisees, we have found in several recent cases where discussions between the parties have stalled or broken down, our involvement as independent franchise consultants has been instrumental in bringing the parties together again and focusing them on developing mutually agreeable solutions. In several cases we have assisted in restoring trust and vitality in the franchise relationship. We don’t see ourselves as mediators, simply as a third party which is able to bring a fresh and objective perspective to discussions.


Our recommendations when dealing with poor-performing franchisees and franchise disputes are:


  1. Address issues early, before they start to fester
  2. Be aware of your and your franchisee’s obligations under the franchise agreement as they relate to the issues, but don’t quote them specifically except as a last resort
  3. Analyse the situation or dispute as objectively as you can before you raise them with the franchisee – it helps to first collect all the facts, make notes, discuss the situation in confidence with your colleagues or advisors, and consider all possible solutions and scenarios
  4. The seriousness of the situation will be a key determinant of how you handle it – informally as part of a franchisee call or visit if you feel that the franchisee will understand and respond positively, or more formally with a meeting specifically called to discuss the issue and the details of the issue set out in an agenda or discussion paper
  5. Unless the issue is extremely serious (such as gross misconduct), it is preferable to raise and discuss the issue before issuing a written notice of breach
  6. Sit down and talk about the issues openly and frankly – be sensitive to your franchisee’s feelings but don’t fudge the real issues
  7. Make sure you have the facts of the situation – and make sure you stick to them – but always ask for the franchisee’s side of the story, remembering Steven Covey’s adage: “Seek first to understand, then to be understood”
  8. Never back your franchisee into a corner – that would make anyone defensive and the ideal scenario in these situations is for your franchisee to come up with his or her own workable plan of action
  9. By all means offer assistance and support if you feel it would make a difference, but recognise that it is your franchisee’s business and there will be liability and risk issues around taking a too-direct approach to ‘helping’ your franchisee out
  10. Recognise it is normal for franchisees to become defensive and blame the franchisor in these situations – never take this personally and become defensive yourself
  11. Document everything and follow up every contact and meeting with edited notes on your understanding of what was discussed and any outcomes – invite the franchisee to comment on or add anything they wish
  12. Don’t hesitate to bring in outside professionals where you think it could help but never involve or divulge confidences to other franchisees unless they are directly involved in the situation
  13. Never make promises you can’t keep or offer false hope
  14. Accept that no franchisor is infallible and admit and rectify your mistakes if you are at fault
  15. Always do what you say you will do when you said you would do it
  16. If a solution cannot be arrived at through discussion, follow the procedure set out in the franchise agreement for issuing a notice of breach or in the case of a dispute, refer the matter to mediation, not court action, in the first instance
  17. At this stage, always follow the franchise agreement to the letter
  18. Have a Plan B and Plan C but remember that your key objective must be to minimise disruption to the brand and franchise by either resolving the issue or installing another franchisee (or company-owned operation) as smoothly as possible
  19. If you have to terminate a franchise agreement, make a formal announcement to the network and let them know what you are doing to minimise disruption – no matter how popular the departing franchisee is, the other franchisees’ biggest concern will ultimately be for the continuity of their own businesses, the brand and the franchise as a whole
  20. When it’s all over, undertake a post mortem, evaluating why the situation occurred and what can be done to ensure the same thing doesn’t occur again – do this with your whole team and, where appropriate, with your Franchise Advisory Council and/or franchise network







Article by Robin La Pere, No Ordinary Business and Franchise Consultants

Contact me at robin@noordinary.co.nz.





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Robin La Pere of No Ordinary Consultants has been a franchise manager, franchisor and now a franchise consultant. He has broad experience in franchise recruitment and a track record of success in working with franchise systems to grow their networks, in terms of both size and quality.

 

 

 

 

"Robin had a significant and positive
impact ... on Signature Homes as a whole, as evidenced by the fact that our business became one of the fastest growing businesses in New Zealand, winning a Deloittes Fast 50 Business Award in 2003, seeing total sales soar by more than 500%."

 

          Gavin Hunt, Signature Homes