The Human Face of Franchising – Building a Good Franchise Partnership

By Greg Nathan

Greg is a corporate psychologist and author of the popular franchising book, Profitable Partnerships.
While a franchise agreement is an essential component of the franchisor/franchisee partnership because it defines the legal obligations of both parties, legal agreements will never guarantee mutually productive relationships.

Co-operation, motivation and team-work are the real building blocks of success in a franchise chain. These largely come, not from legal agreements, but from ethical dealings, strong leadership, and the mutual respect of each party for the goals of the other.

So, to say that franchising is just a legal or commercial relationship between two parties is to provide only part of the story. To fill in the important gaps we need to also look at franchising from the point of view of the quality of communication between the people involved. To go a step further, the quality of communication is largely dependent on the quality of relationships between the people.

In fact, the relationship between a franchisor and a franchisee is often likened to a marriage, because of the long-term nature of the relationship and the interdependence of each party.

As in marriages, relationships can sometimes become strained. Communication can break down and before we know it, a host of unnecessary petty problems are born. Where a franchise network has developed a system of good internal communications, pressures on one party, rather than becoming a cause for conflict, provide an opportunity for assistance and support.

Ultimately franchising is about gaining a competitive edge through the sharing of knowledge and resources; sharing being the operative word. In a franchise network, when people stop sharing knowledge and resources you no longer have a network, but a bunch of individuals battling it out alone.

Given the pitfalls of not maintaining healthy franchise relationships one would think that common sense would prevail and franchisors and franchisees would do whatever it takes to ensure their relationship did not sour. There are however many reasons why difficulties inevitably occur. Many of these relate to organizational and psychological issues. The most common of these is “The Franchise E-Factor”.

The Franchise E-Factor:

There is a journey that almost every franchisee is destined to travel — a journey along a curve of disenchantment. This is a path on which I traveled as a franchisee and which almost every other franchisee I have ever met has also traveled. The places this path leads to are not physical, they are psychological in nature and include emotions such as hope, joy, disappointment, frustration and renewed confidence.

If you are beginning your journey into a new franchise business, chances are you will also travel along this path. And in so doing you will fall under the spell of what I have dubbed “The Franchise E-Factor”.

The E-Factor is not a mental aberration or something to be fearful of. It is simply a natural maturing of the relationship you will have with your franchisor as you gain greater competence and confidence in running your franchise.

You need to have commitment to your business and be prepared to work through the ups and downs of your life as a franchisee as you travel through the six distinct psychological stages.

Some people move through these six stages swiftly and more or less painlessly. For others the road ahead will be frustrating and full of interpersonal strain and resentment. Perhaps they will get bogged down half way through and decide that franchising is not for them.

As a franchisee, you may find it useful to use the E-factor as a way of making sense of the frustrations you may feel from time to time in your role as a business owner who wants independence yet can’t have it. As you read through these six stages below it will become clear why this progression is called The E Factor.

1. The Glee Stage

“I am very happy with the relationship I have with my franchisor. They obviously care about my success and have delivered all they said they would. I am excited about my new business and full of hope for the future.”

Initially franchisees are filled with glee. Along with their decision to buy a franchise comes the anticipation of whether things will work out and of course, the hope of making lots of money.

During the opening stages of the business the franchisor will also be busy providing encouragement and support to their fresh and motivated franchisee.

Positive emotions run high at this stage. There is a great sense of achievement for everyone as the numerous hurdles in establishing the business have now been cleared.

The Glee stage covers the lead up period to buying into the franchise and will usually stay with a franchisee for between 3 and 12 months, depending on their past business experience.

2. The Fee Stage
“Although I’m making money, these franchise payments are really taking the cream off the top. What am I getting for my money?”

This second Fee stage kicks in as the franchisee gains more of a handle on the business’s finances. It comes from a growing appreciation that profit is the end result of sales minus expenses. At this point they may become particularly sensitive to the franchise management fees, which they see as annoying expenses that eat into their profits.

Questions such as, “What am I getting for my money?” will surface in their mind, especially when they review their monthly franchise management fees.

At this stage the franchisee’s level of satisfaction starts to drop. There are basically two paths from the Fee stage – either back to the Glee, (this can happen when the franchisor provides significant assistance, for example, with a rent reduction), or into the next stage, the Me stage.

3. The Me Stage
“Yes, I am successful. But my success is a result of my hard work. I could probably be just as successful without the franchisor.”

As the franchisee moves into the Me stage, he or she will typically be thinking that their success is due purely to their own hard work and effort. This natural tendency to take the credit for the good things, is known in psychology as the “Attribution Effect”
or the “Self-Serving Bias”. Attribution theory explains the thinking process we go through in searching for the best explanation of an event and also suggests that we are not all as rational as we might like to believe.

When we perform well or achieve something we tend to attribute this to our inherent skills and personality. We take the credit. But when we make mistakes or don’t perform up to expectations, we tend to blame someone else or outside circumstances.

The human ego has always been a master at playing with our minds – giving us reasons why we are right and others are wrong, why we are good and others are bad, why we are smart and others are stupid, and so on. For some people it is a way of protecting their self-esteem.

Not surprising, we find the “Self-Serving Bias” or “Attribution Effect” alive and well in the franchise relationship. It tends to be at its strongest when the franchisee moves through the Me stage where they will tend to attribute their success to their own work and initiative. If things are not going so well, however, the franchisor is inevitably held to blame. Either way the franchisor usually starts to receive some criticism.

4. The Free Stage
“I really don’t like all these restrictions you are putting on the way I run my business. I feel frustrated and annoyed at your constant interference. I want to be able to do my own thing and express my own ideas”.

While the franchise relationship tends to begin with the franchisee relatively dependent on the franchisor, this does not last. As a franchisee’s business confidence grows, their drive towards independence will increasingly assert itself. A franchisee at this stage might feel resentful having to follow the franchisor’s standard operating procedures all the time.

The Free stage is characterised by a need to break free of the restrictions and limitations of the franchise and a testing of the system’s boundaries. A franchisee might also test out how tight the franchise agreement is and try to break free of their contractual obligations.

The franchisor might also decide to break free of the franchisee, either through a forced sale or termination of the agreement. Obviously, chances of conflict are greatest at this point.

A franchisee who is stuck in this stage can become trouble to him or herself and a negative influence on others. They may also be a ripe target to be exploited by someone wanting to provoke trouble in the franchise network.

Unscrupulous lawyers or consultants have been known to use franchisees who are unhappy about specific issues as their ticket to make some money.

At this stage, the franchisee will either get bogged down in resentment and continue to bicker with their franchisor, or revert to the Me stage with intermittent but harmless grumbling, or move to the next stage – the quantum leap – the See stage.

5. The See Stage
“I guess I can see the importance of following the system. And I do acknowledge the value of my franchisor’s support services. I can see that if we all did our own thing standards would drop and we would lose the very things which give us our competitive edge”.

Conflict in relationships seldom goes away by ignoring it. For the franchisee to move to the See stage there needs to be some frank and open discussions, where franchisee and franchisor listen carefully to each other’s point of view. There may be some bloodletting as previous disputes or disagreements are reopened. Mistakes and misunderstanding will no doubt have occurred on both sides of the relationship. There needs to be an acceptance and letting go of the past by both parties.

The franchisor might need to be more open in involving the franchisee in future planning or appreciating their specific needs. If the franchise system has been managed fairly and effectively the franchisee will generally come around to seeing that without consistency and adherence to the systems, the strength of the entire group would be lost. It is this shift in perception that characterizes the See stage.

6. The We Stage
“We need to work together to make the most of our business relationship. I need some specific assistance in certain areas to develop my business but I also have some ideas which I want my franchisor to consider”.

From the See stage there is a natural progression to the We stage – a move from independent to interdependent thinking. At this point the franchisee is prepared to put his or her ego aside and recognises that success and satisfaction generally come more easily from working with, rather than against, their franchisor.

To reach the We stage a franchisee must be mature, objective and commercially minded. Most importantly, they must be profitable. As long as a franchisee is not making acceptable profits and feels their franchisor is not responding to their needs, they will shake the system for change.

A franchisor that wants their franchisees to move into the We stage must deliver on their obligations and be fair and consistent in their dealings.

Franchisees who have negotiated their way through the franchise relationship minefield to the We stage are a franchise network’s greatest asset. They will often be quiet achievers who keep one eye on their profit and one eye on cultivating healthy business relationships, not just with their franchisor but with their suppliers, peers, and of course, their customers. It is useful for a franchisor to be aware of these stages so that they do not get caught off guard by the strains some of the stages will inevitably place on their relationship with their franchisees.

The model is in fact based on a natural progression that many relationships move through – dependence to independence and finally, interdependence. Interdependence is the highest and most mature type of relationship.

7 Strategies that create Profitable Partnerships for FRANCHISEES

• Set specific goals that motivate you – and review them regularly
• Use your franchisor’s expertise to help your business achieve its true potential
• Communicate concerns by focusing on your specific needs and solutions
• Commit to the business and take responsibility for its performance
• Enjoy your work and deal with everyone in a pleasant manner
• Support your brand – maintain high standards of presentation and service
• Share ideas with other franchisees and participate in meetings and conferences

7 Strategies that create Profitable Partnerships for FRANCHISORS

• Show strong leadership and be clear on your mission, values and goals
• Understand your franchisee’s aspirations and provide them with useful support
• Communicate regularly with franchisees and consult them on significant issues
• Commit quality time to listening to franchisee’s ideas and concerns
• Enthuse others through your positive example and your “can do” attitude
• Stick to your commitments and be fair in your dealings
• Seek to improve franchisee profitability through constant innovation

Franchisors and franchisees who are able to develop a healthy interdependent relationship are fortunate, for their businesses will continue to grow and prosper. But this type of relationship requires maturity, honesty and commitment. The ideal of a healthy interdependent relationship is something franchisors and franchisees should strive for.

Greg Nathan’s book, “Profitable Partnerships” which goes through the E-Factor in more detail with sound advice as to the way to negotiate the sensitive relationship between franchisee and franchisor, is available from FRANCHIZE DIRECTIONS, on 011–8030665. www.franchize.co.za.