Having the honour of addressing the aspiring franchisors and master franchisees at Franchise India 2009 Knowledge Series conference, I was asked to share my views on the importance of building and maintaining franchise relationship.
Over the years, I have witnessed disputes and issues between franchisors and franchisees caused due to misunderstanding or failure of support which could have been avoided or lessened with mutual understandings. We tend to think that the most important aspect to protect in franchising is the Intellectual Property Rights (IPR) or 'know-how' of the System. It is indeed essential to take advice on how to structure IPR ownership and how best to protect it. But, at the same time protecting the business relationship between franchisee and franchisor is of equal importance.
In order to build a strong relationship, a franchisor while selecting the franchisee must be careful about the selection criteria, and make sure that the franchisee really understands the franchise proposition, his role and responsibilities, the return on investment, timescales and the extent of the franchisor's obligations / assistance. Franchisees are equal to revenue. They are the key to revenue generation and profitability. An effective franchise system should result in profitability for all concerned matters. It is a long term relationship where the franchisor's success is dependent on the attitude, business acumen and actions of its franchisees. Before selecting franchisee to expand your franchise network make thorough research about the franchisee’s background. If your answer to any of these queries is 'no' or 'not sure', please do not consider granting franchise to this person.
Franchisors, who realise the importance of their franchisees and provide them support and guidance often have more successful franchise networks. In turbulent economic times, investing in your people (i.e. the franchisees) is key to your brand popularity and reducing trading risks.
Also, the franchisee expects support and guidance from the franchisor. How much they expect is emotive and differs between the franchisees. So be clear on what you will do as a franchisor and set out any conditions or requirements accordingly. A franchisor should be prepared to invest in the franchisees who take the decision to invest in the franchise.
I have seen franchise systems fail due to franchisors not investing enough or providing sufficient support. Instead of chasing initial franchise fees and royalty / marketing contributions, one loses sight of the contribution of the franchisee to make the franchise business run efficiently.
I believe that 'Silence is deadly'. 'Vagueness and uncertainty unravels relationships'...
Another building block of such relationship is the consistency of franchise agreement.
A franchise agreement that does not capture how the franchise relationship is to be developed or managed will not serve you well. Please take time to explain your business model and the franchisee relationship to your lawyer so that an appropriate legal binding document can be drawn. As your system develops and grows in size, maintaining effective business documentation in place is vital.
Most franchise agreements include an 'entire agreement clause'. This is the clause which confirms that no communications prior to the franchise agreement being executed are considered part of the legal contract between the parties. I would recommend that prior to signing the agreement, the franchisees must understand the franchise agreement.
The franchise agreement is there to polish performance and business
activities of the franchisee during the term of the franchise. It is not really designed to extract a franchisee from the system. If you are a franchisee and are concerned that the franchise agreement is silent of matters you consider important or are unclear, please make this aware to the franchisor. Changes and updates of the franchise agreement to accommodate day-to-day customs and practices are necessary from time to time. Consistency of approach protects the system and preserves franchise relations.