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Jan, 16 2010

Building & managing relationships

Some people discuss business relationships as though the subject were about the froth on a cappuccino – fluffy and taking up space without adding much value. In reality relationships have a far more substantial role in the successful development of a fran

Some people discuss business relationships as though the subject were about the froth on a cappuccino – fluffy and taking up space without adding much value. In reality relationships have a far more substantial role in the successful development of a franchisee or franchisor’s business.

If you have ever watched electricians at work you will notice how careful they are. They understand electricity’s power to create or kill. And they give it the respect it deserves. Our relationships are also a bit like electricity, in that, while you cannot see a relationship, it still holds enormous power. For instance, we have all experienced the creative and destructive power of relationships in various aspects of our lives – at work or in sports teams, musical bands or business partnerships. Where there is poor communication, conflict and mistrust we inevitably also see poor performance and misery.

The greatest challenge

Indeed our greatest challenge as human beings has always been getting on with each other. Despite our good intentions there will always be certain people who bring out the worst in us – and others who would perhaps say that we bring out the worst in them!

Consistently maintaining positive relationships in business or in life is especially difficult where a formal long-term commitment and mutual dependence are involved. In such ‘interdependent’ relationships, which include marriage, parenting and of course, franchising, some conflict is inevitable. You cannot just walk away when you do not get your own way. The other party will still be there the next day, and the next, and the next. For an interdependent relationship to work, you have to learn to work things out.

The good news is that while interdependent relationships are often challenging, they can also be extremely productive and satisfying.

Power of franchising

The real power of franchising lies in the effective sharing of knowledge and resources, not only between franchisor and franchisee, but also the sharing that goes on between franchisees. It is through sharing experiences from promotional programmes, new product ideas, operational improvements and marketing intelligence that franchise systems gain and maintain their competitive edge.

Sharing also builds enthusiasm, loyalty and commitment to the brand. These three, intangible as they may seem, are possibly the most valuable and hard-earned assets of a franchise system.

When relationships become strained communication also closes down. People simply stop sharing. They perhaps view, “Why should I put myself out for that so-and-so!” As a result commitment and morale drops. This may show up as waning attendances at meetings, suspicion over new initiatives and a tendency to focus on the negatives. Worse still, people may deliberately withhold information in the hope that this will make life difficult for the other party. When you are running a business this can be dangerous. The quickest way to destroy an organisation is to cripple its communication systems.

Another reason why franchisors and franchisees need to take this area seriously is that relationship breakdowns inevitably end up with significant sums of money being spent defending legal positions instead of developing the business.

This brings us to the final reason why franchisors in particular need to take this area seriously. The growth of any franchise system depends on a team of satisfied franchisees, or better still, people who are happy to be advocates for the franchise system. Many an enthusiastic potential franchisee has been scared off by negative comments made by existing franchisees in a strained relationship with the franchisor.

Why relationships get strained

Through our research at the Franchise Relationships Institute, we have identified eight areas that have a significant impact on the health of the franchise relationship. A significant weakness in any of these areas will undermine the franchise relationship and in extreme cases, can bring down a whole franchise system.

Franchisee stress: Franchisees face constant pressure on a number of levels. There is the emotional pressure of having one’s life savings on the line combined with a constant stream of demands from customers, staff and the franchisor. The negative impact of these ongoing demands can be exacerbated by the uncertainty of fluctuating sales, especially in recent times, and the frustration of dealing with rising expenses and dwindling profit margins. High stress levels can cause erratic and hostile behaviour and strains in the franchise relationship. Franchisors need to be sensitive when dealing with franchisees who may be under high levels of emotional pressure.

Management of change: All businesses today face the challenge of keeping up with new technology, competition from globalisation and a more finicky customer who wants things faster, better and cheaper. This requires franchise groups to continuously update and change their franchise operating and marketing systems, while simultaneously getting franchisee buy-in and commitment to these changes. While some franchisors believe, franchisees will just fall into line if they introduce change in a well-organised and orderly manner, this is a myth. Introducing change is typically tiring, frustrating and confusing for both, a franchisor and especially its franchisees. High levels of two way communication are essential, which brings us to the next key area.

Communication: Effective communication, one of the fundamental building blocks of good personal and business relationships, is easier to talk about than to put into practice. Most of us will have had the experience of assuming that because we have seen or read something, or feel strongly about an issue, that others somehow automatically have shared our insight (and obviously agree with us). We become surprised, irritated and even hostile when they look at us blankly and say something like, “What are you talking about?”  While some people are more perceptive at reading body language than others, no one is a mind reader. If we do not constantly make an effort to communicate accurately, others are going to be left to fill in the gaps themselves.

Leadership and culture: Analysis of our extensive data base on franchisee satisfaction data shows that leadership is one of the most significant factors in predicting the health of the franchise relationship. Healthy relationships significantly correlate with high confidence in leadership, whereas low confidence in leadership is correlated with high levels of disputation, reluctance to recommend the franchise and intentions to leave the franchise. Leadership that gives franchisees hope is particularly important in tough times.

Franchisee profitability: Our research shows there is a clear relationship between financial performance and franchisee satisfaction. Franchisees may put up with mediocre service, lack of support, little recognition and poor leadership from their franchisor if they are making healthy profits. But when finances get strained so do relationships. There is a huge room for improvement in this area. Our research also shows that on average, a third of franchisees are doing well, a third are just breaking even and a third are struggling to survive. This is sometimes referred to as ‘the rule of thirds’.

Franchisee recruitment practices: In a franchise system based on a proven business concept and providing sound support systems, around 40 per cent of a franchisee’s success will come down to their own hard work and talents. For instance case studies of significant shifts in business performance when existing franchise units have changed hands are common. Despite this, the majority of franchisor companies do not have valid systems for assessing franchisee suitability and unwittingly allow entry to high risk candidates who are under-capitalised, unprepared, unsuited, or who have unrealistic expectations around what they are getting themselves into! This leads us to the next cause of strained relationships.

Management of expectations: Because the franchise relationship is unique and complex it is not uncommon for both parties to become confused about their respective roles, needs and obligations. The role of franchisor is to help franchisees achieve their reasonable personal and financial goals. For instance franchisees might expect to achieve an improved quality of life and a reasonable return on their investment, amongst other things. They rely on the franchisor to provide them with the systems, support and advice that will help them to run a successful business and meet these needs. On the other hand, the role of franchisee is to support the franchisor’s systems and maximise sales in their local market. Franchisors want market growth and positive brand awareness. They are also relying on their franchisees to deliver on the values of their brand — for example speed, cleanliness, friendliness or reliability — and to cooperate in maintaining their systems and standards. For the franchise relationship to work effectively, each party expects cooperation and support from the other in meeting its needs.

The Franchise E-Factor: Since I developed the Franchise E-Factor model in 1992 it has helped thousands of franchisors and franchisees to measure, map and manage the six stages of the franchise relationship which are GLEE, FEE, ME, FREE, SEE and WE. Franchisees may quickly move from initial feelings of GLEE (“I am very happy with all you have done to get me established.”) to the second FEE stage (“What am I getting for my royalty fees?”) and on to the third ME stage (“I am working my guts out and you, Mr Franchisor, are providing little if no value.”). The FREE stage is where the franchisee wants to break free from some of the restrictions their franchisor is putting on them. Perhaps they want to experiment doing things their own way or express their own ideas. The SEE stage comes when the franchisee realises that if everyone did their own thing, there would be a drop in standards and the group would lose its competitive edge. Not all franchisees are going to make it to the final WE stage (“I can see that together we can achieve a lot more than if I just try to battle it out on my own.”). The more franchisees that are stuck in the middle stages of the Franchise E-Factor, the more unrest there is likely to be in a franchise system.

Therefore, healthy franchise relationships can make all the difference to success and failure in franchising and they need to be worked on constantly. They are not something that can be taken for granted.

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