Mutual respect between franchisor and franchisee underpins everything in successful franchise relationships says Jason Guerke.
The franchise relationship can be seen as a commercial marriage, or as a relationship between a parent and child, with the franchisee growing into business adulthood under the tutelage of the franchisor. Here’s one more analogy to help understand the unique nature of franchising: as a relationship of outsourcing.
Under this analogy, franchisors outsource their frontline operations to franchisees, who take responsibility for serving customers (using the franchisor’s systems) at the coalface. Meanwhile, franchisees outsource their marketing, supply chain, logistics, information technology, operational support and product development requirements (among other things) to the franchisor.
In other words, there is a mutual exchange between the parties where each brings expertise, energy and capital (in cash, intellectual property or talent) to the relationship. At the same time, each reduces their risks of going it alone. Franchisees reduce their risks of business failure by tapping into the knowledge and experience of the franchisor, and the franchisor reduces their risks of failure by drawing-in external capital and talent from outside their own limited resources.
Central to this model of franchising as a relationship of outsourcing is the mutual respect with which both parties regard one another. Sometimes maintaining high levels of mutual respect can be difficult if the relationship becomes strained when one side fails to live up to its obligations to the other.
This is when it is important for employees of the franchisor to remind themselves that franchisees have usually staked everything – their homes, their careers, their futures – on the franchise, and consequently have a much greater investment in the relationship than any salaried head office worker. Likewise, franchisees need to remind themselves of the franchisor’s role as brand curator and guardian, and accept that the franchisor sometimes will make decisions that may not be popular in the short term, but may be necessary to protect the long term best interests of the brand and its stakeholders.
R*E*S*P*E*C*T
To help franchisors and franchisees better understand how respect evolves in the relationship over time, the Franchise Advisory Centre has developed the following acronym model which explores this unique relationship of outsourcing. RESPECT = Recruit + Educate + Support + Profit + Engage + Challenge + Together. Each of the seven phases of the RESPECT model are explained as follows:
Recruit
The early courtship phase, where the franchisor and franchisee are sizing-up one another, is the Recruit phase. Franchisees wield significant influence during this phase based on the significant resources franchisors invest to attract them. Penalties for misleading representations may encourage franchisors to provide the bare minimum of information about their franchise offer, while potential franchisees are often surprised at the amount of information they must provide about themselves in order to be assessed by the franchisor. Lasting first impressions that determine the future course of the relationship are made during this phase.
Educate
If the franchisee and franchisor decide to proceed together, the franchisee needs to be trained in the operational details of the franchise. During this education phase, the franchisee learns how to run the business, but should also learn “why it is done this way” and how this links with the organisation’s culture. The education phase should involve constant assessment of the franchisee’s learning so that the franchisee is fully-equipped to tackle the challenges of operating their own business.
Support
Support in can vary greatly and is often not quantified. The level of support a franchisee expects can be completely unrelated to the franchisor’s capacity or skill in delivering it. While the Recruit and Educate phases are still the honeymoon period of the relationship, they can lead to problems in the Support and later phases, as franchisees potentially find themselves unsuited to operate the business because of attributes that should have been identified during recruitment, or as a result of failures in the training and induction program.
Profit
As the franchise relationship develops, franchisors and franchisees alike must address profit issues. Not enough profit for franchisees makes the relationship unsustainable. Too much profit by franchisors creates tension with franchisees, especially if they are struggling to be profitable themselves, or are not receiving the levels of support they expected. A franchise relationship is doomed to failure if profit isn’t part of the equation.
Engage
A key element of any mutually-respectful relationship is the extent to which the parties engage with one another, particularly when making decisions that affect each other’s interests. Franchisors are expected to have management protocols in place that seek the active engagement of franchisees via meetings, conferences, surveys and franchise advisory councils, among others. Similarly, if franchisees are to get the most out of the franchise relationship, they should seek to engage with the franchisor via existing methods, or identify room for improvement and actively suggest these to the franchisor.
Challenge
An extension of the concept of engagement is that of challenging one another to higher levels of performance. Without even being conscious of it, franchisees will challenge franchisors to achieve higher levels of performance from the outset as they explore the system and test the boundaries of the education and support available to them. Franchisors may also unconsciously challenge franchisees by introducing changes to the system without adequate consultation. Neither of these are the types of proactive challenges that help a franchise relationship grow. The most effective challenges in franchise relationships are where the parties recognise there is room for improvement, and positively encourage one another to reach higher levels of performance.
Together
Ultimately, franchisors and franchisees need one another because of the roles they have outsourced to each other. Despite the occasional bump in the road, franchisees don’t exist without franchisors, and vice versa. The shared purpose between franchisees and franchisors in their business journey together underlines their co-dependency and the need for mutual respect in the relationship.
Where mutual respect exists, a healthy franchise relationship is inevitable. The RESPECT model helps franchisors and franchisees to understand their journey together and reiterates the mutuality of the relationship. Without mutual respect, the relationship is doomed to fail.
ABOUT THE AUTHOR
Jason Gehrke is the founder of the Franchise Advisory Centre and has been involved in franchising for more than 25 years at franchisee, franchisor and advisor level. He is a past chairman of the World Franchise Council, and a director on the boards of the Franchise Council of Australia and two major Australian franchise brands. He conducts education programs for franchisors throughout Australia and New Zealand, is an accomplished conference speaker and publishes Franchise News, a fortnightly email news bulletin on franchising issues and trends.
