Franchising · 22 September 2015

Building a robust franchise business: Understanding the relationships

A good business relationship is key to a franchiser/franchisee partnership
A good business relationship is key to a franchiser/franchisee partnership
On one level franchising is simple the recruitment of appropriate franchisees and training and managing them to operate profitable businesses using your brand and systems to deliver products and/or services consistently and seamlessly. However, what makes franchising difficult are the tensions that sometimes exist at the heart of the franchise relationship.

On one side we have the independent franchisee who, having invested in an affiliation to a brand, is seeking to grow their own business and reap the rewards. On the other, the more entrepreneurial franchisor who, upon receiving the franchisee’s investment, seeks to develop and drive the wider brand in a certain direction through management and leadership.

Underlying these tensions are questions that go to the heart of franchising. Are franchisees profitable? Are all parties to the relationship delivering and/or receiving value for money? Does the franchisor have the right ethics, business model and strategy? Are the franchisees working hard to implement the system? Are the franchisees supporting and enhancing the brand? Are the right people being recruited? And more fundamentally are all parties working effectively and collaboratively as a team?

The tensions that exist in the franchising relationship can be creative or destructive but they should not be ignored. It is only those franchisors that can find the right balance creating a business and relationships that works on all levels franchisor, franchisee and customer that will ultimately thrive.

Understanding the roles

In essence, a franchised business is a group of connected businesses.

There are the underlying franchisee? businesses delivering the products and services through independent business owners. The brand and systems are owned and developed by the franchisor and licensed to the franchisees. Within these systems should be all the tools, training and knowledge that the franchisee needs to operate its business which will include the initial set up of the business, the marketing and growth of that business and the management of its day to day operations. A franchisor should have all the knowledge, systems and software to allow it to train and support a good franchisee to operate and manage a successful business.

The franchisor? business is focused on the systems and knowhow to (1) identify and recruit appropriate franchisees, (2) train and manage franchisees to help them to operate successful businesses, (3) develop and enhance the brand and systems and (4) deliver the products and services required by franchisees to allow them to operate their individual businesses. A key to this is a very clear understanding of the franchisee? role so that the franchisor can recruit individuals with the right skills and resources to enable them to become successful franchisees.

Understand your KPIs

The key to any successful franchise is the systemization of its business (on both a franchisor and franchisee level) into simple steps and actions that seek to replicate behaviours and activities that create positive results and stop those that do the opposite. In short, this is often the breaking down of the business into a (1) structure of roles (franchisee and his team) and (2) a set of chronological actions that a franchisee (and/or his staff) needs to carry out daily, weekly, monthly quarterly or yearly to ensure that the business is efficiently and well run. These activities should form the work that needs to be carried out by the franchisee (and/or his team) so that it can achieve the KPIs that need to be met to achieve long term success.

So a franchisor needs to understand the KPIs (both financial and operational) that a franchisee needs to achieve and measure the activities that will be required to achieve those KPIs.

Managing your franchisees


 
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ABOUT THE EXPERT

Andrew Pena is a commercial litigator who has worked at well-known City practices. Having acted for major international companies and many recognisable high street brands, he now heads up Cubism Law's franchise law practice.

Business Law & Compliance