The franchise relationship is often described as a partnership between 2 parties - the franchisor and franchisee, but it is not quite so. The franchisor (role of a leader) owns the brand, intellectual properties and has the right to dictate operational procedures and more. On the other hand, franchisees (role of a follower) are required to adhere to the franchisor’s directions and in the event where they fail to comply, run the risk of facing legal consequences. Still sounding like a partnership?
In most (if not all) cases, the franchisor will get to call the shots. Of course, franchisees still have autonomy to operate and manage their franchise business but only as long as their actions are performed within the guidelines provided by the franchisor.
But there’s a reason for this. The franchisor created the system and knows it best and will want to implement conditions that protect the brand and its intellectual properties. While on the other hand, franchisees are typically only inclined towards matters directly impacting their franchise business. Clearly, both the franchisor and franchisee have differing concerns here.
While it may seem taking up a franchise is a bad idea for prospective franchisees, it only becomes an issue if the franchisor’s leadership or management style is questionably undesirable. So what are they?
4 Horrible Types of Franchisors
1. The Autocratic Franchisor
The franchisor feels they have the right to dictate everything and order anything. Without providing due consideration or explanation to franchisees, the franchisor will demand new changes (e.g. launch of product or service, operational procedure, change of employee uniforms, etc.) be implemented. Changes normally require a cash outflow from the franchisee, therefore it is doubly important to ensure appropriate reasons are provided. While change could actually do good for the franchise system, it may be sheer arrogance for the franchisor to feel they can impose their legal right by contract to implement changes without any prior communication or justification to franchisees.
2. The Dismissive Franchisor
The franchisor will ignore issues raised or simply fail to listen to franchisees. Even when presented with facts to back up their claims, franchisees will find it difficult to communicate their thoughts to the franchisor. In fact, most franchise agreements promote sharing of ideas and franchisors should expect to be challenged at times. It is understandable if the issues raised by franchisees do not integrate with the franchisor’s business direction or management strategy, but simply thinking that franchisees should blindly follow the system could lead to a disastrous outcome. Totally ignoring valid suggestions without providing justification seems silly, and may strain the franchise relationship.
3. The Greedy Franchisor
The franchisor is only looking at franchise expansion as an opportunity to buff up the coffers. Perhaps it is because of this breed of franchisors that franchising gets a bad reputation. A clear example can be seen in franchise recruitment, where the franchisor bases franchisee qualification solely on investment ability. This is a dangerous perspective and could lead to awarding franchise rights to unsuitable or unqualified candidates, thus diluting the brand and putting all franchisees within the system at risk.
4. The Inconsistent Franchisor
The franchisor is erratic in their treatment of franchisees, contrary to the fact that all under the umbrella of the brand should be treated equally and fairly as far as possible. Behaviour towards different (or even the same) franchisees can be inconsistent, giving out confusing or conflicting messages. Such hints of bias or erratic treatment to selected parties could lead to franchisees who are in unfavourable or disadvantaged situations feeling mistreated and discontented.
Identifying Red Flags
In an ideal scenario, the franchisor will be reasonable, fair and willing to listen. But we don’t live in a perfect world so before signing on the franchise agreement, prospective franchisees should try asking some questions to identify the franchisor’s leadership style:
- Was the franchisor reasonable and straightforward when answering questions?
- Does the franchisor understand the difficulties faced by franchisees?
- Is there a proper communications channel to air views and provide feedback?
- What do other franchisees say about the franchisor?
- How often does the franchisor pays a visit to franchisees?
- What is the ratio rate of successful franchises against those that failed?
- What happens when a franchisee beaches the franchise agreement (both knowingly and unknowingly) and are there any examples that has happened in the past?
- Is there a contingency plan in place if the franchisee’s business is not taking off?
However, this isn’t to say that all franchisors are heartless bloodsuckers and money grubbers because as always, there are two sides to everything. There are many fantastic franchisors out there that possess great qualities to not just help franchisees be a success but also to be around when the going gets tough. Afterall, this is one of the main reasons why taking up a franchise is attractive to novice business owners - franchisees being able to get continuing functional support and assistance, and the obtain the necessary knowledge to run a successful operation.
As franchise agreements are typically drafted to protect franchisors first and foremost, it is doubly important that the leadership style of the franchisor is something that franchisees can stomach. Franchisors, on the other hand, must understand that nature of the franchise relationship and not abuse their role as a leader.