Having acted for Franchisors since 1995, when it comes to stories about Franchisees, IP Partnership have heard it all. Everything from Franchisees shutting up their shops in the busy Christmas period and walking away from their businesses on New Years day (true story), to Franchisees who have been so successful in their businesses that they are invited in to be shareholders of the Franchise System.
There are a number of stories from our Clients, however, the story that is most recurring is “we recruited a difficult franchisee”. The biggest mistake a Franchisor can make, is selling a Franchised Business to the wrong person.
We understand how it happens though. It can be hard for a business owner that has recently turned into a Franchise System to turn away a delicious cheque looking back at them from a boardroom table. The Franchisor generally knows that this person is ‘not quite the right fit’, but “hey” they tell themselves, “with a bit of training and some support, they could work, right?” trying desperately to convince themself. The lack of business experience, the lack of industry experience and the lack of interpersonal skills are things that can be ignored, because what this potential Franchisee does not lack is money and “that cheque that would be so useful for marketing right now!”
So they sign them up, they provide training, they get them out there running a franchise, but before long the phone calls start… and then they don’t stop. The Franchisor provides as much support as possible and, trying desperately to remain calm, redirects them (for the 100th time) to the Operations Manual (which answers every question being asked). Notwithstanding the Franchisor’s efforts, the Franchisee still cannot seem to get it right. The Franchisee’s business is failing and the Franchisor starts to doubt themselves. “Do my systems work?”, they lay in bed at night thinking, “is my brand not as strong as I thought it was?”. I have heard, on a number of occasions, the confidence drop out of a Client’s voice when they have a Franchisee that is not performing as well as they should. The thing is, most of the time, there is actually nothing wrong with the system and the brand is strong – the methodology the Franchisor has developed over years of hard work and trial and error is flawless.
The Franchisee does not see it that way though. They have paid their Franchise Fee and they expect to be lying on a pile of cash (think of the scene from ‘Breaking Bad’). The problem here, a lot of the times, is not the franchise system or the brand, the problem is the Franchisee. The Franchisee is failing to do what all the rest of us business owners are doing – working hard (whether that is on the business or on the tools). The Franchisee is not following the systems, they are not adhering to the manual, but perhaps - most importantly - they are simply not the right business operators to be in the Franchisor’s system.
Often times, for a Franchisee, it is their first time owning a business. That’s a big responsibility on the shoulders of a Franchisor. A Franchisor becomes responsible for someone who has ‘worked for the man’ their entire life, received their pay cheque each month for showing up to work and told by a boss what to do. This individual buys a Franchise, and with no sense of ‘hustle’ or ambition, with little customer service skills or understanding of business principles, the Franchisee quickly realises, ‘hey, owning a business is really hard work’. Unfortunately for Franchisors - and unlike other business owners, who only have themselves to blame if things are not working out - a Franchisee can point the finger at a Franchisor if their business is not turning over the profits they expected. The Franchisee is not interested in learning scripts to deal with clients, they do not want to learn processes to follow up leads, that stuff is boring. It is far easier for the Franchisee to email and text the Franchisor blaming them for how horrible the system is and how terrible their franchised business is doing. The Franchisor bends over backwards to assist the Franchisee (in vein) – the Franchisor suggests that the Franchisee strictly following the Franchise Agreement and the Manual. …But the Franchisee is not listening, not following the systems, the Franchisee puts its energy into complaining, and it can drive a Franchisor mad.
… then all of a sudden it’s quiet. The Franchisor breathes a sigh of relief and figures the Franchisee must be actually getting off their rear end and working on their business instead of complaining the whole time. Finally, the Franchisor believes, the Franchisee is referring to the Manual, getting out there and taking some pride in the business they own, getting repeat customers because they are good operators; operating in accordance with their training; upselling and providing good service. “I am so happy to not be getting calls or texts anymore” the Franchisor smiles, “they must be finally listening to me”.
Nope. It’s quiet because the Franchisee has gone and seen a litigation lawyer who is rubbing their hands together – their pupils literally morphing into dollar signs, like Daffy Duck, the more the Franchisee complains about their struggle to operate a business. The litigation lawyer starts his clock, and points to the Franchisor and says, “it’s your fault our client’s business is not doing well.”
The Franchisor rue the day they ever picked up that cheque taunting them a little way ago, and realises, they have recruited a difficult franchisee (we have heard Clients call them other things, but ‘difficult franchisee’ will do).
Franchisee selection criteria is by far the most important aspect of being a Franchisor. Ensuring the person is not only the right fit for the task, but also, not a moron or a complete (insert apt noun here).
Now don’t get us wrong, IP Partnership have acted for many, many Franchisees who have fallen victim to some extremely horrible franchise systems (readers would know the businesses we are talking about - you know, those awesome places we loved that then turned horrible and poor Franchisees were stuck still trying to operate a business with a name that had been dragged through the mud – and yes, we have kept that as vague as possible so as not to be sued). We have also acted for Franchisees who have bought into blatant scams, and have been successful in having those dodgy operators appropriately dealt with by the ACCC and the Courts. We are not saying all Franchisors are right and all Franchise systems are good – we do believe each Franchisor we act for operates a great franchise system with integrity and with a genuine intention to provide Franchisees with tools and a brand necessary to make a comfortable living for a Franchisee. There are, however, times when a Franchisor needs to be held accountable for either making false or misleading representations, for breaching the code, or for failing to comply with the Franchise Agreement. To be clear, not every Franchisee that complains to the Franchisor is wrong, rather, the ‘difficult franchisee’ is unique situation.
The difficult Franchisee we are talking about here, is the one that is just too lazy to get up and give it a red hot crack. Conceptually they have not quite realised they are not an employee, but rather, they are a business owner with a responsibility to run their own business. These are the ones who need their hand held why they turn the key, are the ones that rock a Franchisor’s confidence, waste a lot of time and energy (sometimes over the course of years) and cost the Franchisor a lot of money responding to frivolous legal letters from Daffy Duck.
The answer. Avoid them. Our advice to new Franchisors, based on years of listening to our Clients face the same problem, is make sure you have a very selective recruitment process to ensure that the good ones get through, and the other ones don’t. Leave the cheque on the table and walk out of that recruitment meeting with your head held high, because future you is saying “thank you!!”.
“What? Are you telling me to take it slow?” an ambitious Franchisor might be thinking, “why would I be selective about choosing Franchisees?” The fresh faced and enthusiastic Franchisor is scratching their head, “My Franchise system is going to have thousands of Franchisees located all over the world.” Again, don’t get us wrong here - this firm has acted for Franchisors who arrived without even the funds to afford the costs to prepare a Franchise Agreement and built a nationwide household name franchise system. The firm has acted for Franchisors who, with a lot of hard work and ambition, built a Franchise system and sold for an eye watering amount, and others who have built strong franchise systems with happy franchisees and master franchisees all over Australia. So, we believe our Clients when they tell us they are going to take over the world, and we go on that journey with them. But our advice, based on years of listening to our Client’s stories, is that recruiting every individual who puts their hand up, is not a successful growth strategy and may cost you a lot of time and stress (or worse) severely damage your brand.
It is also really important for Franchisors to hear this; if a difficult Franchisee falls through the cracks (which easily happens) it is not your system, it is not your brand, it is not you – it was the wrong person. It was a poor recruitment policy. It is always worse if there are multiple difficult franchisees falling through the cracks, but the advice remains the same – it is not your system that is broken, it is not your brand and it is not you. It was a failure to identify important characteristics in you recruitment process. The mistake happened when you picked up the cheque when you knew, or ought to have known, that this person was not the right fit for your system. Press on, and if possible get the difficult franchisee out of your system so they do not poison other Franchisees, and move forward. Keep recruiting.
Think of how well the business was doing when you operated it. Think of the Franchisees that are performing well. Have faith in your systems and processes, in your brand, and in your training. It works! It is a working formula, but it was in the wrong hands. In the words of Aaliyah (RIP) from her 2000 hit “dust yourself off and try again”. Having witnessed first hand Franchisors lose momentum and confidence from a few bad eggs, it is important that Franchisors identify the problem – it is the recruitment process.
Franchisors reading this may be thinking, “It is hard enough to find one Franchisee, let alone be critical enough to refuse a Franchisee because they are not the right fit” and we get that. Finding Franchisees full stop can be difficult. IP Partnership is launching a platform in 2023 to assist Franchisors with finding leads and Franchisees. As a firm that specialises in Franchising it only made sense to offer our Clients’ businesses for sale. That said, finding potential Franchisees is certainly tough – particularly in the early days of a franchise system.
That said, the Franchise model is a brilliant model to leverage your Intellectual Property and expand your business. There are many individuals in Australia who understand that ‘a franchised business in Melbourne needs to look and feel the same as a franchised business in Brisbane’ and the reason for this, is because people like to get products or services from a reliable source; a consistent menu, consistently good services, a strong brand, good products – these are hallmarks of a good Franchise system, and franchising allows others to slap a recognised brand on their business and offer the same goods or services to more easily attract customers or clients.
IP Partnership is a national commercial law firm who act for Franchisors located all over Australia and are the experts in franchise law. If you are looking to turn your business into a Franchise system, we invite you to contact the office to arrange for a no obligation and no cost meeting with some of our solicitors. If you are buying into a franchise system, we are also here to assist; to review the documents and ensure the Franchise Agreement is a balanced contract. The Franchising Code of Conduct is a robust piece of legislation and it is important to have lawyers who understand this unique area of law. Whether you are a Franchisor or Franchisee, as a commercial law firm which places a high value on long term client relationships, you can think of IP Partnership as your business’ very own inhouse counsel.
