Franchisees: Don't Say 'I Do' to a Franchisor Unless the Chemistry Is Right
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
As a prospective franchisee, you have to find out what really makes the franchisor tick.
For better, for worse and hopefully for a long, prosperous run, the franchisee-franchisor relationship is "a lot like a marriage," says Craig Dunaway, president of Penn Station East Coast Subs. And he should know, having been on both sides of the aisle, first as a franchisee with 15 Penn Station stores and now as head of the Cincinnati-based company and its 275-unit network.
As a prospective franchisee, "you want to understand as much as you can about the franchisor, because you could be in bed together with them for 10, 20 or more years," says Dunaway, who, after 16 years in the business, sold his franchises earlier this year to focus on running the Penn Station corporate operation. "They'll put on a good face when they're courting you, but you have to look behind that and find out what really makes them tick."
Finding the right franchisor involves a rational mind that brings a hard-boiled, skeptical, bottom-line-focused approach to due diligence. But it also involves the heart, because you want to attach yourself to a brand that stokes your entrepreneurial passion. "It's a chemistry test," says Leslie Kuban, whose position as both a consultant for FranNet, the franchise consulting service, and a 15-year FranNet franchisee affords her a unique perspective on the franchisee-franchisor dynamic.
Achieving the right fit is also a test of your business acumen. "Just because a person loves dogs doesn't mean they'll love running a doggy daycare franchise," Kuban cautions. "Your personal love affair with a certain type of business shouldn't color the day-to-day reality of owning and running that business."
It's incumbent on prospective franchisees to understand as fully as possible the responsibilities that come with launching and running a specific operation. "With a B2B franchise, the franchise owner is likely going to spend a lot of time selling, so you want to be a person who has experience selling, or who feels confident they can learn to sell and excel at it," Kuban advises. "Or, with a franchise that requires you to manage hourly employees, you either need experience doing that or the confidence you can learn how to do that well, and quickly."
The franchisee-franchisor relationship often begins as an arranged marriage of sorts, with both parties knowing little about each another in the early stages of courtship. Surprisingly, according to Kuban, "most people acquiring franchises choose a business in an industry they know next to nothing about."
That was the case for Jolene Dressel, who bought a tax-preparation franchise in 2008 (she declined to say which one). As Dressel discovered, unpleasant surprises can cause arranged marriages to disintegrate quickly--good reason to be sure your franchise agreement has an escape clause that provides a quick exit with minimal damage.
Just two months after signing on, Dressel exercised a buyback clause and cut ties with the franchisor. "Some of their business practices were not in line with my personal core values," she says. "Mostly with how they treat customers."
Fortunately, her franchise agreement allowed her to recoup about three-quarters of her initial investment--and learn a powerful lesson in the process. "I should have visited other stores and met with other franchise owners in the network on the front end," she laments. "Maybe those visits would have told me the things I needed to know about how the franchisor conducts business."
While Dressel's relationship with the tax-preparation business ended abruptly, she's had better luck with Trojan Labor, a Charleston, S.C.-based temporary-staffing franchise. Her experience suggests there is merit to the two parties getting to know one another before formalizing a partnership.
Prior to becoming a Trojan Labor franchisee, Dressel worked for a job-placement business in Nashville, Tenn. Trojan Labor later bought the business and folded it into its own network. Having gotten a glimpse of Dressel's skills, the franchisor invited her to become a franchisee by purchasing and running the store where she'd been working. She accepted the offer and hasn't looked back.
"I not only saw the potential of the business, I understood what it took to run every aspect of it," says Dressel, who now operates two successful Trojan Labor locations with close to $8.5 million in annual revenue.
Keys to Long-lasting Bliss
Without the luxury of getting to know a franchisor as well as Dressel did with Trojan Labor, what can a prospective franchisee do to ensure success? People like Dunaway and Kuban, who have observed--and been part of--franchisee-franchisor relationships, agree that good communication from the earliest stages of courtship is crucial to a successful partnership.
"It means standing in front of your franchisees and communicating with candor, having an open dialogue with them," Dunaway explains. Ultimately, he says, "you're laying the groundwork for a relationship where franchisee and franchisor can be candid and comfortable with one another, where there's a strong sharing, no-surprises, problem-solving mindset on both sides."
A spirit of cooperation is also key to most long-lasting relationships in the franchise world. "The common denominator is having a franchisor who sees their franchisees as equal partners," Kuban says. "It's not an employer-employee relationship in disguise. The franchisor understands their business, and they also understand they have multiple customers, including their franchisees, the franchisees' customers and their employees."
Signs of a Rocky Future
Sometimes, it's clear that a relationship is doomed to fail. Other times, it's not so obvious. When failure happens, "it's often not due to things you can ferret out in advance with due diligence," Kuban says.
A franchisor's lack of clear, candid communication is a red flag. "People go in different directions in a marriage, and they get divorced, and it's often because the communication just isn't there,"
Dunaway says. "It's the same with franchise relationships. If the franchisor doesn't emphasize [communication], it's difficult to build trust with franchisees. You don't want a franchisor who's a yes man. You want one who confronts contentious issues, admits mistakes if they happen and readily takes input. That's what keeps these relationships solid."
However, rarely is a split solely the fault of the franchisor. Often, Kuban contends, a relationship fails because "the franchisee never got their arms around what their day-to-day responsibilities of running the business were. They didn't focus enough on that during their due diligence."
Unforeseen developments such as a buyout or sweeping leadership changes can also throw franchisee-franchisor relationships into turmoil. "I saw it happen when the Mail Boxes Etc. organization was acquired by UPS," Kuban recalls. "That caused significant rifts between franchisees and the franchisor."
What can you do to lessen the odds of friction down the road? "Ask pointed questions of the leadership team, about their exit strategy, their transition plan and what happens if there's a buyout," Kuban advises. "This is your livelihood on the line. These questions we treat as taboo have to be asked."
Indeed, unless you're a Kardashian, you can't afford to make a poor choice that leads to divorce. But armed with insight as to why some franchisee-franchisor partnerships thrive while others go sour, you're more likely to form a relationship that stands the test of time--with far more "for better" than "for worse" along the way.
For reprints and licensing questions, click here.