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Franchise Buying Guide

When Franchisees Speak Up

Are proactive franchisees welcome in franchising?
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Dictionary.com defines "proactive" as "controlling a situation by causing something to happen rather than waiting to respond to it after it happens." In the franchising arena, it's a word embraced by many franchisees who proudly consider themselves active participants in the system. These franchisees desire to play a deciding role in business proceedings rather than just stay on the receiving end of news and decisions.

Some examples of such playmakers have made headlines recently, and they are as varied in the causes they're fighting for as the franchises themselves. They can be litigious battles or friendly buyouts. Mail Boxes Etc. franchisees were upset enough to refuse a brand name change over to The UPS Store and filed suit in 2003 over the franchise agreement amendment UPS asked franchisees to sign, among other things, while the franchisees of Sunbelt Business Brokers formed Sunbelt Acquisition Co. to purchase Sunbelt from owner Ed Pendarvis and his partners in a friendly buyout in 2002, leaving Pendarvis as Sunbelt's president and chair of the board. Then there's Carvel Corp. franchisee Irene Macones, who spent years trying to make her franchisor see the promise of Italian ice in their stores. After the Roark Capital Group purchased Carvel in 2001, she met the new president and won him over with her idea. All these franchisees share one characteristic: determination. So is there a rise overall in franchisees being more proactive?

Tom MacIntosh of the Minneapolis-based law firm Krass Monroe, P.A. has some thoughts on proactive franchisees. With more than 35 years of legal experience in the franchising industry, he has seen the best and the worst of franchisee/franchisor relations. His insight into proactive franchisees and their part in the success of franchises might lend credence to the saying, "The squeaky wheel gets the grease."

Why does it seem that more franchisees are speaking their minds?
Back in the old days, it was more the mom-and-pop franchisees. Today, you've got some very sophisticated businesspeople coming into franchising. The typical franchisee is between 40 and 55, generally college-educated, mostly middle management and has significant experience dealing with people and problems. As a result, it's just a much higher level than the old days. We're also just a better educated society to boot. We're seeing a lot of younger people coming into franchising. Before it was primarily middle manager, but now you're seeing a lot of people coming out of college thinking, "I'd like to buy a franchise. That looks like a good way to do things." Businesspeople are becoming more sophisticated, and now there's not that much of a knowledge difference between franchisor and franchisee; the scales are starting to equalize.

Before, when it was mostly individual franchisees, and an issue came up, most of the franchisees would jump in the car or on the phone and talk to the president of the franchise, and generally get the issue resolved. As franchising grew and franchisors became a bit bigger, some of that personal relationship was difficult to maintain just because of sheer numbers. It's not because the franchisee or franchisor was not trying to do it--that's just what happened. Early on, some of the franchisors, in an attempt to try and have a source of information from their franchisees, created franchisee advisory councils. The concept was that those advisory council members were from different regions, so they more or less were representatives of the franchisees in their general areas. That was proactive--many times, the franchisor set them up, but it was probably at the insistence or nudging of the franchisees.

So there have always been proactive franchisees?
When you use the word "proactive," that has proved to be a very, very exceptional way to communicate with a franchisor, especially on new concepts. For example, back in the early '70s, a vice president of [a restaurant franchise] called me to look at this "problem franchisee" whose parking lot was full to the brim and had more customers than he could possibly handle, because he came up with a stupid thing called a salad bar. No one could figure out why on earth he'd have that. It was probably one of the ugliest looking contraptions you'd ever seen, smack dab in the middle of the restaurant. We were going in thinking, "there go our standards," but on the way back it was like, "that's brilliant!" This franchisee actually violated the franchise agreement, but because he was proactive, of course, the proof is in the pudding. That's the positive side of it.

There have been some situations where the communication has not gone well. You see these franchise associations being formed, because the franchisees don't think the franchisor is listening to them. They feel they're not being heard, like they're the silent majority. Only a few franchisees are heard, yet the silent ones are the guts of the organizations. Of course, many of these associations have been hostile where it's been a confrontational situation. Some formed because the franchisor has made a change in the system, and it's sort of like take it or leave it, as opposed to doing it through a studious and political point of view. Out of the frustration, [these associations] will hire a lawyer, because they perceive us to be somewhat in a tug of war or minor controversy and think they might need legal representation.

If you and I were thinking it through and we formed an association, the smart money would be to hire a professional manager or negotiator who would speak for the franchisees and negotiate in a business-like manner, but that never happens. Associations primarily have lawyers and are usually headed up by a franchisee. On several occasions, some of the franchisee associations have been responsible for some litigation, or backing litigation. I try to call it trying to work with system change. I'm not sure the legal system is the best method for system change, but certainly some of the system change has ended up in the courts.

No matter what, 10 or 12 franchisees who are obviously the best in the system generally have the ear of the president. One of the disadvantages of franchising--well maybe it's a disadvantage of being in America--is sometimes the franchisee who's not necessarily the best operator may be the loudest operator. They may have an axe to grind and can rally some of their colleagues behind them. Some of the franchisees don't want to be involved in any controversy, but will join in with the leader. That's unfortunate, because you want people doing a good job to be the ones getting their ideas heard by the company, and those great ideas getting implemented in the system. My experience has been that virtually every major improvement in a franchise system, whether it's operations, IT or the products themselves, are from the franchisees. Franchisees have been the leaders in new ideas that result in changes for a franchisor, because today, most franchisors do not have a significant number of company-owned stores. For franchisees in the trenches, as soon as they see a good idea that's going to make a business better, serve the customer better, make more profits, they're going to try and implement that and certainly let their colleagues know about them. It's almost like the pony express in a franchise system.

So franchisors really listen to franchisees' opinions and input?
As a whole, negotiations are really very wholesome right now. Everybody who buys a franchise becomes an expert in what they're doing. If they start to operate the franchise, they really have a grasp on how the whole thing works. Sometimes franchisees will make recommendations that really are not feasible, and again it's up to the franchisor to turn around and, with empirical data, reasoning and market research, show that the franchisee's proposal won't work in the system.

[Franchising offers] a marvelous opportunity, and, as a result, franchisees want to preserve this. Inherently, this is one of the reasons why we see proactive franchisees in the positive light as opposed to the negative.

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