Taking Charge

A new generation of franchisors works to renew the faith of their franchisees.
Magazine Contributor
7 min read

This story appears in the July 1996 issue of Entrepreneur. Subscribe »

When Stephen McManus entered a Hardee's restaurant with his wife on their way to a football game in the fall of 1995, he realized it was, quite frankly, in a shambles. While other company executives might have disgustedly scribbled notes for their next management meeting and sent the issue through layers of bureaucracy, McManus, the new president and CEO of Hardee's Food Systems Inc., closed the restaurant on the spot, put an employee outside to distribute free meal coupons to arriving customers, and got to work cleaning the bathrooms while his wife cleaned the dining room.

The image of the boss scrubbing toilets is far from the perception most franchisees have of their franchisors. Indeed, as franchising has become a mammoth industry, franchisors have come to be viewed as distant dictators whose fancy offices are far removed from franchisees' real-world concerns.

But laying the blame for a franchise's problems on some imagined evil emperor is far too easy. The more complicated reality is that there's a new breed of franchisor working for change-not the press-release kind of change, but the kind that takes hard work, dedication and, first and foremost, the humility to admit when things have gone wrong.

"Sometimes it's very difficult for leaders to admit their mistakes," says McManus, "but admitting mistakes is important to building trust. We can't take ourselves too seriously. We're all human."

These hands-on CEOs aren't afraid to get down and dirty if that's what it takes to straighten out problems in their franchising systems. Take the franchisees at KFC, who for seven long years had been embroiled in a bitter struggle with their franchisor over an encroachment issue in their franchise agreements. When new KFC CEO David Novak stepped in in July 1994, practically on the eve of a court date, he pulled off the seemingly impossible: He created a situation in which both sides ended up with more than they had originally. Suddenly, hardened KFC hearts started to melt.

"We have reached a settlement on the contract, and it's because of the attitude [Novak] brought to KFC," says Bob Peck, a KFC franchisee in Oklahoma City and chairman of the franchisee steering committee overseeing the negotiations. "In the past, franchisors had an agenda and pushed that agenda regardless of the franchisees' feelings. Novak listened, he wanted to learn from the franchisees, and he regarded them as team members rather than adversaries. I give him all the credit for [the new agreement]."

Peck feels that what ultimately distinguished Novak from his predecessors were not his promises but his delivery. "He walked his talk," says Peck. "He said, 'This is what I want to do'-and he did it."

The key to Novak's success seems to be a real respect for franchisees. "So many franchisees have a passion for the business, a great operational understanding and, just as important, a ton of ideas," Novak explains. "You need to tap into that resource. The best way to do that is to work with them, understand their views of the business, and get them involved in coming up with solutions to make the business as big as it can be."

To achieve this type of cooperation, new franchisors must often start by healing the wounds left by previous leaders. Novak, for one, admits that "KFC has historically been a system where the relationship between the franchisee and the franchisor was not great. From day one, we had a situation where there was not much trust on either side. So there was an opportunity to work more closely together. We try to back up our words with action. And I expect franchisees to do the same."

A former Hardee's franchisee himself, McManus understands why his franchisees may be gun-shy. "Creating trust means treating people with dignity and respect. [Franchisees] haven't always been treated like partners-I know that from experience because I was one of them," he says. "I always thought that if I had an opportunity to be in this position, I would create an atmosphere where the franchisees and franchisors were one and the same."

Others were not as giving. Things had gotten so bad at Hardee's that the franchisees called for a change in leadership. "The past people had no [vision] for the fast-food business," says Bob Faeth, a Hardee's franchisee in Springfield, Illinois. "They were too entrenched in doing things the way they had been done for the past five or 10 years. We knew we needed a change as quickly as possible."

Faeth believes he has seen the future, and it is McManus. "He looks at this business more like a restaurant operator," Faeth says, "than as a restaurant executive."

In fact, from McManus' first day on the job-when he told his employees "We're getting our teeth kicked in"-people could sense things were going to be different. "The way to create trust and loyalty is by being totally honest with people," he reasons. McManus began opening the lines of communication in April with an international franchise conference where the corporate officers shared their "vision, direction and commitments with franchisees, and asked the franchisees to make some commitments as well."

At KFC, meanwhile, Novak is holding biannual meetings, during which the franchise leadership brings franchisees to corporate headquarters to get their opinions on the company's direction. KFC has also created the Chef Council, which meets once a quarter with a handful of franchisees who bring in their recipe or product ideas. Another franchisee council works with corporate executives to enhance the facilities, while other franchisees are getting involved with strategic planning. Says Novak, "The whole notion is to get people involved in the process upfront."

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Both CEOs agree these mega-meetings and councils should complement rather than replace on-site visits. "One of my top priorities is to build a strong relationship with every franchisee, and the way you build relationships is through investing time with people, just going out and visiting them on their turf," McManus says. "That's what this management team is going to be known for-being out in the trenches with the real heroes of this business."

"The old days of sitting in your office and coming up with ideas yourself are history," echoes Novak, who regularly drops by franchisees' stores to extract their perspective of customers and operations. "We bat around a number of ideas and get the best of everybody's thoughts. I call it one plus one equals three: You take the wisdom of the franchise operators and combine that with the knowledge and the passion of the company operators, and you end up with a much greater result."

One such result is the approximate 7 percent sales increase KFC is enjoying for the second year in a row. Novak attributes the increase to "our ability to work together." This new-found unity in a decades-old system points to a promising future. "Both the franchisor and franchisee groups have [expressed] their desire to grow the business by doing the right thing," Novak says. "And I think we're just beginning to see the fruits of our labor."

And what of the Hardee's restaurant McManus closed for a day? Though no memo was ever written about the incident, the story has practically become company folklore. McManus, however, is more concerned not with basking in his legend but in seeing change. He returned to the location a week later. "They had made tremendous progress, and I wanted to go back and recognize that and thank them," he says. "The attitude of the employees was not one of defeat but of victory."

Yet McManus knows his job goes beyond being cheerleader. "We [franchisors] aren't playing golf, we aren't fishing, we aren't vacationing," he says. "We're just working."

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