Collaborate, Communicate, Grow: Franchise Relations Come to the Fore

Franchise relations are in the midst of powerful, fundamental change. Driven by the maturity of franchising, the rise of large multi-unit operators, the after-effects of the recession, and, most recently, external regulatory and political threats to the franchise model itself, franchisors and franchisees are working together more than ever before--and looking for ways to do it better.

In our conversations with multi-unit franchisees and franchisors, we found three overriding themes: collaboration, communication, and having a structure in place to facilitate them. Here's how some are working together for mutual gain.

Collaboration

In his 35 years in franchising as a franchisee of Great American Cookies, Doc Cohen has seen the brand trade hands from its founders to a private equity firm, sold to its chief competitor, and then sold twice more to private equity firms. Cohen opened his first location in early 1979 and grew to about 35 locations. He has two today with two more in the works.

"Things are far different than 35 years ago," he says. "Relations now are significantly better because franchisees and franchisors have learned how to work with each other. Franchisees especially have a better understanding of the relationship and the nature of the relationship."

Much of that improvement, says Cohen, is because franchisees today tend to be more sophisticated than he was when he came in 35 years ago. "If they asked me to show them a financial statement then, we wouldn't be having this conversation today," he says. "A willingness to share the goals and to participate in how we get there is one of the reasons that the relationships have improved dramatically."

Yet, a major source of potential conflict is baked into the very nature of the franchise model: 1) the franchisor needs to grow the system by adding units, and franchisees want to protect their territories and grow their own business, and 2) franchisors collect royalties from top-line revenue, while franchisees must focus on their bottom line to survive.

Still, there remains much work to do as multi-unit franchisees become larger and want more input into decisions that will affect their bottom line, and franchisors must continue to protect the brand and develop their products and services to attract customers. The challenge is balancing those interests for the good of the system.

"Franchisees are important stakeholders in the brand--not shareholders, but stakeholders," says attorney Brian Schnell, a partner with Faegre Baker Daniels. "They play a key role in the brand--they're out there living and breathing it every day in their communities."

Schnell represents franchisors on the corporate counseling side, not litigation. "Our franchisor clients will say, 'This isn't a democracy, we don't take votes.' I think successful franchisees would say, 'I don't want to vote, I want input. I want you to value my role,'" he says. "Most franchisors do, some better than others."

Along with multi-unit franchisee Aziz Hashim, CEO of NRD Holdings, Schnell has been co-writing a series of articles about franchise relations for the IFA's Franchise Relations Dialogue forum. "We come at it from different perspectives, which is healthy," he says. The two met at a Franchise Update Media conference, where they were on a panel together and discovered they had a common interest in improving franchise relations.

"If franchisees and franchisors are aligned, I think you can get it done," he says. "If they're not aligned, or franchisees balk at or resist change, or think the franchisor gets it wrong more often than right, then the system will potentially struggle." However, he adds, such alignment is easier said than done.

"This is not rocket science, but it is challenging from time to time--which is good," says Cohen. "We should be challenging each other to see if we can't make each other better."

More important this year than ever before, external forces--the NLRB, California's SB 610 (vetoed by the governor), proposed state and federal minimum wage hikes, including Seattle classifying franchisees as big businesses--are sending a message to the franchise community that in the face of outside threats, they'd better learn to work together for mutual survival. These political and regulatory challenges are pushing franchisees and franchisors to learn how to collaborate and communicate better.

Ten years ago there wasn't as much collaboration, says Schnell. "It was more of a what to do and when to do it approach, command-and-control versus collaboration," he says. "All of this has changed, maybe not completely, but a big part is multi-unit franchisees with the influence they have and the role they play from a brand perspective. They would say we still have some work to do," he says

"I think that's what multi-unit franchisees are learning more and more: that they have that kind of influence on what they're seeking from collaboration and being viewed as a stakeholder," Schnell says. "That's one thing coming out of the Multi-Unit Franchising Conference, and the relationships being formed there."

Communication

"One of the things I find interesting is franchisors communicate with their franchisees," says Cohen. "I'm a strong believer in when you want to send things that may not be well received, for example raising the marketing fee/ad fund, how you communicate that is important."

The key, he says, is to present any changes as serving the interests of the franchisees and the system overall. "If the franchisor says 'All future deals will be X,' they'll get a lot of pushback." Much better, says Cohen, is to say, 'Hey guys, we've done some research and believe that if we had another half a percent, we could do the following things,' and outline a case for it, and what it's planned to do for a franchisee's bottom line."

If they can convince him that a change is an investment in his business and not another cost, Cohen says he's much more likely to support it. Nevertheless, he adds, "At the end of the day, I recognize they have the right to do that, whether or not I approve. They're the stewards of the brand, they protect the brand."

Says Cohen, "A good leader is not afraid to be transparent and communicate effectively about the thought process that goes into decisions. In communicating to franchisees, a good leader explains why and justifies a case," he says. "Good franchisors do that, and that's why the relationship has improved over the years."

"Our job is to try to explain why we're going where we're going," says Randy Shacka, president of Two Men and a Truck. The company recently went through a major change with its operating system, which was almost 10 years old.

"We had to do it--the old system couldn't handle our growth," says Shacka. "It's hard to effectively collaborate when you're growing extremely fast and have to make decisions." The company now has 311 locations in 37 states--with 33 straight months of record growth and two-thirds of its U.S. locations up by double digits in 2011, including in Canada, the U.K., and Ireland.

"We had to explain to them why we had to do it, but here's how it will benefit you on the back end with business data and information we can provide back," says Shacka. The process involved a lot of initial meetings and webinars to define what was needed. "It was an iterative process based on feedback, but ultimately we had to make a decision what to put into the software and what not."

One thing that helped is that Shacka had spent 2 years as general manager for one of the brand's franchisees in Florida. His hands-on knowledge of the system gave him added credibility with the franchisees. "Understanding what goes on every day on the front lines and the long hours you put in working in operations, going through all the different hats you have to wear every day as a franchisee, helped me understand where we were. The information was old, antiquated, and we were looking to integrate a financial package. It helped me have legitimate conversations with the franchisees about the good things with the old system and the things we had to change."

Listening is a top priority at The Dwyer Group too, but it goes both ways, says Executive Chairwoman Dina Dwyer-Owens. "We have to be willing as a franchisor to listen, but they also have to be willing to listen," she says. When the company was planning to introduce new software, she says, listening played a key role. "We have a healthy enough environment where we can have these discussions and talk in a frank manner. When you have such an open relationship you can talk about these things. People here care about the whole organization."

Listening and respect

In 2006, as the fourth franchisee of BrightStar Care, Jeff Tews has had an unusual opportunity to influence the brand. He and wife, Susan Rather, operate four BrightStar units in Wisconsin, along with one Mr. Handyman. And they have the option to be the first franchisee of the company's newest concept, BrightStar Senior Living (see their profile ).

Tews, who spent 33 years in corporate America before becoming a franchisee, saw BrightStar as an opportunity to apply his leadership skills in developing the business and standards for the emerging home care brand. That included helping to create the brand's franchise advisory council (FAC) with founder Shelly Sun.

"Shelly and I hashed out how the FAC should be constructed," he says, and served as co-chair with her. "One of the things central to the question of franchise relations boils down to a simple word--but complex for everyone to live--and that's 'respect,'" he says.

"Part of a successful system and family around the brand is where both sides act on mutual respect for that perspective," says Tews. "I think where things go astray is when the franchisees believe that respect is not there from the franchisor. If it looks like it's pointed at the top line with no consideration for franchisees, they lose respect."

Respect may be there at the start of a system, says Tews, "But as the business gets larger, it's easy for that respect piece to be lost on both sides." He says this can happen when communication with the C-suite or founders is not as direct as it was at the start. "I still have that, but newer franchisees don't," he says. Knowing directly from Sun that she cared about the franchisees and their success has made a big difference for him in maintaining that respect. The challenge, of course, remains how to create that for newer franchisees as the system expands.

At The Dwyer Group, with 7 brands and more than 1,600 franchises, everything is based on the company's Code of Values (viewable on their website). "It's the foundation," says Dwyer-Owens. "The more we grow, the more I see the need for the Code of Values--and people who understand that if we all agree to work this way it will work for everybody.

The Code of Values, she says keeps everyone's vision clear, directs the company's strategic development, guides decision-making, and governs everyday behavior. And it helps everyone realize or remember that the franchisees and franchisor share common interests. "As a franchisor, I've always understood we need alignment with the franchisees, and it should be for the good of the whole. I don't know why people make it so hard--it's good for all of us to align to get through the rough water," she says.

At the end of the day, says Cohen, both parties must realize they have very similar interests--despite their built-in differences in priorities. "As the system grows, all the franchisees benefit from it. Our success in franchise systems depends on each other," he says.

"I think we all have a much better understanding about what franchising is about, what each can to do to help," says Cohen. "The current leadership of my franchise system is focused above all else on making franchisees successful. Our CEO has told me that a number of times. You can't have successful franchisors without successful franchisees--and vice versa. I remember Bill Rosenberg saying that right up to the day he died."

The Best Relations: Profitable Engagement

The choice to be engaged seems simple enough. According to a survey conducted by Franchise Business Review and Ingage Consulting of more than 24,000 franchisees in over 300 systems, a franchisee who is engaged is 3.8 times more likely to report strong profits than a franchisee who is not.

Engaged franchises are more involved, they learn more, and they are able to translate that to improved profits. The very engaged understand their selfless act of helping another franchisee actually pays dividends, because the process of helping others is a learning experience. When helping another franchisee you see things about your own business that you would have never seen otherwise.

They can see the big picture and know the role they play in the franchise's success. They know the numerous (and sometimes annoying) emails from the franchisor are worth reading, and that going to the annual convention is worth every penny. They also realize that both of these things pay dividends.

A franchisee in financial trouble often tells me they can't afford to go to the annual convention and don't have time to read the emails and go online. Their rationale is normally that they must focus on their business. My response is that if they want to improve their business and want things to be different, they must engage. Going into hiding is the worst thing to do.

Some franchisees tell me their system doesn't encourage engagement. Sadly, it is true that many systems pay only lip service to engagement. But that shouldn't stop you from being engaged. You can hold meetings with neighboring franchisees. You can visit their locations. Offer them help. There are plenty of ways to be active and engaged within your franchise system.

Like the old adage says, "The more you put in the more you get out." The more engaged you are the more you get out! Be engaged in your franchise community, it can help you be more successful.