Stop Assumptions From Destroying Family-Run Franchises

In most businesses, and especially in franchised operations, the relationship between employer and employee is guided by two agreements: the formal contract and the psychological contract.

The formal contract is easy to spot. It outlines job title, compensation, benefits, and hours. But the psychological contract is the real driver of behavior. It is the unspoken set of expectations, assumptions, and obligations that both sides believe to be true.

When those unspoken expectations are made explicit and deliberately aligned, we have what psychologists call mental contracting: the conscious process of identifying, articulating, and agreeing on the mutual expectations between two parties before problems arise.

In a multi-unit franchise, particularly one that is family-operated, this kind of clarity is essential. Generational gaps, family dynamics, and business decisions often collide. And unlike in traditional businesses, the stakes are not just profit or productivity. They are personal, involving your name, your reputation, and your legacy.

Mental contracting matters

Mental contracting goes beyond operations manuals and P&Ls. It involves asking:

• What do I expect from you, not just in performance but in attitude, commitment, and ownership mentality?
• What do you expect from me, not just in pay but in mentorship, recognition, and development?

In franchise businesses with family involvement, expectations are shaped by lived experience, generational worldview, and even how each person interprets brand loyalty:

• A founder may expect the next generation to earn credibility through hands-on work, opening the store at 6 a.m., managing labor during rush, mastering every position.
• A second-generation leader might expect autonomy sooner, aiming to modernize or scale quickly.
• A third-generation entrant may prioritize flexibility, tech integration, and purpose-driven leadership.

These perspectives are all valid. But when expectations remain implicit, they are often misread, leading to frustration, burnout, and stalled transitions.

Where friction arises

Studies in family enterprise governance show that most conflict is rooted not in business strategy, but in misaligned perceptions of fairness, contribution, and reward.

Here are some common flashpoints:

1) Work ethic norms

• Older generations may value physical presence and face time.
• Younger generations may focus on results, systems, and work-life balance.

2) Compensation philosophy

• Senior leaders might reward loyalty and tenure.
• Successors may expect market-aligned pay regardless of family status.

3) Path to leadership

• Founders may expect a "pay your dues" climb.
• Next-gen leaders may want to fast-track based on education or outside experience.

4) Tradition vs. innovation

• Legacy leaders often want to preserve what has worked in their units.
• New leaders may push for tech, delivery models, or brand-wide initiatives.

In franchise systems, where adherence to brand standards is nonnegotiable, these misalignments can also create tension between family-run units and the broader franchisor relationship.

Bridging the gap

Mental contracting is about making expectations explicit. It is the opposite of saying, "They know what I mean; we are family." For multi-unit franchisees, the process is most effective when it includes:

1) Clarity on roles and boundaries

• Separate the business role from the family role.
• Example: "When we are in the store, I am your manager. When we are at home, I am your dad."

In franchising, this distinction helps protect professional accountability and signals to other staff that standards are universal.

2) A shared definition of success

• Define what doing a good job looks like across generations.
• Include both hard metrics, such as cost of goods and labor targets, and soft contributions, such as team development and brand reputation.

3) Clear development pathways

• Younger leaders need clarity on how and when they will progress.
• Older leaders need assurance that successors are committed to learning every aspect of the business.

4) Built-in feedback loops

• Set regular check-ins, quarterly works well, to review expectations and progress.
• Make feedback two-way so that leadership receives feedback, not just gives it.

5) Pre-agreed conflict resolution Plans

• Decide upfront how disagreements will be handled.
• Example: "If we cannot align on a strategic call, we will bring in our franchise coach or an outside advisor."

The cost of skipping this step

Let's say your daughter joins the family franchise operation, fresh from a top-tier business school. She assumes she will be overseeing multi-unit strategy in six months.

You assume she will run one store for two years before anything else.

No one clarifies expectations.

What happens?

• She feels underestimated and sidelined.
• You feel disrespected and rushed.
• Your team senses the disconnect, and loyalty starts to erode.

The issue is not who is right. The issue is that no one talked about it.

Using WOOP 

The WOOP model, adapted for multi-unit family franchisees, is a practical way to begin mental contracting:

• Wish. "We want to run this business together without losing our relationship or our brand reputation."
• Outcome. "Clear expectations will reduce tension, improve performance, and ensure a smooth transition."
• Obstacle. "We see the path to leadership very differently."
• Plan. "If a promotion is in question, then we will align on a development plan with measurable milestones."

Real-world example

A fourth-generation family-owned franchise group with 11 retail locations implemented one-page expectation agreements for all family employees. Each document covered:

• Clear business vs. family roles
• Defined performance expectations
• Decision-making boundaries
• Pay philosophy
• Conflict resolution steps

The results?

• Better team morale, especially among nonfamily staff
• Fewer surprise blowups
• Faster, smoother leadership handoffs

Key takeaways

Mental contracting is about clarity, not control. For family-run franchises, where personal and professional overlap, it is essential to surface assumptions early. The earlier you align on expectations, the more resilient your business becomes, especially as you scale or plan your exit.

Franchise businesses run on systems for operations, training, and marketing. But when it comes to succession and leadership, too many multi-unit owners are running on assumptions.

Mental contracting offers a way to build your next generation of leaders with intention, transparency, and mutual respect. That's because the hardest part of running a family business is not the operations manual; it is having the conversation you keep putting off.

Dan Schneider, partner and director with Rawls Succession Planners, understands the complexities that come with leading a privately held or family-owned business. Rawls Succession Planners guides owners through leadership transitions, generational planning, and growth strategies to secure lasting legacies. For more information, visit seekingsuccession.com or call 407-578-4455.