Fixing Franchise Support: Best Practices Align Multi-Unit Franchisees and Franchisors

Franchisors and multi-unit franchisees understand the importance of franchise support. Yet too often there is misalignment. In far too many franchise systems, either one or both of the following scenarios exist:

1. The franchisor believes the multi-unit franchisee refuses to fully embrace the system standards that support the franchise brand promise. The multi-unit franchisee does it their way, claiming they know what works best in their business, with their customer base, or in their geographic area.
2. The multi-unit franchisee believes the franchisor focuses its support on compliance-related matters or system changes that don’t meaningfully improve the business rather than franchise support that will drive unit-level profitability.

These beliefs then become each party’s truth, resulting in franchise support dialogue that is misaligned. Misalignment is simply ineffective, unnecessary, and a waste of valuable time and resources.

However, there are a few best practices for multi-unit franchisees and franchisors to consider in redesigning franchise support. By working together in alignment, both parties can affect performance metrics that matter.

The reference to multi-unit franchisees and franchisors having input on franchise support is intentional. Franchisors who engage multi-unit franchisees in redesigning franchise support will see more buy-in and engagement. Proper alignment makes it easier for franchisees to deliver on the brand promise to customers and guests at the unit level.

Shared outcomes

Alignment between franchisors and multi-unit franchisees will not improve unless it’s measured, understood, and acted upon. Infinity Systems, an industry leader in organizational alignment, describes misalignment as “the silent cost center, killer of strategy, morale, and results.” The company advises clients to measure alignment at every level so that everyone understands the mission and their own role in achieving shared outcomes. This key best practice is where many franchise systems with multi-unit franchisees fall short by often assuming that alignment exists when it does not.

Multi-unit needs

One-size franchise support does not fit all franchisees. This is particularly true with more private equity groups investing in multi-unit franchisees. Single-unit franchisees, especially first-time franchise owners, typically need more operational support, focusing on all the different components of starting and building a franchise business at a single location or territory. Without those fundamentals, a single-unit operator finds unit-level success more challenging.

On the other hand, multi-unit franchisees do not need the same level of support for each unit. These franchisees expect support that helps them from a scalability, cost, and operational efficiency perspective at the enterprise level. They can leverage their shared resources in areas like training, marketing, and back-office support functions at the unit level.

A primary feature of scalability is expansion. Multi-unit franchisees, especially private equity-backed franchisees, expect expansion opportunities. Those discussions must be intentional, fit with the franchisor’s strategic objectives, and result in the right growth opportunities based on performance rather than desire. Topics of concern may include expanding with new units, closing unprofitable locations, and purchasing unprofitable locations from other franchisees.

Bottom line: Within certain standard guidelines, a franchisor and each multi-unit franchisee are best served in designing a franchise support plan that is within the franchisor’s capabilities and will drive the multi-unit franchisee’s performance.

Consultants and coaches

To provide the necessary support, relationships are crucial. Field consultants need to be highly experienced with strong communication and collaborative coaching skills. They should also be financially sound on the system’s unit-level economics. Individuals with those skill sets are tough to find, so it is incumbent upon a franchisor to develop these team members, make that development part of the franchisor’s DNA and culture, and then empower the field support team to deliver.

Understanding the challenges of developing the right types of franchisor support team members, multi-unit franchisees should show patience and grace. They need a coaching mindset to own their part and work with their franchisor support team. A collaborative relationship sets the stage for success.

A franchisor’s willingness to invest in experienced and well-trained field support personnel begins with the CEO. Highly effective franchisor executives understand that their personal commitment to regular communications and meetings with their multi-unit franchisees is crucial to getting multi-unit franchisee buy-in and further investment across all brand initiatives.

The franchise agreement

While a franchisor should not make wholesale changes to its franchise agreement to accommodate multi-unit franchisees, some franchisors are adjusting certain franchise agreement provisions to reflect the nature of the multi-unit franchisee’s investment and ownership group. In part, this is a response to the rise in private equity ownership.

Changes can include modifications to some restrictive covenants, including noncompete clauses. Other changes could affect provisions pertaining to transfer/change of control, liquidated damages, and personal guarantees. In some instances, there could be changes to initial fees more so than royalty fees.

Trust

At heart, these best practices are about building trust between franchisors and multi-unit franchisees. By working together, both sides lower the barriers to long-term success.

Brian Schnell is the chair of Faegre Drinker’s franchise practice. He is passionate about franchising and has more than 35 years of experience focusing on finding solutions to challenges and opportunities for clients. He is also the chair of IFA’s Franchise Relations Committee.