Helping the Wrong People Off Your Bus
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Helping the Wrong People Off Your Bus

So what do you do with franchisees that "aren't making it happen?" The ones who don't fit your formula and, realistically, will never turn things around? How do you make the best of a bad situation? The solution is logical.

Be responsive and take the lead. Clean house where necessary by providing exit strategies for unsuccessful operators. Struggling or problem franchisees are simply a drain on themselves and their franchise systems. They are not happy and are often resentful, worried, and have lost their motivation. They face growing financial difficulties, and have stressed-out families who share the burdens of their failing business.

Unfortunately, some franchisors tend to sweep these owners under the rug, hoping they will somehow go away by themselves. The less they hear about these unwanted stepchildren the more they procrastinate in confronting the issues. When calls come in from these operators everyone runs for cover. Defenses spring up on both sides. Documented conversations and formal letters cross paths. The franchisor and franchisee have lost confidence, credibility, and trust in each other. Not a good situation.

Franchisors who proactively address failing locations can minimize strained relationships and ugly conflicts with poor operators. Provide options and exit strategies to assist failing franchisees and help these owners cut their losses and move on as quickly as possible. It's your obligation to make this offer, if they haven't asked already. The why, what, and who is at fault makes no difference at this point and helps maintain respect for one other. Use a straightforward approach, whether your owner is still in compliance or not with your agreement. It certainly could head off painfully slow deaths or lawsuits that might ensue.

Establish a resale referral program so your struggling owners can turn to you for guidance in preparing, positioning, and selling their business. (Make sure you consult with legal counsel on how to advise these franchisees and avoid any potential liabilities.) Franchise owners sincerely appreciate a well-structured exit program. It's a significant franchise benefit you can sell when they are considering entering the business.

Those of you with successful resale programs know the value to both the system and the existing owners. I've used testimonials from former franchisees when recruiting new owners. In fact, I sold a new franchisee referred by a previous owner who struggled in managing her business! Our operations team had spent a lot of time helping her make her business marketable, and then we found her a buyer. She still believed in our program, but recognized the business simply wasn't right for her.

De-branding has become a newer franchisor alternative for resolving problems at certain locations. Simply stated, both franchisor and franchisee sign releases of liability and agree that the undesirable operator may convert the location to an independent business, eliminating all signage, identity, products, and proprietary procedures that are identifiable with the franchise brand.

Partners in profit

First, I do apologize by referring to franchisees as "partners." Franchise attorneys correctly remind us that franchisees are not franchise partners or owners. They are franchisees who are granted licenses to operate a franchise business under the agreements authorized by their franchisors. Yes, this is the legal definition and relationship of a franchisee. (Thanks for the reminder, guys!)

In practice, however, franchisees are business owners and the franchisor's business partners. The franchisor succeeds when the franchisee succeeds. When the register rings, both profit. When the register collects dust, both fail. Mutual dependency is the success model, and both partners must work together to enjoy the rewards.

Living this partnership principle strengthens your franchisee relationships and expansion throughout your franchising life! Unfortunately, during the 1990s I was part of a highly successful business service franchise that lost this cooperative bond. The CEO and major stockholder pushed out key management in an active takeover and destroyed the company within a few years. His unfriendly approach and dictatorial management drove respected franchisees out of the system and triggered numerous lawsuits. The once-thriving 125-unit franchise organization died in shambles and bankruptcy.

Both you and your franchisees pass through predictable life cycles. Understanding this natural evolution will provide valuable insights to better understand, adapt, and lead your organization--and improve your changing relationship with your franchisees. Both you and your franchise partners will profit.

This is an excerpt from my book, "Grow to Greatness: How to build a world-class franchise system faster." Order copies at

Published: July 9th, 2010

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