Having acted for Franchisors since 1995, when it comes to stories from our Franchisor clients about running a franchise system IP Partnership has heard it all; from a mass exodus of Franchisees shutting up their shops and walking away from their businesses on New Years day to Franchisees who have been so successful they are invited to be shareholders of the entire Franchise System.
The story that is most recurring however is, “we recruited a difficult franchisee”. The biggest mistake a Franchisor can make, is selling a Franchised Business to the wrong person.
We understand how it happens though. It can be hard to turn away the cheque. A Franchisor may, deep down, know that this person is not quite the right fit, but they tell themselves, “with a bit of training and some support, they could work?” The lack of business experience, the lack of industry experience and the lack of interpersonal skills are things that can be ignored, because “that cheque that would be so helpful right now!”
So they sign them up, they provide training, they get them out there running a franchise, but before long the phone calls start… and then they don’t stop. The Franchisor provides as much support as possible and redirects them again and again to the Operations Manual, but the Franchisee still cannot seem to get it right. The Franchisee’s business is failing and the Franchisor starts to doubt themselves. “Do my systems work?” I have heard, on a number of occasions, the confidence drop out of a Client’s voice when they have a Franchisee that is not performing as well as they should. The thing is, most of the time, there is actually nothing wrong with the franchise system.
The Franchisee does not see it that way though. They have paid their Franchise Fee and they expect the success to come with little to no effort. The problem here, a lot of the times, is not the franchise system or the brand, the problem is the Franchisee. The Franchisee is failing to do what every other business owner is doing – working hard! The Franchisee is typically not following the systems, they are not adhering to the manual, but perhaps - most importantly - they are simply not the right fit for that particular franchise system.
Often times, for a Franchisee, it is their first time owning a business and that is a big responsibility on the shoulders of a Franchisor. A Franchisor becomes responsible for someone who has been an employee their entire life. Unlike other business owners, when they do not operate a Franchised business and only have themselves to blame if things are not working out, when things are not working out for a Franchisee, they can and usually do, point the finger at a Franchisor. The Franchisee is not interested in obtaining additional training, learning scripts, learning processes to follow up leads – all that stuff is boring. It is far easier for the Franchisee to simply blame the Franchisor for how horrible the system is.
… then all of a sudden it’s quiet.
The Franchisor breathes a sigh of relief and assumes the Franchisee must be actually working on their business instead of complaining. “Finally”, the Franchisor believes, “the Franchisee is referring to the Manual and following our systems and processes”. But no.
It was only quiet for a time because the Franchisee has spoken with a litigation lawyer. The litigation lawyer starts his time clock, and points to the Franchisor and says, “it’s your fault our client’s business is not doing well.” The standard letter from this type of solicitor is “The franchisor mislead the Franchisee, the Franchisor did not provide support to the Franchisee, the Franchise System is faulty”.
If only the Franchisor never picked up that cheque taunting them a little while ago. It is then, they realise, they recruited the wrong franchisee.
Franchisee selection criteria is by far the most important aspect of being a Franchisor; ensuring each potential franchisee is the right fit for the business
Now don’t get us wrong, we have acted for many, many Franchisees who have fallen victim to some extremely horrible franchise systems. We have assisted Franchisees who have bought into blatant scams and have been successful in having dodgy franchisors held accountable by the ACCC and the Courts. We are not saying all Franchisors are right and all Franchise systems are good. There are numerous occasions when a Franchisor needs to be held accountable for either making false or misleading representations, for breaching the code, or for failing to comply with the Franchise Agreement. To repeat, not every Franchisee that complains about a Franchisor or a Franchise System is wrong, rather, what we are talking about here is the wrong franchisee in an otherwise good franchise system.
A ‘wrong franchisee’ has generally not conceptually realised they are not an employee, but rather, are a business owner with a responsibility to run their own business. Our advice to Franchisors when contemplating recruiting someone who they believe may not be the right fit, is “don’t”. It is important to make sure you have a very selective recruitment process to ensure the leads are recruited, and the others are not. Leave the Franchise Fee cheque on the table because future you is saying “thank you!”. Based on years of listening to our Client’s stories, our industry experience says that recruiting every individual who puts their hand up, is not a successful growth strategy and may cost you a lot of time and stress (or worse) severely damage your brand.
It is also really important for Franchisors to hear this; if a difficult Franchisee falls through the cracks (which easily happens) it is not your system, it is not your brand, it is not you – it was the wrong person. It was a poor recruitment policy. It was your failure to identify important characteristics in you recruitment process.
If you are a Franchisor with the wrong franchisee in your system (or many) just remind yourself how successful the business can be. Think of the other Franchisees who are performing well. Have faith in your systems and processes, stay true to your brand. It works, it was just put in the wrong hands. In the words of Aaliyah (RIP) from her 2000 hit song, “dust yourself off and try again”. Having witnessed firsthand Franchisors lose momentum and confidence from a few bad eggs, it is important that Franchisors identify the problem which is not the system, but rather, the recruitment process.
IP Partnership is a national business only law firm who act for Franchisors and Franchisees located all over Australia - they are the experts in franchise law. If you are looking to turn your business into a Franchise system, you should contact IP Partnership for a no cost meeting with one of their experienced solicitors. If you are buying a franchised business, IPP are also able to assist. The Franchising Code of Conduct is a robust piece of legislation and it is important to have lawyers who specialise in that practice area and understand the unique area of franchise law and business generally. Whether you are a Franchisor or Franchisee, this is a commercial law firm which places a high value on long term client relationships. Think of IP Partnership Lawyers as your business’ inhouse commercial legal counsel.
Sam Rees is the senior partner of IP Partnership Lawyers, a firm that specialises in Franchising, business law, and Intellectual Property law. Sam has acted for Franchisors and business owners for over ten years and works with a team of commercial solicitors who act for business owners located all over Australia and Internationally. The firm was established on the Gold Coast, Queensland, in 1995 and the firm’s reputation for consistent, prompt delivery of legal services and care has spread nationwide with clients from all major cities across Australia.
