3 Things to Do [and Not] to resist Opportunism

December 29, 2008

I have been asked dozens of times what franchisees should do.

They frequently have come to me with a specific complaint that is triggered by a heavy-handed franchisor action.

Here are 3 things you should do:

  1. Meet in small groups to address a single topic at a time. Maximum 5 or 6 people until the preliminary work is done. Focus on non-controversial cost reduction strategies.
  2. Involve partners from the beginning right on through to the end. They have exactly 50% of the legal rights to know and can be an excellent support, sounding board and resource.
  3. Pool some upfront money and get a business consultant that specialized in franchising. Have an introductory meeting and move forward based on some preliminary research focusing on justifying action on your increased future cash flow via supply efficiencies. [This type of business consulting is what I do.]

These are the 3 things you should NOT do.

  1. Do not define your franchise problem as, primarily a legal problem. This anchors the discussions in a competitive, win:lose, confrontational model and distracts from creative, much less expensive alternate dispute resolution methods. The law has its place but is, by definition, your least favoured alternative (and your franchisor’s major strength).
  2. Do not go and talk to a franchise law expert lawyer. By all means, talk to whatever local or regional lawyer you want to and check out your business consultant’s advice against an experienced commercial regional lawyer. Trust the consultant but verify his advice.
  3. Do not be disheartened by past failures. As in any organization, there are 101 reasons for past failures but only 1 reason for success. All not-for-profit organizations go through teething stages; that’s normal. Often the longest serving franchisees will be the LAST to step up initially but they will usually come around when little victories are won.

Starting an independent franchisee Association, IndFA seems like a radical thing to do.

  • But when you think of it the franchisors, bankers, lawyers, trustees (everyone else) has their associations to protect them. Why don’t you have one?

Yes. There are always franchisees willing to rat you out to curry favour with the boss. It takes time (you first have to rebuild trust), money, and the work is not equally shared by members. Lots of times people fail. But these are characteristics of every group I’ve ever been involved with in 37 years of volunteerism.

Every right is fought and paid for by somebody. You just joined an industry that buys their food at the company store, just like the miners did 150 years ago. The dignity of labour was won on the broken heads of those who chose to resist tyranny.

  • Or if that’s too heavy, listen to Tom sing about the consequences of choosing a refugee’s path in life.

Refugee, Tom Petty & The Heartbreakers

We got somethin’ we both know it
We don’t talk too much about it
Yeah it ain’t no real big secret all the same
Somehow we get around it
Listen it don’t really matter to me baby
You believe what you want to believe
You see you don’t have to live like a refugee

Somewhere, somehow somebody
Must have kicked you around some
Tell me why you wanna lay there
And revel in your abandon
Honey it don’t make no difference to me baby
Everybody’s had to fight to be free
You see you don’t have to live like a refugee
Now baby you don’t have to live like a refugee

Baby we ain’t the first
I’m sure a lot of other lover’s been burned
Right now this seems real to you
But it’s one of those things
You gotta feel to be true

Somewhere, somehow somebody
Must have kicked you around some
Who knows, maybe you were kidnapped
Tied up, taken away and held for ransom
It don’t really matter to me
Everybody’s had to fight to be free
You see you don’t have to live like a refugee
I said you don’t have to live like a refugee


Free riding problem in franchising

December 2, 2008

 

Without franchise bankers, modern franchising would not exist.

The free rider problem manifests itself in two principal ways within franchising.

One, franchisees can free ride (rip-off) the franchisor by taking the benefits of being within the system but not paying the price (royalties, ad fund, margin on COGS, etc.).

Two, franchisees can cheat by ripping off their peers; other franchisees within an independent franchisee association, IndFA. This, again, is done by taking the benefits (business & legal research, franchisor attention) while not contributing their fair share.

  • The single most factor in a franchisee’s investment is a professionally managed and adequately resourced IndFA. Without an IndFA, franchisees are hopelessly helpless in a competition of competence with the most half-baked franchisor.

Incentives must be created to encourage franchisees to support early, co-operate and hold their counsel. Many small businesspeople initially think of an IndFA as a type of union which needs to be overcome.

Franchisees often too narrowly define their business relationships.

  • They start looking at the franchise agreement when the first storm clouds appear and, poof, they become a 20-year franchise law expert. Sorry folks: the business wags the law, not the other way around.
  • An IndFA starts with an embryonic leader and informal executive which needs to be supported ($ and sense). There is a lot of work to do in researching the characterisitics of each trademark system and that needs to be done by a competent expert. [Think of it as a one-time information capital cost: Very cost-effective as a % annual sales.]
  • Modern franchising would never exist if the industry only was made up of franchisees and franchisors. Without a banker, neither could exist. Without the law, the same. Any industry stakeholder should be invited to the table: Otherwise, they’re free riding [making money without contributing].
  • Traditional and non-traditional suppliers to franchisees are an important, but hidden revenue-generation source for an IndFA. A shrewd executive starts looking as far down the road as the franchisor does.
  • Most franchisors will not welcome the formation of an IndFA with open arms. There are some defenses to a short-sighted franchisor response and the greatest is the integrity of the executive and its advisors.

Keeping your nose to the grindstone [without binding together] didn’t work then. And it doesn’t work now.


Economic sanctions

September 21, 2008

The single best defense against things that go bump in the night for franchisees, is a mature and well-financed independent franchisee association, IndFA [see todays Thought-terminating cliche post on Blue MauMau].

  1. Each franchise trademark system should have their own.
  2. You should never buy into a system that does not have one.

Don’t be fooled: Unless there is a lawyer that the IndFA retains to give independent advice, the salesmen are telling you lies. The franchisor very often creates their own advisory committee to give the illusion of franchisee input. Ask for the lawyer’s name and talk directly to him or her.

National Associations: Starting and running a trademark system is difficult at times.

In the U.S. there are about 5,000 franchise systems and 1,200 in Canada. In Canada, there are only a few dozen functioning IndFAs for one reason alone: The franchisors don’t franchisees talking together.

In the U.S. there is the American Franchisee Association, AFA and the American Association of Franchisees and Dealers, AAFD. In Canada, there isn’t one and Australia’s seems pretty inactive lately.

  • I started the Canadian Alliance of Franchise Operators in 1998 and killed it off in 2005.

The only reason I stopped it was because others were using it to give the impression of strength that was not there. I approached all the major Canadian stakeholders (Big Franchising: franchisor association, 5 Canadian banks, product franchisors, law firms, salesmen, Ontario Ministry of Consumer and Commercial Relations, Industry Canada etc.) for assistance or financial support.

Big Franchising’s position has been consistent ever since 1998 when I breached the sacristy of the CFA’s trade show at the CNE with a CBC film crew. Franchising holds it beliefs rigidly: Like some 2nd rate religion or cult.

The irony, of course, is that without their resistance as expressed in my brilliant 6 week banking career [see The Apprenticeship of Les Stewart] and my recent blackballing (RE: providing general and employee benefits to Canadian franchises),I wouldn’t have the time much less the need to be typing away here.

  • Funny how things work out, eh?

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