4 steps to rebuilding trust in franchising

Our brain is wired to be careful of whom to trust. Open yourself up to the wrong person and you can get hurt – physically, emotionally and financially. Nature has given us a shortcut to help here. It’s called reputation. If we’ve heard good things about a person or group, we’ll be more open to what they have to say. In business, we call this having a good brand. Brands, like reputations, are built and broken by the behaviour of the people they represent.

A positive among the negatives

Over the past 12 months the franchising brand in Australia has been damaged by adverse media coverage with accusations of bad behaviour by people associated with some well-known brands, and a Parliamentary Inquiry where hundreds of unhappy past and present franchisees have shared their stories.

This has caused a drop in enquiries from future franchisees, a tightening of credit from lenders, and frustration for the majority of franchisees, franchisors and advisers who do the right thing. On the positive, it has been a wake-up call to avoid complacency, especially for those who believe in franchising’s power to contribute to a better society.

With the Parliamentary Inquiry about to release its report, I have provided below four strategies aimed at rebuilding trust and confidence in the franchising brand. Not through PR or spin, but by people using good judgement and sound business practices proven to create successful franchise networks.

1. Monitor unit-level profitability

A new generation of financial management products has made it relatively easy for franchisees to track the financial health of their businesses and reduce the risk of unpleasant surprises.

While the sophistication of financial benchmarking systems will vary between franchise networks, at the very least every franchisee should:

  • Have a monthly P&L using an agreed chart of accounts.
  • Know the sales breakeven point where their business starts to make a profit.
  • Be tracking five key performance indicators that correlate with the future health of their business (usually related to customer satisfaction, staff productivity, customer spend, and marketing activity).
  • Be discussing these numbers in quarterly meetings with a member of their franchisor team.

2. Have a remediation program

When someone becomes a franchisee, or indeed the owner of any business, they are entering a battle for market share against local competitors who will be trying to take them out. This is a brutal truth, as is the statistic that around 10 per cent of franchisees are going to get seriously hurt in this unrelenting business battle.

All franchise networks need to have a type of intensive care unit (ICU) to support these businesses. And they need to be tough on compliance to agreed actions designed to help the business survive. Yes, ICUs are expensive. But the emotional, financial and reputational damage of letting franchisees perish without receiving adequate support is, in the long run, far more costly.

This includes proper debriefing of franchisees and their families if things don’t work out. If the bulk of franchisors took this responsibility more seriously we wouldn’t have needed a Parliamentary Inquiry.

3. Measure franchisee satisfaction

Fifteen years of research on thousands of franchisees has enabled us to develop a deep understanding of what makes franchisees want to be Advocates for their franchise network, Commit to staying in the business, and Engage fully with brand initiatives. We call this an ACE Mindset. For franchisees to have this, they need to:

  • Enjoy running the business
  • Be making a reasonable profit
  • Feel a sense of passion for the brand
  • Have confidence in the franchisor team
  • Have access to useful systems and relevant support
  • Be consulted on important issues impacting on their business

Franchisee satisfaction in these areas can be reliably measured, benchmarked and improved. We can help you with this.

Make no mistake, the most important stakeholder in a franchise network is its franchisees. If they are profitable, satisfied, and consistently delivering great customer experience, other important business metrics are likely to remain in good shape.

4. Train your team in the business of franchising

Of the hundreds of franchise brands we have worked with, less than 10 per cent would share all of the following characteristics that define truly great franchise networks:

  • They have maintained consistent yearly growth in like-for-like sales for over 20 years.
  • They constantly innovate and reinvent themselves to ensure their products and services remain relevant to their end customers (which probably also explains the first point).
  • Their strategic decisions are made with reference to their culture, their brand values, and what is right for their customers, staff and franchisees – not just their shareholders.
  • They are clear that, in addition to the industry they operate in, they are in the business of franchising, and they ensure they are good at it.

This last point means they train their franchisor staff and their franchisees in what it means to be part of an interdependent business relationship where everyone operates under the same brand, and needs to collaborate to keep their competitive edge.

The education process to maintain a healthy franchising culture is ongoing and needs to be embedded into a franchisor’s leadership training and franchisee conferences.

Successful franchising

If you are still with me, thanks for reading this. I guess it all comes back to remembering that, for many franchisees, this is more than just a business or a job, it is their life. If things don’t work out, it’s not just a matter of them finding something different to do.

Successful franchising requires empathy as well as a long-term commitment from everyone involved.

This is Tip #180 in Greg Nathan’s Healthy Franchise Relationship Tips.