Our firm specialises in franchise law. It's pretty much all we do. As a consequence, I have spent a lot of my working life dealing with conflicts that arise between franchisors and franchisees.
What happens when a franchisee is not living up to expectations?
In this article I explore the challenges of poorly performing franchisees and how they can impact the overall success of a franchise.
Contents
Franchisee-Franchisor Relationship Strains
Identifying the Causes of Poor Performance
Performance Evaluation and Feedback Systems
The Impact of Poorly Performing Franchisees on the Brand
When Termination Becomes Inevitable
Takeaways
The relationship between a franchisee and franchisor underpins the success of a franchise. However, when a franchisee is not performing well, it can strain this relationship. Franchisees may feel unsupported or neglected by the franchisor, while the franchisor may feel frustrated or disappointed with the franchisee's lack of progress. These strains in the relationship can have significant consequences for both parties involved.
One of the main challenges in the franchisee-franchisor relationship is communication. Poorly performing franchisees may struggle to effectively communicate their difficulties or ask for help, while franchisors may fail to provide the necessary guidance and support. This lack of communication can lead to misunderstandings, resentment, and a breakdown in trust.
It is important for both franchisees and franchisors to recognise and address these strains in the relationship. Open and honest communication is key to resolving conflicts and finding solutions to improve performance. Franchisors should actively engage with franchisees, regularly checking in on their progress, and providing guidance and support when needed. Similarly, franchisees should feel comfortable expressing their concerns and seeking help from the franchisor.
In one situation, I was involved in a dispute between a franchisor and a franchisee, where the franchisee remarked to the franchisor that if they had initially discussed the issue over coffee, the conflict might have been avoided. Although the disagreement was eventually resolved amicably, a considerable amount of time and resources were spent on reaching that resolution.
In my experience another factor that contributes to the strain in the relationship is the misalignment of expectations. Franchisees may have different ideas about the level of support they should receive from the franchisor, while the franchisor may have certain performance expectations that are not being met. These conflicting expectations can create tension and frustration, further deteriorating the relationship.
Setting realistic expectations helps to maintain a healthy franchisee-franchisor relationship. Both parties should have a clear understanding of their roles, responsibilities, and performance expectations from the beginning. This can help prevent misunderstandings and frustrations down the line.
Over the years I have repeatedly heard from franchisees that they thought that the franchisor had an obligation to ensure that their franchise business was successful. Often these franchisees had not sought independent advice before entering into a franchise agreement.
In my view, one of the functions of a well drafted franchise agreement is to clearly set out the roles, responsibilities and performance expectations of the parties. Sometimes parties use a "one size fits all" franchise agreement which does not accurately reflect the relationship. As a consequence, parties agree things outside of the franchise agreement, which can lead to misunderstandings and confusion.
Franchisees can often lack business experience and training. It is one of the reasons that someone is more likely to buy a franchise rather than start their own business. This lack of experience can result in poor decision-making, ineffective marketing strategies, and an overall inability to meet customer demands.
To bridge the knowledge gap and address the consequences of insufficient business experience, franchisors can prioritise comprehensive training programs for franchisees. These programs should cover all aspects of running a franchise, including business operations, marketing strategies, financial management, and customer service.
I sometimes hear from franchisees that their training was limited to "helping someone in store for the day". When you study really successful franchise businesses, you often find that they have comprehensive training programs, for both franchisees and the staff of franchisees.
By providing franchisees with the necessary knowledge and skills, franchisees can make informed decisions, effectively market their businesses, and provide exceptional customer experiences.
In addition to training programs, ongoing support and mentoring can also help bridge the knowledge gap and improve franchisee performance. Establishing mentorship programs where experienced franchisees can guide and support new franchisees allows for the transfer of practical knowledge and real-world insights, helping new franchisees navigate challenges and make informed decisions.
Furthermore, franchisors can provide resources and tools to franchisees to help them bridge the knowledge gap. This can include access to industry research, best practices, and ongoing communication channels for questions and guidance.
Another factor that can contribute to poor performance is market saturation and changing consumer preferences. Franchisees may struggle to compete in an oversaturated market or fail to adapt to evolving consumer trends. It is crucial for franchisors to monitor market conditions and consumer preferences to provide guidance and support to franchisees. By staying informed about industry trends and offering strategic advice, franchisors can help franchisees make necessary adjustments to their business models and stay competitive.
In addition to these factors, poor performance can also be attributed to individual franchisee characteristics, such as lack of motivation, poor work ethic, or personal issues. Franchisors should conduct regular performance evaluations and provide constructive feedback to identify and address these issues.
Another characteristic of highly performing franchise systems is the use of performance evaluations (or audits) and feedback systems. Regular performance evaluations and effective feedback systems can provide valuable insights into a franchisee's performance, identify areas of improvement, and can offer guidance on how to enhance skills and operations.
Performance evaluations serve as a benchmark for franchisees to assess their progress and measure their success. By conducting regular evaluations, franchisors can track the franchisee's performance over time and identify any patterns or trends that may impact their overall success. This allows for timely interventions and corrective actions to be taken, ensuring that franchisees are on the right track.
Effective feedback systems offer an opportunity for franchisors to communicate their expectations, provide suggestions for improvement, and acknowledge areas where franchisees excel. Feedback can be given through various channels, such as one-on-one meetings, performance reviews, or written reports. The key is to provide specific, actionable feedback that is tailored to the individual needs of each franchisee.
Feedback should not be limited to just identifying areas of improvement but also highlighting areas where franchisees are performing well. Positive feedback can boost their morale, reinforce their strengths, and motivate them to strive for even greater success. It is important to strike a balance between constructive criticism and positive reinforcement to create a supportive and empowering environment for franchisees.
While in my experience franchisees often do not like franchisor audits (or feedback identifying areas of improvement), if the implementation of actionable feedback increases a franchisees bottom line, any objections to the feedback tend to fall away.
Utilising performance evaluations and feedback systems go beyond just identifying weaknesses and providing guidance. They also serve as a platform for open and transparent communication between franchisors and franchisees. It encourages franchisees to voice their concerns, share their ideas, and actively participate in the growth and development of the franchise. This collaborative approach fosters a sense of ownership and commitment, leading to improved overall performance and success.
To maximise the effectiveness of performance evaluations and feedback systems, it is important to establish clear and measurable performance metrics. These metrics should align with the franchise's goals and objectives, allowing franchisees to understand what is expected of them and how their performance will be evaluated. Regularly reviewing and updating these metrics ensures that they remain relevant and reflective of the evolving needs of the franchise.
A poorly performing franchisee can have a ripple effect on the reputation and success of the entire brand. When customers have a negative experience with one franchisee, they may associate that experience with the entire brand, leading to a decline in customer trust and loyalty.
Online reviews and social media play a crucial role in shaping customer perceptions and influencing purchasing decisions. Customers often turn to platforms like Google, and social media channels to share their experiences and opinions about businesses. Negative reviews and comments about a poorly performing franchise business can spread quickly and reach a wide audience, damaging the brand's reputation.
Although many people recognise that brands operate through franchises, they tend to associate a franchise location directly with the brand, rather than with the individual franchisee.
To address and rectify negative feedback, franchisors should have a proactive strategy in place. Firstly, it is essential to monitor online reviews and social media channels regularly. This allows franchisors to stay informed about customer feedback and address any issues promptly. Responding to negative reviews and comments in a timely and professional manner demonstrates the brand's commitment to customer satisfaction and its willingness to resolve problems.
In addition to addressing negative feedback online, franchisors should also take appropriate actions to rectify the issues raised. This may involve working closely with the poorly performing franchisee to identify and address the root causes of customer dissatisfaction. Franchisors can provide additional training and support to help the franchisee improve their operations and customer service.
Despite the best efforts of franchisors to support poorly performing franchisees, there are instances where termination may be the only viable option. Terminating a franchisee is a difficult decision that should be made after careful consideration and adherence to established procedures.
When considering termination, franchisors must take into account various factors. These include the severity and persistence of the franchisee's poor performance, the impact on the brand's reputation and customer trust, and the potential for improvement through additional support and guidance. It is crucial to assess whether termination is necessary and if there are any alternatives that could salvage the franchisee's performance.
Franchisors should also consider the legal implications of termination and seek appropriate legal advice to ensure compliance with the Franchising Code of Conduct (the Franchising Code), the Australian Consumer Law and the franchise agreement.
Failure to comply with contractual obligations and legislation can have potential legal repercussions. Franchisees may take legal action against the franchisor if they believe that the termination was unlawful. This can result in costly legal battles and damage to the brand's reputation. To avoid such situations, franchisors should seek legal advice to ensure that they are following the correct procedures and protecting their interests.
My article Understanding Franchise Agreement Termination sets out some of the circumstances under which a franchisor can terminate a franchise agreement.
The challenges of poorly performing franchisees can have a significant impact on the overall success of a franchise.
It is important to monitor and address any negative feedback received by the brand as a consequence of poorly performing franchisees, as well as to implement quality control measures.
Poor performance may be caused by one or more of:
By prioritising comprehensive training programs, ongoing support, and mentorship, franchisors may be able to bridge the knowledge gap and improve franchisee performance. In addition, regular performance evaluations and feedback systems are essential for identifying areas of improvement and fostering a supportive environment.
While termination may become inevitable in certain circumstances, it is crucial to follow the terms of the relevant franchise agreement and to comply with the Franchising Code and the Australian Consumer Law to avoid potential legal repercussions.
Dealing with poorly performing franchisees is one of the disadvantages associated with franchising your business. Our article Advantages and Disadvantages of Franchising, considers further some of the other disadvantages.
Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.