Much has been written about the symbiotic relationship between a franchisor and a franchisee. To avoid the repetitive use of these terms, I'll interchangeably use ‘Company’ for the franchisor and ‘Partner’ for the franchisee. While many forums discuss the suitability of this business model for different entities, the conflicts that arise from this interdependence do not receive adequate attention. It's essential to understand that such conflicts can drain the time and resources of the involved parties, potentially threatening the business's foundational stability. Through a series of articles, I intend to highlight some of these conflicts, and attempt to formulate some guiding principles.
The link to the first article in this series is linked below. This leads to the first of my Principles : The Company (Franchisor) relies on the Franchisee for the present, whereas the Franchisee depends on the Company for its future.
Please do leave your comments or thoughts if you wish.
Before delving further, I'd like to add a disclaimer. As the head of a renowned company with a significant global franchise in the training and education space, my views in this series are personal and may not mirror those of my employer. Some might even diverge from my company's official stance.
The insights shared here come from 35 years of experience, primarily in managing businesses via a franchise network. They are supplemented by countless discussions with franchisees, entrepreneurs, colleagues, and industry peers. This article aims to offer the perspective of a practitioner, not an academic. Depending on your familiarity with the subject, some observations might seem evident. Some might resonate with you, while others may prompt disagreement. Regardless, if these insights lead to focused discussions in the franchise space, I'll consider my objective achieved.
This series caters to a wide audience, from those managing a franchise network to beginners hoping to grasp the nuances of franchise management. Business students, budding professionals, and franchise consultants might find these observations particularly beneficial.
For the sake of clarity and focus, I've chosen to address one or two points in each article. While I've used the term 'Principles' in the title, it refers to succinct conclusions on the discussed matters, rather than fundamental truths.
With this preamble, let's begin.
"Principle : The Franchisor needs the Franchisee for the present. The Franchisee needs the Franchisor for the future"
This differing timeframe in expectations often leads to oversight and misunderstandings. For instance, if a franchisee's short-term sales dip, they might seek additional support from the company. This demand typically reaches the company's higher-ups through the field sales team, who are also vested in short-term sales.
Consider a fictional franchise, ABC. In 2019's first quarter, sudden floods in certain regions severely impacted sales. Franchisees faced financial strain, prompting the Zonal Head, who had been with the company for just a year, to convene a meeting. Here, some partners expressed their dissatisfaction with the company's response to the crisis, comparing the Zonal Head unfavorably with his predecessor. The ZH did not wish to strongly contradict the views of the partners, some of whom had been associated with the company for decades. He signalled and agreement and the collective ask was then for the company to initiate promotional activities and discounts, which was sent to Marketing Department and Business head at HQ for approval. The ZH also traveled to meet the Business Head for putting forward the case.
Responding to this feedback, ABC diverted its marketing budget towards these promotions. While it led to a temporary sales spike, it couldn't sustain post-promotion. The shift also stalled long-term branding activities. Consequently, competitors who maintained their long-term vision started gaining more market share by consistently promoting brand awareness and loyalty. By year-end, ABC realized the implications of their short-term approach.
There are also cases where roles reverse. For example, XYZ company, with a predominantly North India-centered franchisee network, formed a Franchisee Advisory Council (FAC) that met semi-annually. Given the business's northern bias, FAC's composition and recommendations reflected this geographical focus, leading to a product launches more suited for the North. This inadvertently gave a Bangalore based competitor an advantage in the South, reflecting the dangers of over reliance on franchisees make long-term strategic decisions.
This is an example of how a well-intentioned feedback mechanism led to strategic lacunae, mainly because the franchisees were given a role which had longer term strategic implications.
These scenarios emphasize the need to recognize the principle that the Company requires the Franchisee in the present, while the Franchisee's future hinges on the Company. Acknowledging this can help preempt and address many challenges
In my forthcoming posts I intend to highlight some other potential conflict areas and discuss how these can be mitigated.
(Image Credit : By KDS4444 - Own work, CC0, https://commons.wikimedia.org/w/index.php?curid=48680376)
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