Understanding the Franchisee & Franchisor Relationship

Updated: Feb 23

The relationship between franchisees and their franchisor can be complex and sometimes challenging. Both stakeholders have differences that, when not viewed and understood from an appreciative stance, can lead to a difficult path filled with friction and frustration by both parties. It's vital to understand that as a franchisee, there are many relationships to manage with your franchisor. Your overall relationship will consist of many individual relationships with employees who work for the franchisor. It's an important distinction to understand because employees within an organization think and act very differently than entrepreneurial franchisees running their businesses.

The franchisor is often structured as a functional organization divided into departments focused on specialized business areas, such as marketing, operations, information technology, and human resources. While these provide the opportunity to create greater operational efficiencies between individuals with similar skill sets working closely together, they can also cause challenges for franchisees within the system, particularly with communication and collaboration. It can be challenging for franchisees to understand who works in each department and what precisely they do to support the franchised business units. On the other hand, the franchisees' business unit operates in a much more streamlined fashion, with usually a General Manager if the franchisee isn't filling this position themselves and a small team of employees to service the customers' needs. Everything happens much quicker at the franchisee level; the team identifies problems, raises them to management, and likely addresses or escalates them to the franchisor, sometimes within hours. Dealing with a franchisor with multiple departments and management layers built into their hierarchy means that communication and follow-up solutions will take more time, which can be very frustrating when you are working on the front lines of the business. Another key difference that impacts the relationship between franchisees and their franchisors is the fundamental characteristic differences between people who pursue entrepreneurship and those who seek a corporate career. Entrepreneurs have several key personality traits that often contrast the types of individuals who pursue careers within a typical organization; curiosity, risk tolerance, and adaptability [1]. Let's look at these traits in contrast to those of employees working within a franchisor's organization.

Curiosity

Successful franchisee entrepreneurs often have an increased level of curiosity, and it's that ability to remain curious that allows them to continuously ask questions about why specific promotions were chosen over others or why operating standards were designed the way they are. They have an intrinsic desire to explore different solutions and ideas. When they aren't included in the exploration or ideation phases of new programs, systems, or tools, this cuts directly against their curious nature. Alternatively, when you look at the average employee working within an organization, you'll see that while they often have the desire to be more curious, exploring new ideas and ways of doing things, they often work for senior leaders in their departments who prefer consistency and efficiency over curious exploration. A study by Francesca Gino, a professor at Harvard Business School, found that over 70% of employees faced daily barriers to asking more questions while on the job [2]. She concluded her research by suggesting that, in most organizations, managers and employees receive the unspoken message that asking questions is an inferred challenge to the organization's executive authority. The managers and employees within organizations are often trained to focus solely on their day-to-day duties without paying much attention to the process or the organization's overall goals, leading to a significant decline in creativity and innovation [3]. Nurturing a spirit of curiosity within the franchisor's head office could yield significant benefits. First, to the financial results of the business, both for the franchisor and the franchisee, and second, to an enhanced collaborative relationship with franchisees whose continuous curiosity often leads them to innovative ways of solving problems.

Risk Taking

Starting your own business can be a risky proposition. Research conducted by Shikar Ghosh, a senior lecturer at Harvard Business School, found that nearly 75% of new ventures ultimately fail [4]. Despite this sobering statistic, would-be entrepreneurs know that they must prepare themselves and be comfortable with the chance that their business may fail. One of the reasons buying a franchise is so appealing to new entrepreneurs is that for their 'franchise fee', they are buying a proven business with ample support. That support often materializes through well-established operational systems and tools and a robust marketing program to help them drive unit sales. So, rather than letting the fear of failure hold them back, savvy entrepreneurs instead focus on the possibility of success and let that propel them ahead.

Employees of the franchisor's organization often have a different mindset regarding risk and failure, and it's not entirely their fault. In traditional organizational structures, employees are rewarded for their successful work in three ways: appreciation for a job well done, a merit increase during their annual performance review, and promotion into senior positions; this is how the typical corporate career is built. Failure is often considered a failed attempt to fulfill their work duties satisfactorily, which drives employee behavior that is not associated with risk. In most organizations, both franchisor and otherwise, you'll find employees who do the job strictly as they've been trained to do or how it has historically been performed. Taking risks to think outside the box and do things differently, in their eyes, could lead to poor manager reviews, negative monetary consequences, and a stalled career or, worse yet, being fired from their job. All of these fears are real at the employee level.

Franchisors would be well served to create an environment that encourages innovative thinking and a certain level of risk-taking at the employee and manager levels to help drive business results and innovation while enhancing the relatability between their franchisees and those who work to support them. Taking a page from some of the tech companies could be beneficial here. Google, for example, allows employees to spend 20% of their time solely innovating and working on new ideas. 3M, another organization reliant on constant innovation, allows 15% of the time to be spent on innovation at the employee level. An approach like this implemented at the franchisor’s head office could be valuable collaboration time between their employees and franchisees, a way to plug into the innovative nature of franchisees.

Adaptability

The need for adaptability to change in entrepreneurship has never been so obvious. COVID-19 and its devastating impact on small businesses throughout much of the western world pushed this vital characteristic to the top of the must-have list, and with good reason. The response to the pandemic was fluid and changed frequently based on direction from the government and local health authorities. I witnessed this firsthand as Vice President of Operations and Training at Boston Pizza, one of Canada's most admired franchised restaurant chains. Franchisees who were able to continually reevaluate the changing business environment and adapt to the current situation kept moving their business forward, regardless of what was happening around them. They had a laser focus on business continuance, and if that meant adapting, seemingly daily, to changes in well-established operating procedures, they dug in and made it happen. In comparison, those who panicked and failed to adjust to the new working environment suffered further business losses.

It's widely accepted that we live in a time of constant change, making adaptability an in-demand skill set for entrepreneurs and franchisors' organizations. Having employees who can adapt to times of uncertainty and unwanted change is critical, as is their ability to adapt to changes in the organizations' programs, systems, and tools. Business evolves rapidly, and their ability to adapt is critical, especially when the livelihoods and investment capital of the system's franchisees are on the line. If adaptability to change is such an important skill, why is it so difficult for organizations to adequately train employees? One of the main reasons change initiatives fail at the organizational level is that senior leaders and executives need to understand the various stages of personal transformation. This frequently leads to the need for an adequate change plan to be deployed alongside the change initiatives. John Kotter [5] suggests that people must move through eight stages of change

for the change initiative, behavior, etc., to take hold. Franchisors would be well-served to ensure that not only are their executive leaders leveraging a change plan alongside any of their change initiatives but that franchisees, specifically those who may struggle with change, have access to internal or external training opportunities that help them understand the various phases of change and where they are getting 'stuck' in the process.

Understanding the critical differences between those who pursue entrepreneurship and those who choose a conventional career within traditional organizations is the key to successful collaboration [6]. The franchisee and the franchisor need each other to succeed; they, in fact, have many shared goals. Franchisors need to attract entrepreneurs into their system, as selling more locations is one of the keys to growth, and you can only do that with franchisees. Franchisees also need responsible system growth; the more locations, the more visible the brand is, building consumer awareness for the entire system. On the other hand, the franchisee needs the franchisor to have a strong team of professionals who can design and maintain the programs, systems, and tools needed to ensure the business evolves to meet the needs of its consumers and one of the main reasons entrepreneurs select one franchise over another is because of the robust support and tools that exist for the franchisee on behalf of the franchisor; one aspect of the business can only succeed with the others.

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Understanding the Franchisee & Franchisor Relationship

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