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Franchising From the Inside Out
by Ed Teixeira
Published 2005

Chapter 8 - The Franchisee Commandments
"Franchisees have more power than they think"

After having worked for over twenty-five years in franchising with several different companies, I have personally observed over 1,000 franchise operations in various stages of growth from start-ups to ultimately being sold. I've also been involved with numerous franchisees that have faced challenges, both personal and financial and have provided operational and financial solutions to numerous franchisees that have looked for a remedy to their problems.

Based upon this experience I have developed the Franchisee Commandments. These Franchisee Commandments are based upon my own experience in franchising. I feel that these Franchisee Commandments are credible and will provide you the opportunity to benefit from them:

1. Franchisees Have More Power Than They Think.

I have seen numerous franchisees with the attitude that they don't have the authority to speak up. They feel that the franchisor has them "under their thumb". Obviously, there are franchisees that are an exception, especially those who have multiple locations or are financially strong. I speak more to the typical franchisee, the single unit owner/operator who may feel that if he/she complains too loud that the franchisor may exert some punitive control over them. I would say that this could not be further from the truth. In fact, I believe that those franchisees that provide positive and reasonable criticism to the franchisor are usually well received, particularly if it is from franchisees that have been following the franchisor program. This doesn't mean that every franchisor will accept criticism with open arms, but I have found that most franchisors are willing to accept feedback and suggestions from their franchisees. For that reason, I would hope that as a franchisee, you recognize that you do have more power than you think and that you are not reluctant to speak up when necessary.


2. Franchisees Should Always Relate To Successful Franchisees.

I don't know how many times I have seen franchisees listen to the so-called "critics of the franchisor". Those franchisees that have not achieved any significant success themselves and seem to spend most of their time looking for excuses for their poor performance. I have always told my franchisees, "If you want to learn about how to be successful then listen to the successful franchisees. Don't listen to the chronic complainers."

My strategy whenever I got involved in a franchise system where there was work to be done was to establish the successful franchisees as the reference point for the other franchisees. I remember my very first assignment as a Regional Director. I had about 21 franchisees in the retail food business. There were several franchisees that were constantly criticizing the system and practices of the franchisor. Sometimes I thought they got tremendous joy just hearing themselves speak. It was interesting to note that those same franchisees were the ones who were also the least successful in my region and their performance could be truthfully stated as "mediocre". Fortunately for me, they represented a minority of the franchisees, so my first goal at meetings and in my regional newsletters, was to reference the successful franchisees wherever possible. I did this on a regular basis and after no more than six or seven months, the franchisees started to relate to the more successful ones and were turned off by those who were the constant complainers.


3. Franchisees Need To Document Violations Of Their Franchise Agreement.

I can't emphasize this strongly enough. As a franchisee, if you encounter certain problems and issues with the franchisor or with an employee of the franchisor, such as a field representative make sure that you document those situations. Even if you don't send a letter or an email to the franchisor representative, be sure that you make note of the time, date and occurrence of an event. This is very important because one never knows when there may be a problem in the future. Having spent my career as a franchisor as well as a franchisee for a period of time, I can tell you that any franchisor "worth their salt" will "document". Clearly, the franchisee should do the same.

I have been involved in numerous depositions where the franchisee had claims denied because they had no corroborating evidence. They were not able to document many of the claims that they made because so much of what they did was verbal, and as such they could not even recite the correct dates, time, etc. I am not advocating that as a franchisee you start to set up a journal every time something minor happens with the franchisor. Rather, I am suggesting that if you encounter any problems with the franchisor or with one of their representatives and it has a negative impact on your business that you should document the facts. In terms of elevating the documentation to communicating with the franchisor, I think that becomes a judgment that has to be based upon each case. It certainly would be worth your while to seek advice from your franchise attorney when you get to the point that you feel you should notify your franchisor of violations.


4. Franchisees Must Accept A Strong Franchise Agreement In Order To Protect The System.

This may seem like somewhat of an oxymoron for a franchisee, but I found so many times over the years that a good strong franchise agreement protects the franchisee. It protects the franchisee from those franchisees that don't follow the system and don't do what they are required to do.

As I have indicated previously in this book, can you imagine a weak non-compete provision in the franchise agreement? You could end up having some of your colleagues leaving the system, opening up a competing business and competing against you down the street.

Franchisees have to accept the principle that they are part of a network. The franchisor needs to have certain devices within that agreement to protect the network for everyone. It is not a case of the franchisor necessarily protecting them; it is a case of the franchisor wanting to protect the network, which consists of the franchisees.

In terms of "quality standards" consider being in the franchise food business and some franchisees didn't follow the operating standards and had dirty outlets. That will directly impact the trade name you are depending upon. It would affect your own franchise if this non-compliant franchisee were in your geographic area.


5. Franchisees Have A Vested Interest In The Financial Viability Of The Franchisor.

I have found that most franchisees recognize that their future success, opportunity for future growth, profits and return from the sale of their franchise will be a direct result of having a strong, financially viable franchisor. Many years ago, one of the franchisors I worked with faced a situation where profits had decreased due to an overall sales decline. The CEO of that franchisor made a plea to the franchisees to conduct some aggressive marketing. The reason was so that the franchisor could become more profitable and turn their financial situation around. If you think about it, it would not be unusual to have a network of franchisees that are successful yet have a franchisor that is not profitable. This CEO made a comment that I will never forget. He said that in order to compete and be successful you need to be financially strong. In order for the franchise system to be strong, viable and competitive, you need to have a financially viable franchisor.

Someone once said, "the franchisees should be given exactly what they are entitled to and the franchisor should receive what it's entitled to, no more or no less. However, there may be a point in time when franchisees may be required to "cooperate" with their franchisor for the best interests of the entire system.


6. The Most Successful Franchisees Are Those Who Follow The Program.

I can't tell you how many different franchise systems I've worked in where the franchisees that were the most profitable and successful were the ones who "followed the program". Now, I am not necessarily speaking about just a turn key operation but I am speaking about operations that were a product or format franchise, where the franchisees sold a product manufactured by the franchisor or other products or services. In both cases, those franchisees who followed the system and the general program as prescribed by the franchisor were the most profitable. I don't think I can recall one franchisee that I would characterize as somewhat rebellious or who did their own thing as having had a profitable operation. To the contrary, usually those who did not follow the program were the ones who had the problems. This does not mean that every franchisor has a formula for success because, in fact, it is a given that over the course of the year, they will always be some franchisees who unfortunately will fail.

Franchising is not fool proof. Obviously, there are certain systems that are highly sophisticated and so highly organized that most franchisees can truly succeed if they just do what they are required to. On the other hand, there are a number of franchisees that own franchises that require more independent decision-making and action on the part of the franchisee. In those cases, I would suggest that those franchisees that are most successful typically would follow the franchise program and advice of the franchisor.


7. Profitability Should Proceed Franchisee Expansion.

I have observed so many examples during my career of franchisees having an unquenchable thirst for territory. They are always looking for another option, planning ahead to open up anther store, location or office before they are profitable with their existing location. You may be reading this thinking, I will never do that, however what happens is that a franchisee opens the business, may be marginally profitable and starts thinking "if I only had another location or a little more territory, I could grow this business to be much larger". They will then approach the franchisor, which in most cases is looking to sell more territory. The franchisor often agrees to give the franchisee more territory and the franchisee, does in fact, acquire it with plans to expand.

If the franchisee does not have a strong, viable and profitable operation preceding this expansion, the chances are that franchisee is going to have problems. The reason for this is that it's going to require capital to develop an additional location and its territory. Capital is generated by a positive cash flow, which stems from a profitable operation. If you don't have that, than surely you are going to find yourself behind the eight ball.

My experience has been that franchisees that maximize their existing territory are the ones who will typically end up being the most profitable and create the greatest amount of wealth for themselves and their operation. When they do expand they are in a much better position to do so.


8. Franchisee Unity Is Power.

If franchisees have some issues, the best way to resolve those issues is to seek input as well as advice from their fellow franchisees. It goes without saying that franchisees have a strong need to protect their business and investment. Therefore, it is not out of the ordinary to expect that franchisees will be concerned about their own individual situation. I have had experience with franchisees calling me up and telling me that certain franchisees call them up to complain. The response by the franchisee is "I have all I can do to run my business and I don't want to get involved in that". This goes back to one of my previous comments about the more successful franchisees. They are not usually the critics because they are too busy running their business and being a success. Yet when they do speak they are usually heard.

However, there may be times when franchisees do have major issues and are not heard. In these situations, there is absolutely no doubt that a unified group of franchisees can be extremely powerful and capable of eliciting a response from the franchisor. I don't think there are many franchisors that would not be responsive to a unified group of franchisees. I have witnessed a group of franchisees representing the bulk of the revenue in their system sign a letter listing their concerns and then sending the letter to the franchisor. If you don't think that wasn't well received, you are highly mistaken, because a meeting was scheduled by the franchisor, probably within twenty-four hours after receiving the letter. It's common sense and it goes without saying that no franchisor wants to face the possibility of having influential members of their network up in arms over problems. It may simply mean that the franchisees want to be heard and are just looking for some answers to their questions. If you are part of a franchise system that has a franchise advisory council which meets on a regular basis there may already be a vehicle in place where you can speak with a unified voice.


9. Franchisees Must Always Select The Most Accomplished, Articulate And Reasonable Franchisees For The Franchise Advisory Counsel.


I have been responsible for establishing a number of Franchise Advisory Counsels and have been in situations where the franchisee's selected their representatives and where the franchisor chose the representatives.

I'll explain the reason for the difference. In one company where I set up a Franchise Advisory Counsel, I needed to get it established rather quickly, I selected four (4) representatives for the Franchise Advisory Counsel; one from each geographic area. I didn't select franchisees that were pro-franchisor, so to speak, but I selected those who I considered to be successful franchisees that also would be willing to speak up. I purposely avoided those who were considered the "trouble makers" or those who were not very successful. After the first meeting or two, the franchisee community then voted on their representatives. They voted on representatives who they through would truly represent them. In another situation, I can remember starting up a Franchise Advisory Counsel where there was a vote which included six (6) regions in the country, and sure enough, there was a campaign by several franchisees to be on the committee; a number of the better performing franchisees were not interested, so they ended up electing six (6) franchise advisory members of which four (4) were the most outspoken and rebellious franchisees out of about eighty (80) that we had in the network. The result was that when we had our first meeting, we ended up having to sit there and listen to these franchisees whining and complaining about their own personal situations, rather than focusing on the concerns of their constituents. For that reason, I think it is important if you are in a situation where there is a Franchise Advisory Counsel, to make sure you look towards those franchisees to represent you who have been successful, articulate and reasonable.


10. The Franchisee Should Use An Experienced Franchisee Attorney

If you find yourself in a situation where a dispute or disagreement with the franchisor escalates to the point that you require legal representation, be sure you have strong legal counsel. There is no doubt that having an experienced franchise attorney will be in your overall best interest. Franchising is still somewhat of a specialized legal practice and there is a knowledge base and experience level that good franchise attorneys would have. By not hiring an effective franchise attorney to represent you, there is a risk of having an attorney who has not faced a situation in franchising similar to yours. You may believe that you are saving a few dollars in the beginning but you could pay more in the end.

These are my "Franchisee Commandments." I feel that they can serve as a guideline for you as you operate as a franchisee within your network. These Franchisee Commandments are not fool proof and it doesn't mean that there are not exceptions, but I think generally, these will run true to form in most cases. It's probably a good idea to keep these in your mind as you conduct your affairs as a franchisee and be guided accordingly.