Why and How To Default A Franchisee

By: Robert A. Gappa

President, Management 2000

"Get rid of him, he never does anything we say." This is a phrase I have heard recently from frustrated entrepreneurs, Presidents and V.P.'s of small, medium and large companies. I have become aware that not defaulting franchisees is one of the biggest problems facing franchisers in this country.

Why isn't it done? Because the franchiser is afraid of litigation and because he has not consistently defaulted others for the same offense.

Why do Franchisees Default

Recently I have had the opportunity to facilitate five strategic planning sessions where franchisees were included and to conduct two franchisee opinion surveys. In both cases I was able to document subjectively and objectively why franchisees get into a default mode.

It is because they believe they are independent business people who believe they own the franchise in addition to owning the business. In one company's survey results, over 70% of the responders said they "became a franchisee so they could be their own boss and run the business the way they wanted." In another question over 70% of the responders said that "what they thought was needed," had the most influence on how they decided to operate on a daily basis (rather than the Operations Manual, another choice).

During the first day of the strategic planning sessions with the franchisees, we spent the entire time discussing what franchising really is and what their roles are. Once that was accomplished, strategic planning moved away from "let's talk about what we need and what you are not doing for us" and into brainstorming about how to work as a team and build the system.

What we currently have is a philosophy that says, "I own this and so you are a vendor to me and therefore I will only comply with those parts of the system I think will benefit me." We need to change this immediately.

Philosophy of Defaulting/Philosophy of Franchising

Franchising realities:

C Franchisees do not own the franchise, you do.

C Franchisees do not own the market, you do. Therefore the franchisees are your strategic-partners, not independent business people.

C Franchising is a strategy you are using to accomplish your goals.

C You own the Brand, the Operating System, the Operations Manuals and the Training Program.

C Franchisees own their businesses but they invest in your brand and operating system.

C Franchisees are licensed, as part of your strategy, to do two things:

1. Help you accomplish your objectives in the markets where you are franchising and

2. To achieve what they want.

C Franchisees sign a legal document and agree to follow your operating system.

Given these principles, franchising companies need to understand they cannot allow their franchisees to play Monopoly with Parcheesi rules. Franchisees cannot reap the rewards of belonging to a successful system and then act like an independent business person. These two business life-styles are in as much conflict as priests who date. Both behaviors confuse their customers.

A franchiser needs to understand one of its primary obligations is to protect the integrity of the operating system which institutionalizes the buying experiences, unit-to-unit, resulting in customer loyalty, increased repeat visits and higher sales.

Each franchiser explains its system to the franchisees, trains them on it, gives them a manual that explains it and explains why consistency and standardization are important (customers and the mission). If the franchisee chooses to violate the integrity of the operating system they agreed, in a signed legal document to faithfully and fully implement, they must suffer the consequences of that choice. Not because of the choice, but because of the consequences which effect every other franchisee and the customers.

The franchiser's obligation in defaulting is not to the franchisee being defaulted. It is to every other franchisee, to their own company operated units and most importantly to its current and potential customers. The franchisee had a choice. The franchiser does not. The franchiser must default those not in compliance.

What If You Never Default and Want To?

1. Declare a general amnesty to all who are not in compliance.

2. Declare a six month period of renewal during which the correct philosophy of franchising will be taught through meetings, newsletters, etc.

3. Be sure all company operated units are models of compliance.

4. At the beginning of the seventh month default any and all franchisees who are not in full compliance.

This will get you back on track and will gain the respect of the franchises and your employees.