Need to Build a Strong Franchisor-Franchisee Relationship
Many factors contribute to franchise success, including a proven business model, substantial resources, and the ability to meet consumer needs. But even the strongest franchise system may struggle to succeed without a strong relationship between the franchisor and its franchisees.
Developing that relationship begins with the franchisor choosing the right franchisee candidates. Franchisors must identify franchisees with the attributes necessary to operate their brand successfully. At the same time, they must show prospective franchisees why their franchise system is a beneficial investment.
And all of this is governed by strict regulations, like the federal Franchise Rule under the purview of the Federal Trade Commission, and various state laws.
What Should Franchisors Look for in a Prospective Franchisee?
A franchisor looking to grow its franchise should not necessarily attempt to attract every prospective franchisee. They should focus on franchisees committed to representing the brand and successfully operating within the system.
The characteristics a franchisor should seek in a prospective franchisee depend on several elements, including the franchisor’s industry, growth goals, and level of involvement; some general traits to focus on include:
Financial Ability
A franchisor should confirm that the franchisee possesses sufficient capital to cover the initial investment, including franchise fees. Additionally, a franchisee may need sufficient liquidity to cover operating expenses, address unexpected costs, and maintain the location while the business establishes itself.
Honesty and Integrity
Although a franchisee may operate only one location, their actions directly affect the system’s equity, reputation, and financial success. Franchisees will serve the public, receive payments, and share revenue with the franchisor. Therefore, they must communicate truthfully and rely on strong moral principles to build the trust vital to a system’s health.
Management and Leadership Skills
Franchisees play a critical role in implementing the franchisor’s business model effectively every day. Effective leadership skills are necessary to manage employees, maintain efficient communication with the franchisor, make difficult decisions, and resolve conflicts, all of which foster a positive workplace.
Additionally, a strong work ethic often accompanies management and leadership skills. Franchisors should seek dedicated franchisees with initiative to handle the daily responsibilities of operating a business. A strong work ethic helps franchisees stay resilient through early challenges and consistently represent the brand with reliable and quality service.
Good Business and Activity Fit
A prospective franchisee’s interests, skills, and working preferences should align with the franchise’s business model and day-to-day operations. Certain business types may require franchisees to have specific physical and mental capabilities.
For example, restaurant franchises involve hands-on work spending most of the day on one’s feet and consistent customer engagement; construction service franchises may require bending and lifting heavy materials, and real estate franchises require regular sales pitches and driving around to see customers. Franchisors should select franchisees whose daily activity and interests correspond with what the business requires.
Geographic Market Knowledge
Franchisees familiar with a local market can make better decisions that adapt the franchise system to local consumer needs. Strong market knowledge helps franchisees assess local demand, identify local competitors, select an appropriate location, and build community relationships.
Willingness to Follow the System
Franchisors should seek franchisees willing to follow the established business model and operating procedures that comprise the franchise system. Although franchisees run the business, adhering to franchise standards ensures system-wide consistency and repeatable customer experiences that are crucial to a strong brand.
Long-Term Mindset
Franchisees who commit to the system long term are more likely to reinvest in their locations, follow system standards, and pursue growth opportunities. Long-term thinking from a franchisee promotes stability, supports recurring revenue, and helps franchisors avoid the costs, reputational damage, and operational disruptions associated with franchisee turnover.
Why Building the Franchise Relationship Matters
As franchising in the United States grows, franchisors’ priorities will continue to expand. Although profitability, network growth, and staying informed regarding evolving state legislation are essential, franchisors should not overlook the importance of building meaningful relationships with their franchisees.
While franchisors and franchisees may have different perspectives and motivations, the franchise system’s success should be a common interest. A system with shared goals, open communication, and mutual understanding can help both parties gain significant financial value.
Both franchisors and prospective franchisees should carefully evaluate what they bring to the relationship before entering into a franchise agreement. A successful franchise relationship is a two-way selection process. Experienced franchise counsel can help both parties evaluate the legal, financial, and operational considerations that shape a successful franchise relationship.
Barry Kurtz is the Chair of our Franchise and Distribution Practice Group and a Certified Specialist in Franchise & Distribution Law by the State Bar of California Board of Legal Specialization.