Maybe the Model is Broken

I have a client who came to me after buying into a well known franchised business, at a bargain basement price, and was having struggles in keeping the doors open a year and a half later. The franchisor was not a horrible company, in fact just the opposite, and the franchisee, in my opinion, was really attempting to make a go at it. He had dipped into personal funds, maxed out credit cards and was on the brink of bankruptcy, he wanted out. The franchisor was about to terminate his franchise but as you can imagine would not let him walk away without paying quite a bit of money for the lost benefit of the agreement to the franchisor. Bankruptcy was an option, but that should not be how this scenario ends.

Setting all the legal precedence aside; it just feels wrong when the initial reaction of the franchisor is; let's terminate and sue for the lost dollars on the future benefit we are being denied. Now there is a host of legal theory that I would argue limits the "benefit" the franchisor can receive, if any, and ultimately in this matter that played a large part in the resolution. The fact a franchisor's initial reaction is to strong arm a franchisee with the threat of litigation, in this, and many cases is just wrong. The issue was resolved, and the client was able to relieve himself of further obligation, but not without several months of posturing.

In my opinion the stores sold were dogs from the start, they were company owned units that never showed a profit, and were sold to my client at almost no cost; this alone is a red flag as to the lack of interest for the brand. The franchise system was one in which uniformity was lacking in almost all respects, there was no uniform customer experience. One of the initial things I review when evaluating a franchised business opportunity for clients is the uniformity of operation throughout the franchise system. I have them visit units to evaluate the customer service, products and impressions of each unit; were they the same? Did you feel that each unit had a similar feel, service, product and experience? If not, then there may be a franchisor issue with defining their business model or franchise system control.

Unfortunately there are some franchisors that don't step back and look at the larger picture, don't evaluate the effectiveness of their model in todays financial or business climate. There are some systems that have let the centrifuge of operators pushing the boundaries of the model, get out of hand, to the point where there is very little uniformity in their operations, customer experience or expectation. A system, out of balance, can be difficult to reign in, but needs to be addressed for the health of both the franchisor and franchisees.

Franchisors must develop and maintain a profitable model and franchise system that fosters the customer expectation across their system, thereby defining the brand. If customers don't' know what to expect, aren't provided the customer experience uniformly, then the basic advantages of franchising are rendered ineffective.

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