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Bulletin

What is the Real Contribution of a Franchisor for its Franchisees?

Fasken
Reading Time 6 minute read
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Franchising Bulletin

A common misconception in franchising is the perception of the true nature of the franchisor's contribution.

Too often, the franchisor's contribution is perceived to consist primarily of the provision of services to franchisees.

While the provision of various support services to franchisees is indeed one of the important components of a franchisor's role, it is an ancillary to it and not the primary part of it.

The same comment applies to the grant by the franchisor to the franchisees of the right to use the franchisor's trademarks, image, banner and branding.

This is also an essential component of the franchisor's role, but is not the principal part of it either.

Thus, anyone who seeks to evaluate the contribution of a franchisor based solely on the value of the services rendered to its franchisees and the value of the grant of the right to use the franchisor's trade-marks, image, banner and branding is missing the essential part of the franchisor's contribution, which goes well beyond these two aspects of the franchise business relationship.

What are the other main components of a franchisor's contribution?

First of all, the know-how and the accumulated experience.

This know-how is the result of the experience acquired by the franchisor, as well as by all his past and present franchisees, since the very beginning of the network.

This know-how allows a franchisee to avoid making the mistakes that any new independent entrepreneur would make in setting up, launching, starting up and running her/his business in the same field of activities.

This know-how is constantly evolving in light of changes in the market as well as of the good and bad experiences of the network or of some of its franchisees.

In this respect, the franchisor's contribution consists of channelling, analyzing, understanding, structuring and disseminating this know-how in order to help the franchisees' businesses succeed as much as possible and adapt quickly and effectively to the changes that affect them.

Secondly, the management of the network.

Another fundamental contribution of a franchisor consists in the management of the network as a whole.

For an individual franchisee, this contribution of the franchisor is not a service, but it remains essential to the success and sustainability of any franchise network.

It may even, in certain situations, be perceived by a franchisee as a form of anti-service, particularly when it takes the form of monitoring or controlling the manner in which the franchisee operates her/his business, when it imposes rules on the franchisee which cause her/him to incur additional costs, or when it forces the franchisee to implement changes which, although in the interest of the network, are not, at least in the short term, beneficial to her/his franchised business.

On the other hand, if the franchisor is not primarily concerned with the proper management of the network as a whole, each franchisee will eventually suffer the negative impact of weaknesses, management deficiencies, lack of uniformity and quality problems within the network.

In fact, case law now recognizes that a franchisor even has a legal obligation to take reasonable and timely measures to defend its network from its competition and also to protect it from delinquent franchisees whose failings are detrimental to the network as a whole and, by extension, to other franchisees.

This network management aspect also includes planning and managing change, the research and development function, procurement, marketing, image management, legal aspects (contracts, protection of intellectual property rights, compliance with laws and regulations), network expansion, monitoring of competition and markets, innovation, technology, public relations, government relations, establishment and monitoring of standards, processes, guidelines, procedures, etc.

Although it is not, strictly speaking, a service to the franchisees, the quality of the management and performance of the network as a whole remains a fundamental factor in its success, to the benefit of both the franchisees and the franchisor.

Third, contingency planning.

Beyond the services rendered to franchisees, a franchisor must also design, develop and maintain processes, mechanisms, tools and resources to manage the unexpected that may affect some of its franchisees.

Among many other possible contingencies, let us note the case of a disaster (such as a fire), the sudden death of a franchisee, a work stoppage and, as the events of the past year have clearly shown, a pandemic.

For example, in the case of disasters that have resulted in the sudden closure of a franchise outlet, franchisors have been able to help the affected franchisee resume operations within a matter of days, which would have been impossible for an independent entrepreneur for several weeks.

Similarly, we have seen situations where franchisors have been able to ensure the uninterrupted operation of franchised businesses following the unexpected death of their franchisee-owner.

In the case of the recent pandemic, with their internal and external resources, many franchisors have been able to quickly put in place the tools, procedures and mechanisms to allow their franchisees to keep abreast of government decisions on a daily basis, to take full advantage of available assistance programs and to take the best measures to protect their businesses and minimize the impact on them of the pandemic.

Many franchisors have also renegotiated agreements with financial institutions, lessors and certain product and service suppliers to ease the financial impact of the crisis on their franchisees.

Obviously, the franchisor's contribution in such circumstances is a service to the franchisee.

But what about before they happen?

In many cases, it is impossible to predict which franchisees, at what times and under what circumstances, will need such services. In fact, most franchisees will probably never use them.

For those franchisees who do not experience such contingencies, the tools, mechanisms and procedures designed, implemented and maintained by the franchisor to deal with them are not a service, as they will only become a service to those who do.

They, however, still represent an important contribution by the franchisor.

Fourth, network facilitator.

According to numerous studies on SMEs, the isolation of entrepreneurs is one of the greatest obstacles to their businesses’ development, growth and sustainability.

An independent entrepreneur often has serious difficulties in finding someone who understands her/his reality and with whom she/he can share her/his challenges, opportunities, difficulties, etc.

The other entrepreneurs who live the same reality are also her/his competitors, which limits the potential of real exchanges.

The fact that a franchisee is a member of a network that includes both the franchisor and all the other franchisees in the network is another important advantage of this business model.

In order to maximize this advantage, an important part of the franchisor's contribution consists of his role as a facilitator to encourage communication and exchanges, as well as mutual aid, within his network.

Moreover, the network facilitation function is increasingly recognized as a fundamental, and sometimes underestimated, link in the success of many franchise networks.

For example, a franchisor may ask more experienced franchisees to act as mentors for new franchisees and more successful franchisees to share their best practices with all of their fellow franchisees.

The franchisor's contribution in this regard is to act as a promoter, hub and catalyst for this exchange and mutual support.

In addition to these four essential aspects of the franchisor's role and contribution, there are a few others, including coordination between the various activities and services, as well as planning the evolution of the network.

The important thing to note is that reducing the contribution of a franchisor to the services rendered to the franchisees and the granting of a banner and brand license is both reductive and erroneous.

A franchise relationship is much broader than the mere provision of services and the simple granting of a license to use the franchisor's banner, brand image and trademarks.

Fasken has all the experience and resources necessary to advise and assist you in all aspects of starting up, managing and expanding your network anywhere in the world.

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