Can franchisees be better brand custodians than franchisors?

When franchisees make an investment to join a brand, they are investing in more than just the tangible assets of the business.

They are investing their future hopes and dreams on the business, and in addition to buying into the brand, are also buying a stake in the custodianship of the brand too.

In their daily role as franchisees, their custodianship of the brand is highly regulated by the terms of the franchise agreement and the franchise operations manual.

Their respect for the brand is shaped by the regard in which it is held by consumers, and by the sincerity with which other custodians manage their responsibilities toward the brand.

Consequently it follows that if franchisees sense that other brand custodians are not acting in the brand’s best interests, they feel the need to intervene before irreparable damage occurs.

For this reason, franchisees are usually quick to apply peer pressure to those among their number who they feel are jeopardising the brand, and in doing so, jeopardising their investment in it.

For example, a franchisee who learns that a fellow franchisee has been using non-approved suppliers to substitute inferior-quality products that are not endorsed by the franchisor may feel compelled to confront his colleague, or voice his concerns with the appropriate franchisor representative.

Likewise, a franchisee would feel compelled to act if their own business was jeopardised by a colleague whose actions recklessly endangered consumer health or goodwill, or which risked damaging relationships necessary for the survival of the business.

Franchisees take this custodianship role seriously, not the least because of the money they have invested in the business, but because they are relying on this brand to produce an income for years to come.

Franchisees who intervene when their peers let the team down act according to their individual and combined self-interest franchisors who ignore the self-interest drivers of franchisee behaviour do so at their peril.

Take for example, a franchisor decision to amend an operational aspect of the system that the franchisees perceive as leading to negative consequences. This could be the withdrawal or addition of a product or service, a change in royalty or pricing models, a requirement to change or upgrade equipment, operating systems, fit-out or imagery, or many other potential changes.

In the absence of compelling evidence to illustrate the benefits of such a change (and such evidence is often more compelling to franchisors than franchisees), the self-interest of franchisees will be to preserve the status quo and resist the change, or even to agitate against it.

Change for change’s sake will not be tolerated by franchisees who have invested large sums of money and mortgaged their future to be part of a brand. Their custodianship of the brand often locks-in a vision of the brand as it exists at the time they joined, not as it might be at some unspecified point in the future.

The resulting tension that can develop between franchisees and franchisors comes down to who has the better interests of the brand at heart.

Surprisingly, it’s not always the franchisor who prevails in this stand-off, and occasionally it can even lead to the franchisor’s exit from the system altogether.

Franchisees which own multiple outlets, are master franchises or recognised pioneers of the business, or who are outstanding performers, are each able to exercise a degree of influence with their franchisor that can modify or avert system changes that are deemed inconsistent with their responsibilities as brand custodians.

Individually, such franchisees can be influential. Collectively, they can be formidable.

When confronted with unified opposition to a change by a group of individually successful and determined franchisees, a franchisor should rethink the change they wish to make, rethink their approach to the implementation of that change, or both.

Sometimes a showdown might occur, which can test the patience and diplomacy of either side and even result in one or the other party exiting the system. When it’s the franchisor who exits, occasionally it’s a franchisee who seizes the opportunity to take their existing brand custodianship to the next level.

The Franchise Advisory Centre estimates that up to five per cent of systems operating in Australia today are now run by former franchisees who bought-out their franchisor in order to achieve greater custodianship of their brands.

Transitioning from franchisee to franchisor is not easy for these new owners, but is greatly facilitated by their self-apparent passion for the brand, their detailed operational knowledge of the business, and the alignment of their custodianship with the values attached to the brand by the rest of the group.

The long-term success of franchisees-turned-franchisors depends on the extent they remain rooted in their franchisee-perspective on brand custodianship, while successfully executing the often difficult and unrewarding tasks of a franchisor.

For franchisees who become franchisors, the journey can be rewarding both for themselves, and their franchisee brand custodians.

For franchisors who sell out to their franchisees, the handover of ultimate responsibility for brand custodianship can be bittersweet, representing the relief of lifting a heavy load, and the sadness of farewelling an old friend.

Either way, the brand goes on, which has to be the best outcome for all stakeholders.

Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for 20 years at franchisee, franchisor and advisor level.

He advises both potential and existing franchisors and franchisees, and conducts franchise education programs throughout Australia, and publishes Franchise News & Events, a fortnightly email news bulletin on franchising issues and trends.

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