Profitable Partnerships - Greg Nathan - E-Book

Profitable Partnerships E-Book

Greg Nathan

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Beschreibung

Profitable Partnerships is a "must read" for potential franchisees, existing franchisees and franchisor executives.  It is written by psychologist Greg Nathan, regarded as a foremost international expert on the people issues in franchising.


The book is full of practical ideas, checklists and inspirational stories to help you secure a bright future in the dynamic franchising industry.


Many leading franchise companies insist their franchisor executives and franchisees read this book as part of their induction to franchising. 

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Veröffentlichungsjahr: 2015

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Copyright Greg Nathan Pty Ltd 2000, 2001, 2002, 2003, 2004, 2005,

2007, 2011, 2012, 2013, 2015

This book is copyright. Apart from any fair dealing for the purposes of private study, research, criticism or review, as permitted under the copyright Act, no part may be reproduced by any process without written permission from the publisher.

This book can be purchased in bulk for distribution to franchise groups. For details contact the publishers:

Franchise Relationships Institute PO Box 8487

Armadale 3143 Victoria Australia

Email: [email protected] Phone: +61 7 3510 9000

Web site: www.franchiserelationships.com

National Library of Australia Cataloguing-in-Publication entry

Nathan, Greg, 1955-

Profitable Partnerships: Improve your franchise relationships and change your life.

ISBN 9780645695205

Franchises (Retail trade). 2. Business communication.

I. Title.

658.870

A Word from the Author

Thank you for reading this eighth edition of Profitable Partnerships. I hope you find it useful. We receive a lot of positive feedback from franchisors and franchisees all over the world who say the book has helped them to clarify and put into practice important ideas on how to work together more effectively. This is of course satisfying for an author who has always tried to make a positive difference to the lives of people working in the franchising sector.

I am a psychologist who started in business as a franchisee and later worked in senior franchisor executive roles before consulting with hundreds of franchise companies. Because of my background I tend to draw a lot from firsthand personal experience as well as research. For this reason, it may be useful to provide a snapshot of my background.

I have always loved music and spent most of my youth playing guitar in garage bands. I also have a long-standing fascination with what makes people tick. As a young adult, I was given the opportunity to pick a University course to study, I chose two — music and psychology. This was probably too ambitious because I struggled to keep up with my studies and earn enough money to support myself. So, I dropped the music course and secured a well-paying early morning job making bread in a small retail bakery — an interesting balance to my psychology classes.

Little did I know that this fledgling bakery chain had big plans that would one day enable me to play a role in developing the operating systems of what would become a highly successful publicly listed company, Brumby’s Bakery. During this time, I also met my best friend and wife, Ann, who would sit with me in the cafeteria listening patiently to my endless stream of ideas on how psychology could be used to build a better world.

After graduating I swapped my bakery job for a cushy research post in the Psychology Department at Monash University. But for me the work lacked creative challenge. One of the franchisees I had worked for, John Salomon, heard about my boredom. John offered me a partnership in his business and soon I was a franchisee running three highly profitable stores. I spent the next seven years with Brumby’s in various store based and head office roles, including National Marketing and Operations Manager.

Throughout this period, I was often puzzled by the nature of the franchise relationship. As a franchisee I was frequently frustrated by my franchisor’s inability to explain why we were required to do things a certain way and the benefits I received for my royalty fees. Later as a member of the franchisor team my confusion continued. Is this just a legal agreement or is it more? Are these people our customers? Do they have to do what we tell them? If we are on the same side, why are we always arguing? Despite my questions it was hard to find answers that made sense. It seemed that my colleagues in other franchising companies were also struggling with these people issues.

It was the lack of answers that led me to set up a business to find solutions to these challenges. I spent the next ten years running training programs for franchise companies and researching and writing about the franchise relationship in business magazines. I then set a goal to write a book on the franchise relationship that would be useful to franchisors and franchisees. I wanted to cover all the issues that impact on the franchise relationship from both perspectives while ensuring the book was easy to read. It took around a year to synthesise and simplify my thoughts while maintaining the key concepts.

The first print run of Profitable Partnerships sold within weeks and the positive feedback from franchisors and franchisees was overwhelming. This inspired me to establish the Franchise Relationships Institute (FRI), a research and education group with a mission to develop evidence-based tools for helping franchisors and franchisees succeed together.

FRI’s research has since shown, for people who choose to be part of the franchising sector, the nature of their relationships will have a significant bearing on their success as well as their work and life satisfaction. More importantly, we have also found this to be an area that is both poorly understood and poorly managed. This is what makes our work interesting and motivating.

There are a few people who have helped to turn this vision into a reality. My parents, Shirley and Victor always encouraged my brother, Rafi, and me to back our own judgment, a quality for which I am extremely grateful. Bob Peterson, Chair of the Franchise Council of Australia (FCA) in the early 1990s, recognised the significance of what I was trying to achieve in my educational work and was very supportive. Stephen Giles and John O’Brien, both Chairs of the FCA, have also supported the ongoing development of our work in Australia and beyond. I am also grateful to Katrina Mitchell, Rupert Barkoff and Stan Freidman for encouraging me to expand FRI’s educational work into the USA.

Thanks also to the people within the various franchise sector organisations around the world, too many to mention individually, who have promoted our work to their members and clients, including the Franchise Council of Australia, the International Franchising Association and its ICFE program, the Franchise Association of New Zealand, the American Bar Association’s Forum on Franchising, Franchize Partners in South Africa, the Bittencourt Consulting Group in Brazil and Effectum Consulting in Norway.

With their support I can tour the globe sharing our research findings and spreading the message that constructive franchise relationships matter. Hopefully after reading this book, you will agree!

Greg Nathan

April 20

Introduction

As you are reading this book, I already know something about you; namely you are interested or involved in franchising. You probably also belong to one of the following groups of people for whom this book has been written.

This book is for you

Members of a franchisor management team

The franchisor company is typically regarded as the senior party in the franchise relationship because it has legal ownership of the trademark and business systems (intellectual property) on which the franchise is built. If you are a member of a franchisor team you have a serious responsibility ahead of you. Many people are relying on your competence and the integrity of your franchise system for their success.

Existing or potential franchisees

If you are in this group, you currently hold a franchise agreement with a franchisor or perhaps you are considering purchasing a franchise. You may even be a multi-site franchisee running several businesses within the one franchise system.

I have particularly written this book with you all in mind to encourage a fresh perspective on how you can achieve the success you are seeking. Many franchisees sell themselves short when it comes to the contribution they can make and the value they can gain from their franchise system.

Master franchisees and area developers

As a ‘Master’ you combine the roles and responsibilities of both franchisee and franchisor. By purchasing the rights to develop, market and sublicense a specific territory, you are accountable to your franchisor for developing your market and following the guidelines of the franchise system. However, you are also a mini- franchisor in that you are responsible for servicing the needs of the franchisees in your territory. Many master franchisees find themselves feeling like the proverbial ‘meat in the sandwich’ in their role as a communications middleman between their franchisees and their franchisor.

Advisers or suppliers to the franchise sector

This category also includes people working for government departments. If you belong to this group, the book will certainly give you some valuable insights into what makes the dynamic franchise industry tick and how you might best add value through your services. From my own experience, being an adviser or supplier to a successful franchise system will provide you with many rewarding opportunities to develop yourself and your business.

Business people and students interested in ‘best practice’

Franchising is well worth learning more about because it has enabled many small and large businesses to achieve best practice in their industry and dominance in their local markets. Not only do franchisees have significantly lower rates of small business failure than independent business operators, but they are also typically more profitable and have a better quality of life.

Many franchisor companies also achieve growth rates that simply boggle the minds of their non-franchised competitors. John Naisbitt, author of Megatrends, says franchising is the single most powerful marketing method known to modern business. Ongoing analyses by respected economic forecasting groups, such as IBIS Business Information and IHS Economics, confirm this with predictions that franchising will continue to outperform general economic growth indicators.

Awesome power

If you have ever watched an electrician at work, you will notice that he or she has a healthy respect for electricity. They never take anything for granted in their work because they understand electricity’s incredible power to create or to kill.

Similarly, as a psychologist I have learned to respect the awesome power of relationships to create or destroy— in business and in life. For instance, the quickest and surest way to wreck a marriage or make a sports team, business partnership or organisation vulnerable to failure is to create an environment of poor communication, conflict and mistrust.

The converse is of course also true. Awesome things can happen when people trust each other, communicate effectively and work well together. Take a team of four ‘average’ executives who have scarce resources but work well together and are committed to a common goal. I guarantee that they will consistently outperform a group of ten or more intelligent and talented highfliers who have extensive resources but compete and undermine each other. Learning how to communicate and work well with other people is not just common sense; it makes excellent business practice, particularly in today’s highly networked economy.

Technically speaking

Let’s get the technical definitions out of the way early. Franchising is defined by the International Franchise Association as a method of distributing products or services. The two parties under this business arrangement are:

the franchisor, who lends their trademark or business system to

the franchisee, who pays a royalty and often an initial fee for the right to conduct a business under the franchisor’s name and system.

Technically speaking the contract between these two parties is the franchise but most people also refer to the business that the franchisee buys from the franchisor as the franchise. Where the franchisor provides a total package of business systems and ongoing support the process is sometimes referred to as ‘full-format franchising’.

Franchises can take different forms and operate in virtually any type of industry; they can also function at different economic levels. The following are the most common types of franchises:

• Manufacturers with the rights to produce under a trademark, e.g. soft drink bottlers, garment manufacturers.
• Wholesalers with an agency to distribute to retailers, e.g. spare part distributors, fuel distributors.
• Distributors for manufacturers, e.g. mobile phone and computer shops, automobile dealerships, service stations.
• Retail franchises, e.g. fast food outlets, furniture stores.
• Service franchises, e.g. home services, consulting businesses.

Different perspectives on a good franchise

Whatever the type of business, the nature of the relationship that emerges from the contract between franchisee and franchisor is a fascinating one. It also tends to be described in varying ways depending on whom you are talking to. For the person wanting professional help in deciding whether a particular franchise is a good one this range of views can be confusing. If you are looking to purchase a franchise with a reputable franchise system and ask the question, “Could you give me your view on this franchise?” you are likely to get a range of responses.

A lawyer will probably focus on the intricacies of the franchise contract and the legal obligations of both parties. (Most franchise agreements are incredibly long and complex.) An accountant would be likely to focus more on the royalty payments and return on investment issues. An academic might lead you into a discussion on distribution channels and organisational power theories, while a marketing person will probably look to the strength of the brand, the competition and where the product lifecycle is at.

The view of a franchise consultant or broker is likely to be more optimistic as they will be receiving a commission if you buy the franchise. They will probably point out that the franchise system has a good track record, will lower your risk, and is a great way of being in business for yourself but not by yourself.

All these perspectives have merit. However, none of them are completely satisfying because they are each incomplete. Franchising is a highly interdependent relationship between people. If we just look at contracts, finances and markets and ignore the human dimension of franchising — people’s feelings, motivations and behaviour— we ignore the heart of the franchise relationship.

To gain insight into the real nature of a franchise relationship you are best to ask an existing franchisee who will say something like the following.

“This is a pretty good business if you follow the basics of the system and I have certainly achieved a lot. But I must admit that it’s been frustrating at times having to comply with the franchisor’s ideas when I don’t always agree with them.”

This perspective is probably the most practical and is the one from which I will largely be operating in this book.

The relationship in practice

While a franchise agreement is an essential component of the franchise partnership because it defines the legal obligations of both parties, legal agreements will never guarantee mutually productive relationships. Cooperation, commitment and communication are the real building blocks of success in a franchise chain. These largely come, not from legal agreements, but from ethical dealings, strong leadership and the mutual respect of each party for the goals of the other.

In searching for a useful way to describe how the business relationship between a franchisor and a franchisee works in practice, the marriage analogy is probably the most useful, largely because of the long-term nature of the relationship and the interdependence of each party on the other. (More of this in Chapters 4, 5 and 6.)

As in marriage, business relationships can sometimes become strained. Communication can break down and before we know it a host of unnecessary petty problems are born. Where a franchise network has developed a system of good internal communications, pressures on one party — rather than becoming a cause for conflict— can provide an opportunity for people to pull together and grow stronger. This is the true spirit of franchising.

Human issues

Although the idea of working together in a commercial partnership to achieve success sounds simple, we don’t need to look very hard to find that theory is one thing — practice another. If working together were so easy, our legal institutions would be downsizing like many other industries, rather than struggling to cope with a backlog of unhappy customers waiting to have their day in court.

This book is largely about managing the human issues which tend to bubble to the surface when people with their homes and life savings on the line feel their security is at risk. It is about managing people through change when they are comfortable where they are and don’t want to listen to a different view. It is about working with people in a highly interdependent relationship when there are differing views to reconcile. These are the day-to-day challenges of franchising or indeed any business partnership.

If you learn to understand and skilfully manage these challenges— to harness the power of relationships — you will be rewarded handsomely. I guarantee it. Your staff will respect you and give you their loyalty; your franchisor or franchisees will support you; and your customers will love you and recommend you to their friends. If you want to build a successful business, the ability to build lasting, positive relationships with others is a great place to start.

Wise decisions

The success of a franchise chain also depends heavily on franchisors and franchisees making wise selection decisions. As in the marriage analogy, a systematic and thoughtful approach to franchisee selection will significantly reduce the likelihood of either partner ‘marrying the wrong person’.

When serious problems do arise in a franchise chain they can usually be traced to one of three reasons.

Firstly, the franchise may not be commercially viable. This can be due to several factors such as an inappropriate site or the product or service no longer being relevant to the needs of the market. (We cover this in Chapter 13.)

Secondly, the franchisee may be unsuitable for the franchise concept. Again this can be due to several factors such as unrealistic expectations by the franchisee or their inability to master the skills and attributes needed for success in this type of business. Chapters 7 and 16 have some useful information on franchisee suitability and competence, and how to spot the warning signs of problems in the franchise relationship.

Thirdly, there may have been a breakdown in trust and communication between the franchisee and franchisor leading to a general deterioration in the relationship. You will find throughout the book tips and insights to prevent such a breakdown from occurring.

No jargon —just common sense

You will be pleased to know that I have avoided anything that could be construed as overly complex, intellectual or faddish. Rather our focus will be on practical ideas based on commercial experience, good research and common sense. I have also avoided technical definitions and simply treated franchising as a business process

where people come together to grow their sales and expand the market for their goods or services.

Whatever your interest in franchising or your reason for reading this book, I hope its pages help you to find answers to some of the questions everyone in business asks from time to time:

“What do I have to do to resolve this situation?”

“How can I reduce my stress and find greater satisfaction?”

“Why won’t people listen to me?”

“How can I run a better business and achieve my goals?”

“How can I get people working together more effectively?”

Most of the material in the book comes from my personal experience as a franchisee, franchisor, corporate adviser and mediator. I have discovered through my work with hundreds of franchisors and franchisees that:

Franchise chains are only as strong as their weakest link; and

The common challenge faced by all people who earn their livelihood in the dynamic franchising industry is unquestionably how to work together for mutual success and prosperity.

If you can come to grips with these two principles an exciting world of opportunities awaits you.

CHAPTER ONE

Good Relationships Will Make You Money

Welcome to the world of franchising: a place where people invest their hard-earned savings in a business opportunity, hoping they will achieve their personal aspirations and financial goals. And where franchise companies strive for market dominance, continually pushing and seeking opportunities to do things better, faster, smarter.

The good, the bad and the ugly

Franchise networks offer entrepreneurs of all shapes and sizes the opportunity to join together in a spirit of cooperation with one objective in mind — to gain a competitive edge — to build a growing base of customers loyal to their brand instead of a competitor’s.

But be warned. While franchise networks are exciting places where the spirit of cooperation and competitiveness coexist in harmony and where creativity, vision and enterprise thrive — they can also have a dark side. At times they can be places where emotions run high and cause erratic and aggressive behaviour; where individual egos, intoxicated by the smell of success, grow strong and distort one’s sense of importance. And where the competitive spirit can turn in on itself— causing politics, factions and power games.

When franchising networks work well they are magic. Franchisees achieve their goals, franchisors grow their markets and customers enjoy outstanding service and value. Everyone wins. But if people lose sight of the principles that inevitably made the franchise network a success — mutual commitment, cooperation and communication — the success that has been achieved can quickly unravel.

As you read through this chapter and the next you will discover that, although franchising is about good marketing and business practices, franchisees and franchisors are in fact in the relationship business.

Three human needs

We like to believe business is all about rational, bottom-line thinning. In reality, our decisions are largely driven by strong emotions and needs that are wired into our brains.

My Masters supervisor at Monash University, Professor Maurice Balson, used to say three needs in particular shape most people’s behaviour throughout their lives:

Belonging. We all need a sense of belonging — to feel we are connected to and accepted by people we regard as significant in our lives. This drive to belong is behind the creation of tribes, villages, clubs, communities, societies and entire civilisations.

Respect. We all want to be treated with respect — to feel we are worthwhile people. This is how we develop our confidence and self-esteem.

Purpose. We all need a sense of purpose in our lives: meaningful goals to work toward and values that we believe in. (See Chapters 14 and 15 for more on this.)

These needs are fundamental to human happiness and wellbeing. They are so powerful that when they are met, we are most likely to work at our happy and creative best. But if they are undermined or blocked, we are likely to feel hurt or to behave at our absolute worst. For instance attention seeking, withdrawing communication, power plays, cynicism and seeking revenge are just some of the ways people respond if they feel these basic emotional needs have been abused or neglected.

Think for a moment how many personal or business conflicts you have witnessed or been involved with which were triggered because someone felt he or she had been treated badly. Perhaps they felt rejected or put down; or that they were being asked to compromise on their most deeply held beliefs or values.

The human face of franchising

As franchise organisations face the intense business pressures of operating in changing and competitive markets, people’s needs sometimes get forgotten. The human face of franchising gets buried under contracts, manuals and strategies. These are the rational, logical aspects of running a business.

But the efficient management of business issues is only half the job. Franchisors also need to manage the personal and interpersonal side of their organisations. People’s emotions, values, perceptions and expectations need to be considered when planning and addressing organisational issues. This includes how the franchisor management team is coping with the pressures they face.

If you get the people issues wrong, you can kiss goodbye to the best marketing or business plan in the world.

It’s not personal?

The managing director of a large and reputable franchisor company (let’s call him George) came to me for advice about a franchisee who was threatening to sue his company for misrepresentation. The franchisee’s business had never reached break even and after two years of trading losses and royalty payments not being made, the franchisor had decided to terminate the franchise agreement. George said his company had done everything they could for the franchisee and he could not understand why this person was threatening to sue them.

I called the franchisee and we had a long discussion about what had gone wrong and how he was coping. Toward the end of the call he said to me, “You know Greg, I really appreciate you calling and talking with me about my experience. The thing that has really upset me and my family about this whole situation is that George has not even called or spoken to us to say he is sorry about us losing the business.”

When I recounted these comments back to George he absolutely blew me away with his response. “It’s not as if it’s personal”, he said. George had obviously not understood the most basic of all principles in franchising: that to a franchisee who invests his home, his pride and his sense of purpose into a franchise, it is an extremely personal affair. All this franchisee wanted from George was some empathy and acknowledgment of the suffering he and his family were going through.

As it turned out the legal posturing was primarily a way to bring this sense of hurt to the attention of the company. (It is worth noting that the real reason behind most legal claims against doctors is that the doctor has failed to apologise or maintain a respectful, caring relationship with the patient.)

Gaining a competitive edge

Ultimately, the power of franchising is in gaining a competitive edge through the sharing of knowledge and resources; sharing being the operative word. This is probably the most important point in this book so I will repeat it.

The power of franchising is in gaining a competitive edge through the sharing of knowledge and resources.

The franchisees who share their numbers

Most franchise networks hold regular conferences where information sharing is encouraged. One successful franchise network, Bakers Delight, takes this to a whole new level. On each franchisee’s lanyard, underneath their name, is a list of their store performance numbers. This includes their percentage revenue increase or decrease on last year, and their net profit percentage. Such transparency of data creates a culture of collaboration and continuous improvement where people want to help and learn from each other.

In a franchise network, when people stop sharing knowledge and resources you no longer have a network, but a bunch of individuals battling it out alone. This is what happens when relationships break down — and the costs are enormous.

The commercial imperative of working together

If you were to ask someone in business how important good relationships are to them, they would probably say something like, “Good relationships make my business dealings more pleasant and this is important to me.” While this is no doubt true, pleasant dealings in themselves are not what business is all about. Maintaining good relationships draws on time, energy and resources, all of which are in short supply.

For instance it takes time to carefully word a letter when you are angry with someone when you would much rather just bang out an email letting them know how you feel. It takes courage to phone someone to apologise for a small indiscretion. It takes patience and effort to organise a meeting to discuss how people feel about a new initiative when all you want to do is get on with the 101 things on your list. All these things take time and energy. So the question has to be asked, is it worth it?

My experience is that good relationships in a franchise system are more than just a nice thing to have — they are absolutely essential for the following three commercial reasons.

• They help to keep the communication channels open.
• They help to maintain high levels of motivation and commitment— vital to continuous improvement.
• They prevent disagreements from leading to costly legal disputes.

Communicate or perish

Earlier I said that the power of franchising was in gaining a competitive edge through the sharing of knowledge and resources. This simply cannot take place when people stop communicating. In fact any battle strategist will tell you the quickest way to seriously disable an enemy’s capabilities is to damage its communications systems.

Unfortunately in many cases the enemy is within. I have regularly been invited into companies because relationship problems between senior people have been undermining communication and the organisation’s competitive position.

The directors who wouldn’t talk to each other

In one case communication between two key directors had been declining for several months. I advised them to either talk through their differences or one of them should stand down. Rather than having the courage to face their differences and sort things out they decided to ignore one another, hoping the problem would go away. This meant the left hand of the organisation did not know what the right hand was doing. After a series of strategically incompatible decisions the company lost millions of dollars and went into receivership.

We have all seen examples of the mistakes that happen when people who should be working together, do not communicate effectively. Good communication is not just a nice thing to have. It is a commercial necessity.

The value of commitment

Consider the cost to your franchise system if motivation and commitment were to drop. Motivated and committed people drive sales. They contribute their time and energy to improve the franchise system. They attend meetings, participate on working committees and encourage new franchisees to invest in the system.

The motivation and commitment of franchisor executives is especially important for a network’s development. Unfortunately, faced with a constant barrage of criticism from franchisees, executives can sometimes become defensive, irritable and lose their objectivity. As a result their initiative and performance may drop.

If the motivation and commitment of franchisees drops, a host of crises tend to emerge. People stop taking responsibility for business performance. Rather than being problem solvers, they become problem finders. Instead of defending the system, franchisees start to find fault with it. Take the following example.

The franchisees who went on a motivational strike

The franchisees of a large retail food group were facing declining sales due to some clever new marketing by their major competitor. Yet at this critical time the majority of franchisees decided to no longer attend regional meetings with their franchisor. This decision came about because they felt the franchisor management team always talked down to them and never listened to their ideas. Some of the more vocal franchisees told me they found their franchisor’s behaviour particularly offensive because they believed the management team were out of touch with what was happening at the coal face.

As a result they started to criticise and nit-pick at every new initiative the franchisor introduced. It became their mission in life to punish their franchisor for not treating them with respect.

The franchisor team, sick of the criticism they were receiving and annoyed at the drop in attendance at the regional meetings, took a short sighted, defensive position and decided to disband the meetings.

I asked the General Manager why he had taken this approach. He claimed the drop in sales was the fault of the franchisees and that he was happy to save the $8,000 that each regional meeting typically cost him.

I suggested this would not only further weaken his already fragile relationship with his franchisees, but that it would actually contribute to their downward sales spiral. I asked him to consider whether the answer to his problems might lie with his franchisees. Rather than relying on the company’s marketing experts to come up with the answers, why not put the problems on the table for open discussion? After all, the problem belonged to the whole group, and everyone would surely be motivated to find a solution.

He agreed to give it a try and we organised an open forum with a lot of franchisee led discussion. Although many good ideas were collected and later refined and used in the group’s marketing programs, something more significant happened: the enthusiasm and morale of franchisees took a significant boost.

Almost immediately the sales decline was reversed as franchisees regained their willingness to share ideas, help each other and work with, rather than against, the franchisor team. As they discussed ideas and explained what they wanted from each other, their frustration subsided and they once again remembered that only by working together could they hope to rebuild their competitive position. They all once again embraced the principle that franchising is about the sharing of knowledge and resources to gain a competitive edge in the market.

Good relationships prevent costly disputes

Another reason to maintain good relationships is that they are the simplest and most cost-effective way to avoid legal disputes and save money. Relationship breakdowns can cost those involved tens of thousands of dollars in wasted legal fees — wasted, because rarely does anyone within the franchise network win. When communication breaks down everyone is a loser — perhaps with the exception of the legal fraternity.

To add insult to injury, the bitter experience of unfortunate franchisees and franchisors who have become embroiled in litigation shows that the hidden costs of disputes are often far greater than the legal fees. Ask anyone who has been involved in a serious dispute; they will tell you that people in their businesses literally spent hundreds of hours in meetings, collecting files, writing letters and planning tactics for defending their position. What a waste of time and creative energy which could have been spent on developing everyone’s business.

The fact is that most businesses simply cannot afford the luxury of disputation. Whenever you are not involved in value adding activities such as servicing customers, strategic planning or motivating staff, you are inevitably wasting time and money.

The market is not interested in whether you are having disagreements with your franchisee or franchisor. While you fight, your competitors will be moving forward, and your customers will be left wondering what is going on. The emotional baggage resulting from soured business relationships can also hang around for years and seriously undermine people’s ability to maintain a positive focus on the future.

The successful barrister who didn’t want to litigate

I once shared the platform at a franchising seminar with a leading barrister who had represented some franchisees in a large and protracted legal dispute. He won the case, and his clients were awarded hundreds of thousands of dollars. Yet to my surprise he made the following statement.

“You are an idiot if you think litigation is going to solve your problems.”

He went on to make the point that in his experience, when a dispute goes to court, he is typically the only person to come out commercially on top. He said that it was far more commercially sensible for franchisors and franchisees to sort out their differences through straight talking, perhaps with the use of a mediator where necessary. He also said it was ironic that although his clients ‘won’ the case, most never received the agreed settlement money and some went bankrupt along with the franchisor. He added wryly that he earned his living from people who were determined not to use their common sense.

In this particular case, three million dollars were spent on legal fees over a four-year period. Surely this money could have been put to better use.

Two sides to every dispute

I am not saying that litigation has no place in franchising, especially if fraudulent or criminal tactics have been used. However at this point I want to share with you a favourite saying, introduced to me by one of my mentors, Dr Bob Dick, a leading thinker in the psychology of groups.

When perception meets reality, reality always comes out second best.