What keeps franchisors up at night? Just about everything that keeps any business person up at night in these challenging times; and then some.
Rate of Change
“In times of rapid change, experience could be your worst enemy,” J. Paul Getty. Interesting thought and so not what franchising is typically about. In fact, replication of the past is at the very heart and soul of franchising. Are any franchises sold/awarded on the basis that the franchisor will guide the franchisees through rapid and substantial changes? On the other hand change is inevitable and the successful franchisors have always been good at managing change for their systems. So what about change is keeping franchisors up at night? The simple answer is how rapidly things are changing. Anyone heard of trans fats just a few years ago? When did it become so last century not to offer Wi-Fi in hotels? Before only 2006, the only thing that tweeted was a bird and before only 2004 anyone asked what Facebook was would have answered, “a picture album.” And when did it happen that your computer was outdated by the time you opened the box?
Financial meltdowns, fiscal crisis, bank failures, bankrupt governments, credit crunch; when did these statements become so commonplace that they no longer shock us? Tight credit for prospective franchisees buying franchises and the impact of economies in crisis make it very difficult for franchisees and their franchisors to grow and prosper. These developments affect everything from business planning, to franchise sales, to earnings projections and product pricing.
Governments and political institutions are changing all over the world at a mind numbing rate. For those franchisors who are in the international franchise arena or planning to enter it, how do they factor into their business plans regime change and populist uprisings?
One need look no further than the U.S. Congress for something to worry about. How do you govern a franchise system when your own government lurches from crisis to crises almost on a daily basis. Which state legislature will be the next to take a left turn on the path to more restrictive state regulation of franchises? Which municipality will be the next to pass an ordinance governing the legal size of drink containers?
What will be the consequences of the “pig in a python” generation reaching retirement at unprecedented numbers? How will the shrinking birth rate in the U.S. acerbate the problems? For one thing, franchisors might expect to see a lot of their franchisees retiring shortly and either passing their businesses onto their children or selling to new franchisees. This will weaken some systems and certainly tax the resources of all systems.
At the other end of the spectrum, there are more and more young people unable to find employment in their chosen field or deciding not to invest in higher education and instead choosing franchising, or more likely, serial franchising, as a career path. Are franchisors ready of this new breed of franchisees, with their different values and aspirations?
Do you remember the debate in the ‘80s about whether or not there really was a sufficiently large market for personal computers? Remember being asked, “do you have e-mail?” If you are old enough, do you remember being asked, “do you have a fax?”
Trying to stay with the curve, let alone trying to get ahead of it, is a monumental task for every business these days. But, again, it is even more difficult for franchisors, who need to convince their franchisees of the value of being up to date with the right technology.
Technology is contributing to the wakefulness of franchisors in other ways as well. In the past, franchisees had tremendous barriers to organizing themselves around issues in the system. Not anymore! Franchisors need to learn new skills in how to manage their communications with their franchisees in this age of instant communication. In a similar vein, unhappy customers or just malevolent people can instantly and very publicly disparage a business; around the world!
It has always been a challenge to understand the consuming public and to anticipate their needs and wants. Nonetheless, cycles of change in buying habits used to run to about seven years typically, which allowed for a reasonable assessment of a trend, the ability to adapt for it and time to profit from it. Today, a retailer is happy if they ride out a market shift for a year or two. This is a challenge in most businesses, but how do you effectively get a network of independent business owners (franchisees) to change quickly enough to benefit from a new trend or at least hold their own?
Unquestionably, we are witnessing an ever increasing number and severity of law suits from unhappy franchisees. Courts today often seem to struggle with the subtleties of franchising and end up making unexpected and very damaging decisions for one party or another.
Hardly a month goes by without another class action lawsuit being commenced against a significant franchisor. Add to this the shopping list of other claims that can arise without warning by consumer groups and special interest groups with their own agendas and it is no wonder that franchisors are tossing and turning in their beds at night.
There is lots to keep franchisors up at night, but solutions will be found to every problem and challenge and the calming satisfaction that comes with success will sooth their troubled minds. The critical factors for success in franchising are still the same: skill, tenacity and character.
Edward (Ned) Levitt is a senior partner of Dickinson Wright LLP, Toronto, Canada, and chair of its franchise law group. He served as General Counsel to Canadian Franchise Association from 2000 to 2007 and, as a member of the Ontario Franchise Sector Working Team, was instrumental in the creation of Ontario’s franchise legislation. Among his many publications is Canadian Franchise Legislation published by Butterworths/Lexis Nexus.
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