I'm joking, right? How can franchising not be broken when, in a tightly regulated country like Australia, franchise systems and franchisees seem to be falling over like skittles?
These headlines are scary but let’s be fair – do they show that franchising is broken or is there some deeper reason behind them?
Let’s take the “model is broken” example from the headlines above.
With 100 locations, Endota Spa claims to be the largest day spa in Australia. But one former Endota franchisee, Fran Forde (pictured above) of Torquay in Victoria, lost everything when her franchise was terminated.
“I cannot sit by and watch more and more Endota franchisees fail and end up in the same situation as myself,” Forde has said in a submission to the Australian Senate’s inquiry into the Franchising Code of Conduct.
However, this headline came out of searching on Google for more on all the other Endota failures which Forde talks about. Admittedly the “searching” took all of two minutes and was limited to the first two pages of search results, so I may well have missed something. But I found nothing about any other other Endota failures.
Instead I found this image of Sally Cantwell (pictured at left in the photo above), Endota’s “super achiever” with 10 day spas.
The question I had to ask myself was:
“How is it that one franchisee can fail while another is described as a ‘super achiever’ in the same franchise?”
The answer became clearer when I dug deeper into a Brisbane Times
article
on Fran Forde’s Senate submission.
Forde spent $350,000 fitting out her spa, but when the shopping centre her spa was located in was redeveloped, Forde began to struggle.
“My store was in a construction zone for 12 months,” she told the Times.
She wrote to Endota asking for help but it wasn't forthcoming and instead Forde says Endota targeted her for the appearance of her spa, requiring Forde to repaint, recarpet and install new signage amongst other things.
There’s the rub. Forde's submission begs the questions:
- Was the business disruption caused by the shopping centre redevelopment the fault of the franchisor? And how could the franchisor have helped in that situation?
- Why was the franchisee not aware of the requirement under her franchise agreement to refurbish her premises from time to time - a common requirement in franchising?
and last but not least:
Is the franchisee justified in blaming Endota’s business model when other factors clearly impacted on her business’s viability?
In my experience as a franchise manager, franchisor and now franchise consultant, it’s all too common for failing franchisees to point the finger at the franchisor, rather than themselves. But on the other side of the coin, franchisors and even the International Franchise Association generally don’t hesitate to blame underperforming franchises on franchisees.
How can this keep happening when Australia’s Franchising Code of Conduct is supposed to protect both franchisees and franchisors?
The Franchising Code of Conduct is a mandatory industry code across Australia* that regulates the conduct of franchising participants towards each other and is supposed to provide for full disclosure to be made to prospective franchisees of all the information they need to make a fully-informed decision about entering into a franchise agreement.
The Code has been subject to six Federal or State reviews in the past 12 years, but judging by the current number of franchise issues making the headlines, they still they haven’t got it right.
So where is the Franchising Code of Conduct falling down?
The first thing to remember is that the CoC is not designed and will never be able to entirely prevent conflict and failure in franchising. Too many people have seen franchising as a guarantee against failure. It’s not. And too many people forget that the tensions that exist in any relationship almost always lead to conflict at some point, especially in franchising where there are tensions from the very beginning of the franchisor/franchisee relationship.**
Where the Code of Conduct falls down, in my opinion, is that it assumes that by requiring franchisors to provide “full disclosure”, franchise prospects will have everything they need to conduct thorough due diligence.
But given that one of the attractions of franchising for many people is that you don’t necessarily need business experience, how many franchise prospects have the experience required to be able to understand and follow the due diligence process? Or even recognise the need for it in the face of franchisor reassurances?
Who can franchise prospects turn to for guidance?
The obvious answer is a professional advisor, but does their lawyer or accountant have the experience or knowledge to provide solid franchise advice? When I was a franchisor, I insisted that prospective franchisees sought advice from specialist franchise professionals. But how many franchisors do that?
What can the franchise industry do to protect itself from broken laws?
Franchise failures and conflicts affect all of us in the franchise industry. As franchisees band together to protect themselves from poor and unscrupulous operators, and increasingly turn to the media and the courts, what can the industry do to protect itself and restore confidence in franchising?
I will be covering this issue in future articles, but in the meantime, here are some recommendations I would make to the current Senate Franchising Review and to all of the many franchisors out there who value their integrity and reputation.
- Make sure your Disclosure Document doesn't just comply with the Code – tell the truth, warts and all, and don’t try to make excuses, use explanations to make it clear where you may have gone wrong and what you've done to make sure it doesn't happen again
- Don’t just hand prospective franchisees your long and complicated DD and expect them to work it out by themselves – help them through the due diligence process, insisting that they talk to any existing franchisees they like and obtain expert advice from experience franchise professionals
- Do you own extensive due diligence on every propect, even if you're under pressure to meet your network growth targets – one good way to do this is to make it very clear what a successful franchisee looks like and give prospects ample opportunity to self-qualify
- Give prospects the opportunity to experience what it’s like to be a franchisee before they become one – offer them an internship in one of your company-owned operations or ask one of your franchisees to spend time with them in the business
The future of franchising is in your hands.
* New Zealand has no mandatory Code of Conduct but the Franchise Association of New Zealand requires its members to comply with its own Code of Conduct
** The tension between franchisors’ need to meet their network growth targets and to select only the “right” franchisees
Is your business modelabout to bebroken?
Find out if you’re at risk – and what to do about it
One out of three franchisors is concerned about the viability of their business model.
The ‘Business Model Canvas’ has emerged as a powerful tool for developing and updating business models. Recognising that franchise businesses differ in several ways from other business types, I have come up with a new version of the Business Model Canvas designed specifically for franchises.
Type in your email address here to download your free e-book instantly:
My 3-step process for selling more franchises
Step 1: Evaluate what you’ve got
Either your current franchise recruitment process isn't working for you or it is working but you want more, so send me the details of what you're doing currently and I’ll come back to you with a FREE Evaluation Report. I'll also give you my professional recommendations on the best ways to improve your process and generate more leads.
COST: FREE
Step 2: Come up with a better plan
This is my forte. If you don't already have clear target markets, a dedicated franchise recruitment website, smart marketing materials, a prospect database, social media campaigns, a well thought-out sales process and an ongoing lead nurturing process, I can help you. Ooops, I think I may have said too much.
Step 3: Get help
I'm a franchise consultant, not a licensed business broker, so I can't sell franchises for you. However, I help you with the whole sales process, from planning and putting together your franchise recruitment marketing campaign to qualifying your leads, meeting with your prospects and guiding you through the selection and on-boarding process.
Take the first step now!
Send me the form below and details of your current franchise recruitment strategy, including links to your website, Facebook page and any other online marketing you are doing. The more you can send me, the more comprehensive my Franchise Recruitment Evaluation Report will be able to be.
I give you my undertaking that all information provided by you will be treated in strictest confidence and will not be passed on to any third party or used by us for any purpose other than evaluating your franchise recruitment programme.
Yes, please send me a FREE Franchise Recruitment Evaluation Report
FREE Franchise Recruitment Strategy Evaluation Report
I'm Robin La Pere, no ordinary franchise consultant. I've been a franchise manager and a franchise owner as well as a franchise consultant, so I understand the industry from a hands-on as well as a strategic perspective. I've recruited many a franchisee and I am currently working with several clients to help them with their franchise recruitment.
If you'd like specialist assistance in
- generating more franchise leads
- building world-class recruitment websites
- using social media and online marketing in franchise recruitment
- preparing or upgrading your Disclosure Document
- optimising the sales funnel and conversions
- prospect screening and selection
- managing risk in the recruitment process
- working through due diligence with prospects
don't hesitate to contact me.
Want the next in this series of articles? Subscribe to my newsletter
Every two weeks, I write an email newsletter designed for those in franchising and those considering getting into franchising. Topics include those you see in the articles listed above and are intended to be stimulating, helpful and challenging. These articles have helped me gain more than 100,000 followers on Twitter and worldwide connections on LinkedIn, but you can read them first by subscribing to the newsletter.
Subscribe by entering your email address here:
