When a franchise system expands too rapidly the risk is that the network outgrows its documentation
Problem – It is always great when a client who you have been involved with since the beginning grows rapidly, however it can be problematic if the systems in place don’t keep up with an expanding network. Our client discovered this problem as the popularity of its offering saw it grow substantially in the initial three years of its operation. Issues relating the franchisee compliance began to creep in with franchisees often breaching social media policies, failing to submit compulsory reports and small delays in the payment of franchisor invoices all contributed to the daily headache. The franchisor and franchise management staff soon spent more time dealing with problem franchisees than developing the system and positively supporting existing franchise and franchise offering.
Issue – Often a new franchise system has to rely on generic clauses within their franchise agreement to address as many of the potential problems a system might face that can’t be adequately foreseen from the outset. As a franchise system develops and expands, and changes to the general business environment occur, the franchisor needs to be agile enough to deal with these changes in their documentation. An prime example is social media. Many established franchise systems still rely on franchise agreements that were only relevant when the system was established (subject to changes in the Franchise Code), and fail to address issues such as social media activity by franchisees. In a number of cases, the conduct of franchisees on social media can damage the brand where the public does not differentiate between the conduct of individual independent franchisees and the conduct of the system as a whole. General provisions in franchising agreement often fail to adequately address these types of issues. Similarly, as a system expands and the resources of the franchisor are stretched to meet the increased demand from a growing network, basic compliance breaches are overlooked, and a culture of non-compliance can develop. All these issues threaten to devalue the brand and devolve into a culture of reactive actions, where a franchisor’s efforts should always be primarily focused on building value into the brand, and proactive management of the network and its valued franchisees.
Solution – We communicate regularly with our franchise clients, so were aware of the issues they were having. The franchisor acted on our suggestion to amend the franchise agreement to include a number of specific clauses dealing with issues such as social media and the ownership of digital media. We also revised and focused existing clauses to address specific issues that had arisen, and applied heightened consequences for breaches. We advised the client on methods to ensure increased compliance such as automatic reminders sent to franchisees, and soft touch correspondence sent to the broader network to ensure all franchisees were aware of their obligations. The newly amended agreements were implemented for incoming franchisees, and for existing franchisees upon renewal of their franchise term. The client saw a significant increase in compliance, and decrease in troublesome issues.