• July 25, 2016
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

Dissin’ Franchise

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I've been giving a fair amount of thought to franchising lately. Not to franchising Third Idea Consulting, so don’t get all excited. Just the concept of the franchise model of business. It sits at an interesting place in the customer service world, and I don’t think I’ve ever done it justice (or, more likely, injustice) on this page.

A franchise is the right to use a company’s brand, including logos, signature merchandise, supply chain, and other resources, for a period of time. The franchisees are more than just retailers for the franchisor—they mimic the franchisor exactly (more or less) and are not allowed to sell a competitor’s products or services, or usually anybody else’s, either. The franchisor receives a fee from the franchisee, a portion of its sales, and gets to expand its brand without capital expenditure. The franchisee gains the use of a proven brand, support from the franchisor, and doesn’t have to create a new business from scratch to compete. Seems like a win-win, right?

Well, maybe yes, maybe no. I think it’s fair to say that while the franchise model is a pretty safe way for a budding entrepreneur to operate, it definitely has its limits. Your parent company doesn’t have to renew your franchise when the time is up, for any number of reasons. It can also buy you out, absorbing the location into its roster of corporate-owned shops. If you stay on, you’re no longer an entrepreneur, you’re an employee. Your employees’ loyalty will shift from you to the franchisor. It’s hard to maintain the same sort of morale going forward, and that can lead to shortfalls in customer service.

Oh, speaking of the corporate shops? Yeah, you might find yourself competing with them, as well as with its other franchisees. Now, not every franchisor also runs company stores, but a number of them do. When it comes down to picking the favorite child, which do you think it will choose? Some have even tried to supersaturate markets, placing more franchises in a community than are needed to serve demand and letting them compete for survival. While this might be an incentive to try harder and go the extra mile for your customers, this kind of hypercompetition can put a desperate edge into your voice.

But the thing most likely to limit your ability to provide the best customer experience, it seems to me, is the limiting nature of the brand itself. Some have called franchising “entrepreneurship for the uncreative,” and for more than one reason. The franchisee is expected to conform to the franchisor’s way of doing things—no more, no less. While the franchisor probably has good enough rules and policies to handle anything that comes up, that’s all you have to work with. Depending on the franchise agreement, you might be unable to deviate from company policy—how, when, and if to give credit or provide refunds, exchange merchandise, and settle disputes. Franchisees may be equally handcuffed in running special programs or promotions that aren’t corporate-sponsored and -approved. You might have the best idea in the world to generate community goodwill or boost the brand in other ways, but you’ve got to run it by people who aren’t there and don’t see the facts on the ground. As a franchisee, it’s sometimes hard to do the best thing for the customer when your revenue is partly owed to the provider of the brand you sell.

Franchise agreements are far more complex than I can present here and still have room to make a point, so please take the preceding babble for what it is. As a parting thought, consider that another meaning of franchise is the right to vote, or a granted right in general. Ironic, don’t you think, that gaining the franchise to operate a franchise strips you of the franchise you’d have if you launched an independent business?

Marshall Lager is the managing principal of Third Idea Consulting, dedicated to finding the best way to move businesses and customers forward. Engage him at www.3rd-idea.com, or www.twitter.com/Lager.

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