The previous insights I shared talked about my engagements in areas of uniting the family, crafting the future and setting governance mechanism of family businesses. As most, if not all, franchise companies are owned and operated by family members, I also wish to share how successful franchise businesses can collapse or get into trouble due to dysfunctional behaviors among family members and franchisees.
In my view, the core foundation of a sustainable franchise business relations specifically among the family-run enterprises are gamily governance: a healthy family relations among the owners; leadership and board governance: a professional board and empowered management; and a proven, sustainable (and franchisable) business model. Like a tripod, having only one or two of the above will not make the family business stand for long.
Triggers that can break healthy relationships: franchisor side
In my work as a Famcor and franchise management consultant, I have seen some of the breaking points why business relations turn sour. If your company is starting to experience these, I suggest that you take a serious decision to get help:
ISSUES AMONG OWNERS AT THE FAMILY LEVEL
- Personal conflicts among owners: Most often, conflicts among family members had deep emotional roots since childhood, past hurts and parental dysfunctions. These are brought to the business, worse in the board room.
- Business accommodation for the family: In some cases, incompetent and/or pampered members of the family are accommodated in the business or are given concessions in the business.
- Ownership and control struggles: Polarization of families become imminent when the founder or leader dies or retires. Each faction normally has managers and even franchisees sympathetic to them. Competition of control and ownership eventually happens.
- Some owners are not open to professionalize themselves: While they demand performance among the professional managers they hire, they resent being appraised of their own performance. Some of them cannot read financial statements. Worse, I know of a family entertaining gossips, reacting on gossips, de-focused and paranoid due to gossips. The gossiper now holds a very high position in the company.
- Absence of competent and dedicated successor in the family: Conflicts and confusion brew when the family anoints a successor, by virtue of his family name, despite that he is not competent, worse, is not focused or dedicated in running the business.
ISSUES AT THE BOARD AND MANAGEMENT LEVEL
- Lack of a clear vision and failure to be strategic: Some franchisors who started as store operators have difficulty in thinking of the big picture, on strategic and growth concerns as they continue to be “store-oriented.” Managing a franchise company is totally different from managing a couple of stores.
- Lack of good leadership, worse board members lack the needed competence: I have attended board meetings without clear agenda. Topics on the family, golf games, their foreign trips, gossips are discussed, criticizing franchisees or even their people for matters they dislike. They are engrossed on fire-fighting recurring problems.
- Conflict of interest (franchisor as f’zees): Imagine one member-owner, sitting in the board, wearing multiple hats! He invokes certain policies against a particular franchisee who “competes” with him (like a good site he wants) and then in another instance, proposes exemption of another policy that he considers unfriendly to (him as) the franchisee… Worse, you hear an owner-franchisor challenging the professional manager: “Remember that we are the owners and they are only franchisees whose franchise agreements we can choose not to renew!”
- Corporate culture is leader-centered: Every leader creates a shadow of culture in the organization. Such culture emanates from the owners and the recognized leader and, when institutionalized, becomes a powerful magnet to the people and franchisees you desire to recruit. Ideally, what works as a corporate culture and its set of values should be preserved or even strengthened in the succession of leadership. Once such “unifying core values and set of culture” are not preserved or deliberately abhorred by a new leader, you will see employees looking for “greener pasture” and franchisees disillusioned, entertaining other business concepts.
- Lack or loss of competent managers: This is actually an offshoot of the factors above. As franchisors lose good people (they are the first to go as they are very good and very marketable), they will have difficulty in attracting new talents and eventually will also lose attraction among new franchise applicants.
ISSUES AT THE BUSINESS LEVEL
- Business model becomes obsolete: I have seen owners resistant to adopt to new market developments stating how their success in the past brought them to where they are now. When the market has changed and has affected already their sales, they harp to bring back the glory days of the past!
- The lack of progressive innovation that results to reactive competitiveness: Like the above, when your product and service offerings remain the same over the years, your customers normally lose excitement and interest in you. It is the best opportunity for new players to offer something different and when they draw attraction from your regular customers, then you begin to react in panic!
- Supply chain and logistics disruptions: Franchisees resent this since the situation disrupts their operations with all the overhead and sales loss opportunities. Worse, the competitors’ products will have the chance to be tried by their customers.
- Failure to deliver commitments and promises to franchisees: This happens when changes are implemented and in the process, the franchisor is withdrawing what has been committed. Worse, when the franchisor becomes too profit-driven, they can be selective on marketing and operational supports, sometimes to favored franchisees.
TRIGGERS THAT CAN BREAK HEALTHY RELATIONSHIPS: FRANCHISEE SIDE
As a franchisor myself, I have seen some undesirable situations or behaviors of franchisees. The factors below are some source of conflict:
- Absentee franchisee: They normally do not have focus on the business. They have other businesses or are fully employed yet they seldom visit the store. They also do not attend business review meetings and conferences organized by the franchisor. It was a matter of time we have to close the store or we terminate the franchise agreement.
- Stores are not attended to and operational concerns are not addressed: This can also happen even if the franchisee is frequently seen in the store. They are not “in control” and do not engage in initiating solutions to operational problems. Obviously, we made a mistake of granting them the franchise. A few were granted as they may be relatives or partners of the franchisor’s son!
- Unattended customer complaints: They ignore and brush aside some customer complaints and show the “take it or leave it” attitude, showing indifference when faced with difficult or complaining customers. In no time, sales did decline!
- Franchisees are “cheating” the franchisor: I have caught some franchisees with multiple books and reporting lower sales to the franchisor just to reduce the amount of royalty they pay. This offense is unforgivable!
- Non-compliance of franchisor’s operating standards: Violations also include selling of unauthorized products. Consistent failures in the franchise compliance ratings compel us to pre-terminate the franchise agreement or we force them to sell-out the business.
- Unresolved conflicts that lead to dysfunctional behavior of franchisees, i.e., franchisees make it difficult for our people to please them: They always see the bad side of the situation and the lapses or inadequacy of the franchisor. One veteran franchisee acted arrogantly boasting of knowing better than the franchisor’s representatives. (A manager was insulted by a veteran franchisee in this manner and I have to cut short the conference. In my one-on-one “counseling” meeting with the franchisee, I found out that he had kept deep resentments against one of the owners because of unfair treatment. He was venting his emotions to us.)
Like in marriage, (franchise) business relations can thrive long and beyond, if both parties are willing to give and take, trust each other, work for the best interest of both parties. They should help each other achieve the best business potential anchored on a mission-driven partnership, working hard to ensure that one’s commitments and obligations to each other are satisfactorily performed without being compelled to do such!
(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is the president of Famcor Franchise Management and Executive Development Corp. Feedback at firstname.lastname@example.org. For previous articles, please visit map.org.ph.)
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