IN RECENT years the aggregation of real estate businesses has gathered pace. In a competitive market, fewer people are opting to set up as independent operators and as a result, franchise options are often viewed as attractive entry points for new businesses.
Finding the right balance in franchisor/franchisee relationships is a delicate proposition. The most successful of these relationships maintain a healthy tension between the parties. In fact, in a high performing franchise, this tension is both productive and profitable.
The franchise selection process must be rigorous. Both the franchise brand and the opportunities offered need to be assessed very carefully. Franchisors and franchisees who are unable to share common values, or who fail to agree on mutual goals, will very likely flounder.
As with any relationship, a franchise relationship requires give and take. Each party should come to the relationship after carefully sizing up the other. Too many franchisor/franchisee relationships begin like an impetuous new romance, but when the honeymoon is over both parties are left counting the cost of their not-so-perfect-match.
A 12-month opt in/opt out option for both franchisor and franchisee is a sensible arrangement that gives both parties the chance to get to know each other before committing to the long term. Potential franchisees should also involve their accountant and solicitor in franchise discussions very early in the process.
The best performing franchise relationships operate as a partnership based on mutual respect, with both the franchisor and franchisee working towards common goals. The healthy tension within the relationship is mutually beneficially: the franchisor benefits from the generation of new business and a good return on investment; the franchisee benefits from an established brand, training and support.
When the relationship heads towards a ‘master and servant’ mentality, no one benefits. Any hint of an ‘us and them’ arrangement should sound warning bells. A franchisor should be happy for a potential franchisee to have frank discussions with any existing operators as part of the selection process.
Communication is critical to a positive franchisor/franchisee relationship, particularly as it reflects organisational culture. Building and maintaining a positive culture means people will do things because they want to; in a negative culture people do things because they have to.
A business that cultivates collaboration and open communication will invite participation from key representatives across the franchise group and give these key stakeholders a voice. A famous case in point is the story of the Big Mac, which was devised by a McDonald’s franchisee. If McDonald’s hadn’t created a culture of collaboration, the opportunity to trademark the world’s most famous burger might have been missed.
It’s through committed collaboration that many of the benefits of franchising become most apparent: cross-referral of business, mentoring and professional development opportunities, benchmarking and greater leverage of the brand are some of these benefits.
The brand promise and the consistent delivery of that promise is often a sore point in franchise relationships. If a franchisor has established a successful brand and consumers have expectations of that brand that are not met by franchisees, the brand’s integrity can be dangerously undermined. A number of agencies establish a strong brand then quickly embark on franchising ventures to leverage that brand only to encounter damaging issues of quality control.
Similarly, there is a tipping point where real estate agents who have begun franchising change from being real estate agents who happen to be franchising, to franchisors who happen to be in the real estate business. This is a fundamental shift in philosophy where growth in the number of outlets takes over as the main driver – often to the detriment of the outstanding service that established the brand.
To counter this, franchisors should face the tough decision to move under-performers on to maintain the integrity of their system.
Buy and sell agreements should be in place at the beginning of a new franchise to provide owners of the franchise office clarity and certainty. For instance, the agreement should outline an adequate structure should a partner leave, and stipulate that if a partner is no longer involved in the day-to-day operation their shares should be offered to the remaining partners.
At the end of the day, there’s no getting away from the fundamentals of good business. Strong leadership is vital. If the people running the franchise organisation don’t have hands-on knowledge of the industry the franchisor is often at a distinct disadvantage.
Consistent, high quality customer service is another fundamental principle. My own experience of being back in the day-to-day business of listing and selling has reinforced just how important the principles of quality service are in today’s competitive market.
All relationships require effort. A franchisor/franchisee relationship that is built on mutual respect in pursuit of common, clearly defined goals is one that stands to return great dividends to both parties.