May 18, 2010

Franchise Relationships

Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for 18 years at franchisee, franchisor and advisor level. He advises both potential and existing franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News & Events, Australia’s only fortnightly electronic news bulletin on franchising issues.

home search What is trust in a franchise relationship?
Author: Jason Gehrke on 18 May 2010
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Contempt for the familiar is a natural human condition, so it comes as no surprise that a Griffith University survey into conflict in franchise relationships has revealed that more than a quarter of franchisees don’t trust their franchisor.
Given the current size of the franchise sector, that translates to roughly around 18,000 or so franchisees who may not trust their franchisor.

But before anyone gets upset about this statement, it’s important to consider the concept at the heart of the issue – trust.

Trust is a multi-dimensional concept that exists between two or more parties and determines the extent to which one party can rely on the words and deeds of the other.

It is also a fluid commodity of which its levels can rise and fall according to circumstances and situations that may not have been foreseen at the time that either party decided to enter into a relationship.

In the popular saying “familiarity breeds contempt” the underlying truth is that the more one party gets to know the other, the more they learn about the other’s strengths, as well as their failings. These failings may be endearing, frustrating, annoying or even destructive, and the party may even be unaware of the impact of their failings on others until the damage is done.

This growing knowledge of a party’s strengths and weaknesses contributes as much to trust as it does mistrust.

For example, I recently moved into a new house. I trust my wife to make decisions on what pictures to hang on the walls. However, I don’t trust her with the drill to make the holes for the hooks in the right places. (Likewise, my wife can trust me to drill the holes in the right places, but she can’t trust my sense of décor when it comes to choosing pictures for the walls.)

The same applies for relationships between franchisees and franchisors, or indeed any other relationship. Financial relationships in particular are subject to relatively fluid levels of trust depending on the nature of the investment and the degree to which the risk of that investment can be managed. For a franchise, the risk is presumed to be less than that of running an independent small business, but not entirely risk-free either.

Although trust may exist in a relationship, a healthy scepticism by either party may pervade the relationship in order to protect themselves from breaches of that trust. Similarly, scepticism may be necessary to bridge information gaps in the relationship where blind faith would normally suffice.

But when it comes to trust, who do we really believe (ie. trust) to tell the truth?

Take banks for example. A recent ‘Banks versus battlers’ survey of 3,000 Australians and New Zealanders by The Daily Telegraph found that only 18% of the customers of one of Australia’s big four banks were satisfied with their banking relationship.

The banking survey found that trust was a real issue for bank customers, who on the one hand would reasonably expect banks to keep their deposits safe, while on the other hand could not trust banks to not charge additional fees from its customers. (Having said that, some banks are now actively removing fees as a way of rebuilding trust with their customers.)

But if fewer than one in five people are satisfied with their banks, why don’t they go to another bank? Part of the answer could be that they don’t trust another bank to behave any differently, or in other words, all members of the group are tarred with the same brush based on the relationship with just one member.

Franchising can be just like this as well.

A franchisee who has had a bad business experience may be tempted to condemn their franchisor, or franchising as a whole, perhaps in some cases with good reason.

Similarly, franchisors have been known to bemoan a lack of compliance in their networks because the franchisees just don’t follow (or trust) the system.

Resolving these trust issues is easier said than done, and most of the hard work in doing so must be done by franchisors, not franchisees. Building trust rarely results from a single action, but rather a series of actions over time, and similarly can be lost in the same way.

To help maintain and build trust in franchise relationships, franchisors should:

1. Follow through. When a franchisor says they are going to do something, they should do it. (How quickly does an electorate lose faith in politicians who say they will do something when they get into office, and then fail to do so when they are there?)

2. Have empathy. Franchisors need to demonstrate that they have a genuine understanding of the issues and challenges facing franchisees on a daily basis, including an understanding of the cash squeeze small business owners sometimes find themselves in.

3. Be credible. Franchisees look to franchisors to lead from the front, not from behind. This means that new products, services or marketing initiatives to be introduced have been comprehensively tested and proven by the franchisor in their own or selected outlets first before being rolled-out across the network. Nothing destroys franchisee trust faster than a franchisor’s failed product or marketing campaign.

4. Be stable. High levels of staff turnover in a franchisor’s head office sends a message to the network that the franchisor can’t build enduring relationships with staff, and if they can’t build enduring relationships with staff, what hope is there for positive, enduring relationships with franchisees?

5. Have a vision and stick to it. The corporate vision is an important part of the emotional investment that a franchisee makes in the business. Changing the corporate vision, for whatever reason, without engaging franchisees in the process is a recipe for disaster.

6. Have a profitable business model. Many franchisees invest their life savings and more in their business with an expectation of making a return on that investment. If the business model is not capable of providing a reasonable return, or the franchisor does not show an interest in ensuring the franchisee gets a return on their investment, trust will evaporate.

7. Acknowledge their mistakes. No-one is infallible. Nobody expects franchisors to be perfect in everything they do, but franchisees do set the bar pretty high, so if a franchisor does make a mistake, they need to admit it, learn from it, and move forward. Failing to acknowledge a mistake in any relationship demonstrates a lack of humility, and humility is a critical characteristic in building trust.

Although familiarity may breed contempt, it is possible to build and maintain trust in a franchise relationship, but it doesn’t happen overnight and it doesn’t happen with a single action. It requires a sustained and conscious effort by the franchisor for the duration of the entire franchise relationship.

Jason Gehrke is a director of the Franchise Advisory Centre and has been involved in franchising for 20 years at franchisee, franchisor and advisor level. He provides consulting services to both franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News & Events, Australia’s only fortnightly electronic news bulletin on franchising issues.

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