How trusted advisors who can draw on their own experience, knowledge, and judgment in franchising can propel the growth of a franchised business

BY FRANK ZAID, FRANK ZAID FRANLEGAL SUPPORT SERVICES

Any franchisor who has attended a Canadian Franchise Association national convention, especially a new or emerging franchisor, walks away from the event amazed at how approachable and welcoming other franchisors are in sharing ideas, experiences, and mistakes. I do not know of another industry segment in which competitors are so open in assisting each other. What an opportunity for franchisors to learn from others, get great advice, avoid mistakes, and use the experience to advance their own franchise systems. But it is difficult to rely on these opportunities once a franchisor returns to the day-to-day operations of the business.

There are many publications or programs on the “how to’s” and “success stories” of franchising. But these are usually focused on a distinct industry segment or a particular franchise system. And there are many franchise consultants who have little experience other than as a previous franchisee or an executive of a franchisor. Every franchise system is different and unique. The ideal goal would be to learn from the real-life lessons of seasoned franchising experts in many different capacities.

So then the question is: how can franchisors achieve this goal when they are usually only experienced in their own business models and have little knowledge of alternate ways to operate their systems?

My answer is simple: form a board of directors or a franchisor advisory board with handpicked, trusted advisors who can draw on their own experience, knowledge, and judgment in franchising to drive the franchisor to plan growth strategies, solve challenges, and analyze performance. The board could include individuals with financial, legal, operational, technology or management experience, or those with diverse experience in different fields. Potential candidates can be located through other franchisor recommendations, present and historic franchisor leaders, and on social media platforms for professionals like LinkedIn. But they must have broad franchise experience, understand the franchise business model, and be objective, flexible, and creative. Since individuals usually want to avoid the potential liability of being a corporate director, a structured advisory board is more commonly utilized.

In my view, the earlier a board is formed, the better. The more advice the franchisor receives, the more likely the franchisor will be successful in growing the system, solving challenges, and minimizing mistakes. My diverse experience in franchising, including serving as a member of many advisory boards, has led me to the view that a franchisor who does not consider forming a franchisor advisory board must have a valid reason for not doing so, or is otherwise misguided.

The starting point to forming a franchisor advisory board is for the owners of the franchisor to appoint a trusted qualified individual to function as the chair of the advisory board and work with the chair to recruit other board members based on required skill sets. A reasonable number of members of the advisory board may start with three and end up with five or seven. An odd number is useful in case of an equal number recommending a particular approach to a specific matter.

Board meetings should be scheduled at least quarterly, and more often as required. Board members should be compensated for their time and results. A combination of an annual retainer, a per meeting fee, remuneration for time spent on specific activities, and possibly an equity interest in the franchise system may form the basis of compensation.

An agenda and relevant materials should be circulated in advance and management should present information pertaining to the agenda items. Advisory boards do not have decision-making authority, but their findings or recommendations should be respected and have strong influence in management decisions.

Here are some real-life examples of how franchisor boards on which I have served have influenced the decision-making process of successful franchisors.

In one situation a successful franchisor had franchisee penetration in most urban markets, but was having difficulty attracting franchisees in more rural markets. We analyzed the open markets, looked at the successful operators in urban markets, and suggested that the franchisor modify the franchise offering to be more compact for compatible rural markets. The franchisor determined that many existing franchisees wanted additional franchises to rationalize their expenses as multi-unit operators. The franchisor could eliminate the cost and time of training new franchisees, and the franchisees could open new units quickly in the rural markets. The multi-unit program was extremely successful and made it very difficult for competitors to expand into these markets.

In another franchise system the board considered how the franchisor could deal with franchisees that were resisting the implementation of a new point-of-sale system and its related equipment. The franchisees were resistant due to their concern that the costs of the new system outweighed the benefits. The board suggested that the franchisor develop a cooperative approach and build consensus among the franchisees. The franchisor held information meetings between the franchisees and the supplier to explain the need for the new system and its benefits, which included customer tracking analysis, inventory control, revenue accounting and advance online ordering. The franchisor arranged excellent equipment financing for franchisees who made early commitments to the system. As a result of these meetings, over 90 per cent of the franchisees immediately got on board with the new system. Ultimately same-store sales increased and customer satisfaction was enhanced.

In a third situation a franchisor discussed recent negative press and social media coverage surrounding a particular franchise company arising from an incident where contaminated food products had been sold in a franchisee’s location. When a board member asked the franchisor how he would handle the situation, the franchisor realized that he would have to involve many groups in his head office team and there was no system in place. The board member had experience with crisis management systems and suggested that the franchisor develop an interactive system. The board mapped out the fundamentals of the system and retained a knowledgeable consultant to finalize the program, create instruction manuals, and hold employee and franchisee training programs. Both the board and the franchisor realized how essential it was to have a fully integrated crisis management program.

In conclusion, franchisors who have established independent boards of directors or franchisor advisory boards have benefited significantly. There is no substitute for the experience, diversity, knowledge, and practicality that is gained from an active, objective, and independent board. I assure you that you will not be disappointed.

About The Author

Frank Zaid practiced franchise law for 40 years at a major Canadian national law firm where he was ranked as the most frequently recommended franchise lawyer in Canada and chaired Canada’s leading franchise law practice group. He worked with over 400 franchise systems. For the past 15 years he has been a mediator and arbitrator of franchise disputes with ADR Chambers in Toronto. During his career he has served as a member of the board of directors or franchisor advisory boards of diverse franchise systems. He served as Special and General Counsel of the Canadian Franchise Association (CFA), Chair of the Supplier Forum of the International Franchise Association (IFA), and the initial Chair of the Franchise Law Section of the Ontario Bar Association. He was the first recipient of the CFA’s prestigious Lifetime Achievement Award. He now operates his own business, Frank Zaid FRANlegal Support Services, which focuses on franchise mediation and arbitration, franchise ombudsman services, franchise expert witness services, franchisor advisory boards, and strategic franchisor business operations consulting services. For more information, contact him at (416) 837 5973 or via e-mail at fzaid@frankzaid.com or fzaid@adr.ca.