Stephen M. R. Covey on the Economics of Trust in Franchising

To say that Stephen M. R. Covey’s 2006 treatise "The Speed of Trust" has had a lasting impact on the world of business would be a dramatic understatement. The New York Times bestseller has sold nearly a million copies in 22 languages, and its ideas have been folded into the foundational philosophies of some of the largest companies across the world.

“The Speed of Trust’s” central thesis, that the deliberate implementation of trust in professional relationships has a quantifiable impact on the speed (and therefore cost) at which results are achieved, is perhaps nowhere more applicable than the franchise industry, where the success of a business hinges on the relationship between its franchisor and franchisees.

1851 Franchise spoke to Covey in advance of his appearance at the 2018 International Franchise Association convention in Phoenix. Covey spoke at last year’s convention, and since then, he and his firm FranklinCovey have been tapped to consult for a range of franchise brands. We asked Covey how he’s applied the lessons of his book directly to the franchise industry and what he has in store for the 2018 IFA convention.

You spoke at the IFA convention last year. Was that your first experience working directly with the franchise industry?

In terms of actually presenting to the industry at large, yes, last year was the first time that I did a formal presentation to the industry. I focused on really applying my message to the franchising world. But I’ve worked with individual companies that have had a franchise component.

What kind of work have you done with franchise brands?

We've been doing quite a bit of work with franchise companies over the last year, which grew out of my talk at the convention. And most of that work has really been about tailoring my message from the convention to be more directly applied to the company I’m working with. We've done work with The Dwyer Group, ComForCare, Agile Pursuits, Home Instead, Popeyes and a variety of other organizations.

We do different things with each company, but it tends to be along the lines of either helping to build a greater trust between the franchisor and franchisee or focusing on building trust inside the team, both of which offer a competitive advantage to attract and retain good people, which is so vital and can be big challenge.

A good company culture is like a magnet that attracts people, and trust is an essential component of a strong company culture. So we tend to focus on building trust as a means of establishing a strong, attractive corporate culture that attracts good people and reduces turnover.

Because of the relationship between the franchisor and franchisee, the franchise industry revolves around trust in a very direct way. Can you talk about the lessons from “The Speed of Trust” that you believe apply most directly to franchising?

Cheryl Bachelder and I wrote an article for franchise.org called “Franchising at the Speed of Trust,” in which we tied the lessons of the book directly to franchising. The whole premise is that of all the relationships in the franchise business, it’s that franchisor-franchisee relationship that is most critical. We’ve seen examples where that relationship is broken and filled with mistrust. You pay the tax for that lack of trust at every gate.

The idea is that there is an economics to trust that affects the speed and cost of everything you are trying to accomplish. When trust goes down in a relationship, everything starts to take longer and cost more because you have to take all these steps to compensate for the lack of trust. You are constantly checking and verifying and validating. It’s not just unpleasant, it’s costly. But the converse is equally true. When trust goes up, the speed of everything you are trying to accomplish increases as well. There are dividends to that speed that are very real, and that’s what Cheryl and I were trying to show in the article. This stuff is real, there’s an economics to it, and you see it play out time and again.

I’ll give you an example. We were working with a franchise brand that had gone through a number of CEOs recently, and franchisees had developed a real distrust for the corporate team. Every decision that was made was scrutinized and questioned by the franchisees, who were wondering if their best interests were being served. There was a sort of class war brewing. So our first task was to recalibrate the corporate team to think of their franchises as their number-one customer. So the company adopted that strategy, and as they began to rebuild trust with their franchisees, they started to see all these little efficiencies that they hadn’t considered coming into the picture. Not only were they getting franchisees back on their side, but they were seeing a greater capacity for innovation and creativity, which they were in desperate need of.

One of that company’s initiatives to try and get the brand back on track was a remodel they could introduce to their stores. We encouraged them to take their plans out of the vacuum of the corporate office and work with their franchisee committee to plan the remodel. That allowed them to establish trust with their franchisees so it didn’t seem like corporate was imposing a new burden on them. They ended up getting something like 85 percent of their franchisees volunteering for the remodel within three years. You don’t see that kind of response and commitment when there is low trust. As stores took on the new model, their performance and profitability increased. So the establishment of trust had real, tangible results that both the franchisee and franchisor benefited from.

Do you think that the responsibility to cultivate trust lies more on the franchisor than the franchisee, or are there different ways that each party should be building trust with the other?

Both sides absolutely have a responsibility, but if the franchisor is waiting for the franchisee to establish trust, they might be waiting a long time. But it always comes down to this: trust has to be built from the inside out. It always starts with yourself. Work on your credibility, work on your team’s credibility. The more credible you are, the more influence you have and vice versa. If you’re the franchisor, you need to model the behavior you want to create among your franchisees. Same goes for the franchisee. If they want the franchisor to take them seriously as a partner, they need to be transparent and establish trust.

So if I’m talking to the franchisor, I say, ‘it starts with you.’ If I’m talking to the franchisee, I say, ‘it starts with you.’ But in the broader picture, the franchisor has the power, so I do think the onus lies more on them to establish the practices they want to see throughout the business. That’s important because the franchiser does not have to rely on trust; they have a contract, but falling back on the contract is not nearly as influential as a relationship built on trust.

You’ve talked a lot here and in your book about how trust is something with a real, tangible value to it, but I think a lot of people see trust and trustworthiness as an immeasurable feeling that you can’t put a value on. How have you been able to change people’s minds about that?

Yes, that can be a challenge. Most people see trust as a nice thing. You don’t have to convince them that it’s a good thing to have trust in their business, but they don’t immediately see it as something that’s really going to affect their bottom line in a significant way. So I talk about it in terms of economics, and I break it down into two components that you can measure: speed and cost.

What I’ve learned, though, is that if you start talking about speed and cost in terms of the people and teams and partners within the company, people don’t wrap their heads around it as quickly as if you start talking about trust in the marketplace. Think about what a brand is. A brand is a representation of trust between a business and its customers; it’s trust monetized. People get that. They understand the necessity of trust between a business and consumers. They know that things like repeat business and referrals have a quantifiable impact on their business, and they see how that relates to trust.

So I try to show people that internal trust is every bit as crucial and measurable as external trust. Then, if you look at the cost of retention and turnover, you can see how that’s a quantifiable cost and how trust can minimize that cost. Suddenly you can put a number on trust, and you can start applying that in all sorts of areas within a company.

There are all sorts of quantifiable things that people don’t realize can be improved by trust, so it’s about promoting that paradigm shift to get them to see that value. Often, people are compelled by the point, but they don’t really know where to start. So I try to give them a framework and a language they can use to start implementing trust throughout their business.

Given that a trusting relationship between the franchisor and franchisee is mutually beneficial, where does the potential for trust to break down come from?

Almost always, mistrust comes from what I call counterfeit behavior. Counterfeit behavior is when people don’t behave in ways that cultivate trust. They may say the right things, but they don’t behave accordingly. A franchisor may talk about wanting feedback from franchisees and building a strong relationship, but it’s just lip service. If they say all that and then forge ahead with their own plans with disregard for franchisee input, they are going to lose trust. That’s when the franchisee says, ‘yeah, we have a council, but it’s just there to make us feel good; it doesn’t do anything,’ and that’s where things start to fall apart.

In the book, we talk about 13 behaviors that people can apply to cultivate trust. When those behaviors are violated, that’s where trust breaks down. It’s not necessarily about lying. Too often people spin and twist their intentions or they manipulate or have hidden agendas or point the finger and shift blame, these are all counterfeit behaviors that cause people to lose trust. Many of those behaviors are not egregious in a single instance, but when they become a pattern, they diminish or destroy trust, and as a leader, you are left with little leverage and you resort to a sort of command-and-control style.

The other area where trust breaks down, especially in the franchise business, is when the relationship is not aligned toward true mutual benefit. It’s got to be a win-win relationship. It’s very easy for that to start to skew toward a partnership where something is a win for one side and not for that other, and that can quickly lead toward the franchisee and franchisor working against each other rather than with each other. That is untenable in the long-run. The franchisor will only win if the franchisees are winning, and vice versa.

I saw this years ago with a client who was the CEO of a franchise company, and all of the feedback from franchisees was telling him that the business felt one-sided, and everything was sort of falling apart. Eventually they took their contract to the franchisee committee and said, ‘Okay, let’s redesign this contract together in a way that is truly mutually beneficial and truly represents a win-win for us.’ They came up with a new contract that everyone was happy with and signed-off on, and instantly you could see this shift in the direction the company was moving.

What is something that a franchisor reading this interview could do right now, today, to increase trust with their franchisees?

Everyone is in favor of trust, but most people don’t have the same perception or understanding of how foundational it is for their business, how it is an economic multiplier. So the most important thing is starting that paradigm shift. It’s like turning the lights on. The franchisor should begin thinking of the franchise as their key customer, and the key to that relationship is trust. They must understand that there’s not just a social payoff to that practice, but an economic one as well. If you think of trust as a social virtue, well, that’s nice, but you’ll want to move on to marketing and operations and things that have a pressing quantifiable value that you can get your arms around. So you need to start thinking of trust not as a social value but as an economic one.

The second thing is you’ve got to start looking at yourself and thinking about what you can do to increase your credibility immediately so that your franchisees want to trust you. You’ve got to start at the mirror and work from the inside out.

The third thing is to declare your intent. First to your own people within the organization, so that you can model it within your team, and then to your partners outside your team. Sometimes those steps happen at the same time, but the point is you have to take it from the inside out.

Can you give us a preview of what you’ll be discussing at IFA this year?

I’ve got three main points that I’m excited to discuss. The first is to change the way we think about trust and see it as a hard economic driver. The second is to learn that trust is learnable and not just an innate quality. The third point is that trust is something that you can build and grow and improve. We talked about these things last year, and people really responded to it, so we’re going to dig in further this year. I’ll use examples from case studies right from the franchise industry, and I’m going to give some context and a framework for how to apply these practices. I’m going to take this stuff and make it very tangible, practical and actionable. I’m also going to work directly with leaders to hone that process of working from the inside out to build trust.

We’ve been thinking a lot about the franchise world ever since the IFA convention last year, and we’ve had conversations with CEOs, franchisees, business service specialists and liaisons, and while many of these companies exist in different industries, the takeaways are always very similar. We find more commonalities than differences. We have a video where I talk about how we tend to get work done with and through other people, so all of our work is dependent on relationships, and all relationships are dependent on trust. But especially in the franchise industry. It’s not like Walmart or Proctor and Gamble where you can mandate things for all of your stores, you have to have a two-way relationship with your franchisees.

I’m honored to be invited back this year. We’ve found a real resonance in the industry around this top because of how fundamental it is to every level of the business, and I’m excited to continue working with the industry.