1851: How To Deal With a Failing or an Unhappy Franchisee

When franchisees are unhappy, it can have a pervasive, negative effect on a brand. Franchisors must have a strategic plan in place to address and remedy issues with franchisees before they begin failing because it can adversely affect development and in turn, slow growth. It is essential for franchisors to establish support systems within the organization to effectively navigate unhappy or failing franchisees before disaster ever strikes, so that when it does, brands are ready.

“It starts with a crystal clear operating manual and guide for success,” Roger Martin of RockBox Fitness said. “Our franchisees are purchasing an operating system just as much as they are purchasing a brand and fitness concept. It is critical to outline exactly how a franchisee can be successful and what to do in every facet of the business,” he added.

Sean Fitzgerald, Chief Brand Strategist for 1851 Franchise, said proactivity and cognizance are imperative to identifying a struggling unit or individual. Franchisors must systematically analyze the information that is available to them to detect downward trends. However, indicators that there may be a problem go beyond the economics of a particular unit, Fitzgerald said. “Rarely does a happy franchisee disappear in a system. Poor communication spells trouble.”

Franchisors must take account of communication patterns, or lack thereof, to prevent franchisees from falling off track. “A simple and easy feedback loop can solve most issues before they balloon,” RockBox Fitness’ Steve Halloran pointed out. “However, if a franchisee is absent or going dark during conference calls and meetings, that’s a glaring red flag,” 1851 publisher and CEO of No Limit Agency* Nick Powills added. Furthermore, a franchise’s field support employees generally spend the most time with franchisees that are unhappy or struggling. “If a franchisee is sucking up a large amount of a brand’s resources, take notice,” Powills cautioned.   

When a brand finds itself in a situation with a failing or unhappy franchisee, it must focus on identifying the core problem, recognizing and addressing the changes that need to be made and implementing a solution. Determining the cause of a franchisee's lack of execution is a key factor in determining the best approach to dealing with the situation. “Common reasons include improper training, too little presence to manage operations effectively and even interference of their personal lives,” Fitzgerald said. Dealing with these issues is possible, so long as the franchisee buys into the benefit of any retraining and restructuring efforts. “Getting to the root issue takes continued conversation to reach a common understanding and goal,” he added.

To properly take stock of overall and specific levels of contentment, franchisors should make certain scorecards include whether or not the brand is providing adequate resources and checking in with franchisees’ wants and needs. Making sure a valid and open line of communication exists between the brand and franchisees is an integral part to mitigating failure and unhappiness at the unit level. “RockBox Fitness’ straightforward process involves a feedback form for reporting a problem and suggested solutions the franchisee may have. As a franchisor, our greatest asset is the combined expertise and creativity of our franchisee group, so we work hard to leverage the power of that by implementing best practices across the group,” Halloran said.

“Franchisors should have KPIs in place to see when things are going wrong,” Powills explained. “Paying attention to these helps brands spot problem areas early. Beyond just total sales, things like poor customer surveys shouldn’t be ignored,” he said. Though the size of brand, its industry and metrics are all relevant in determining frequency, Fitzgerald said that KPIs should be analyzed quarterly at the very least. Assessing what is causing the revenue drop, whether it be poor recruitment or the need for a GM to handle the breadth of operations, is the best way to position a brand to minimize the damage of a failing or unhappy franchisee.

Even when franchise brands are well-prepared to address unhappy franchisees and employ solutions, there are instances when it’s in the best interest of all parties to end the relationship.  The trick is knowing what signals the need to employ an exit strategy and when that point arrives. Fitzgerald acknowledged that it is truly always going to be a situational move, but there are things franchisors need to do to protect themselves and their business.

“Some franchisors are chasing growth at all costs, but know full well that some franchisees they are signing up are not a good fit. Growth should be achieved through strategic choices, including partnering with the right people,” Halloran noted. The franchisor must present the franchisee with enough facts that they become the one to primarily decide it is time to end the relationship. This is more than likely a tall task in a delicate situation because a failing unit isn’t going to elicit a high selling price. Plus, the exit must be mutually agreed upon to avoid litigation.

“The franchisor should make clear that their goal is to remove the unhappy franchisee from a bad situation as painlessly as possible, and convince and explain to the unit owner that this isn't right for a list of particular reasons. Ideally, the franchisee understands they need to get out before it gets worse,” Fitzgerald said. “In the end, this is all about people and when there is an inability to resolve an issue, it is a people issue, not process problem,” Martin concluded.