Franchising is an interdependent, trusting relationship. This statement doesn’t rank up there with the secret of the pyramids, but it needs to be said at the outset of this article. Above all, understand that the best franchise opportunities begin with a colossal amount of credibility on both sides.
Trust is foundational to the franchisor's brand image. A well-established and credible franchisor is more likely to attract potential franchisees who see the brand as reliable and worth investing in. Further, the relationship must display clear communication and a shared commitment to the success of the brand.
History is Littered with Sweet Franchise Opportunities that Turned Sour
Radio Shack and Blockbuster are examples of franchises that had their moment in the sun. Lacking a crystal ball, no one can foresee how fate will deal with video tapes or radio gear. Therefore, we all must trust our intuition or someone at some time.
The most outstanding failure, according to wolffranchises.com, is Quiznos Subs. Wolf points to Quiznos’ earnings disclosure, which was left blank. Additionally, there were 29 pages of lawsuit listings: fraud, breach of contract, misrepresentation and fraudulent inducement.
Furthermore, many of the lawsuits claimed that Quiznos had thousands of stores closing and failed to reveal this fact to buyers. It’s puzzling how the franchisor could be so cavalier in its legal compliance. It displays contempt for the interdependent relationship and mutual trust that is the foundation of the franchise opportunity agreement.
A Franchisee Desires to be Part of Something Bigger and Better
The International Franchise Association says franchise establishments will add 15,000 units in 2023 to total 805,000 units in the U.S. This growth will contribute 254,000 jobs to the forecast 8.7 million that franchises currently provide. However, with an average of 300 companies launching franchises each year, there are many trust issues at stake.
Innocently, a franchisee believes that their wise investment can be multiplied as they faithfully follow the franchisor’s business model, financial stability and support systems. Further, they rely on the training, continuing support and resources that their partner has agreed to supply.
Importantly, clear and transparent communication builds trust. Franchisees also have faith that the franchisor clearly communicates any changes in the business model. Failure to disclose fees or other crucial aspects that may impact their partners’ investment is a breach of trust. (Looking at you, Quiznos!)
Franchisors Must Demand Consistency and Compliance to Protect their Brand Image
Your brand is your baby. The brand and all its restatements must be protected, preserved and respected. Crucially, your franchise system thrives on identity, consistency and must display sales credibility.
Trust enables the franchisor to maintain a standardized business model, ensuring that franchisees receive the promised support, training and resources. Given their position, franchisors are ethically responsible to disclose legal actions. Conversely, franchisees may exercise legal discretion according to “Franchise Fundamentals: Taking a deep dive into the Franchise Disclosure Document.”
Franchising Organizations Need Credibility to Sell More Units
The Federal Trade Commission (FTC) has rules in place for franchise disclosure (FDD) with 23 mandatory requirements. These items cover background, history, fees, restrictions, renewal, advertising, training, and much more. Not specified is the requisite for trust, credibility, integrity, and faith in your business partner. Yet, here it becomes clear: “The letter of the law versus the spirit of the law.”
Businesses that want to sell more franchise opportunities must build sales credibility in the market. They can improve brand reputation by being transparent and generating great content. These actions will attract more franchisees to the brand.
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