Point Of View Franchisees see one thing, franchisors another . . . how to reconcile the two?

Most industries have their "You say tomato, I saytomahto" scenarios. Franchising is no exception. When afranchisor has one expectation for a situation and a franchisee hasanother, it creates a gray area in which conflicts arise. Thismonth, in the first of a two-part series, Edward Kushell, presidentof The Franchise Consulting Group in Los Angeles and a formerfranchisor, addresses some age-old franchise disputes and offerssolutions.

Income and Expenses

Franchisor says: "Legally, we're not allowed to tellprospects how much they're going to spend or make."

Franchisee says: "How do you expect me to invest in afranchise if I don't know the expected revenues or
expenses?"

Solution: Though franchisors can't project earnings claims,they can release information about earnings of existingfranchisees. Still, most franchisors don't. "Part of mesays they don't want the numbers to be seen because they'renot that good," says Kushell. "It would seem to me thatif someone had a system where franchisees were in fact profiting,then it would be to their advantage to release earnings claims tointerest [prospects]."

Whether or not the franchisor provides the information, Kushellfeels the burden should fall on the prospective franchisee, whomust do some homework rather than taking any claims at face value."There are lots of ways you can obtain or verify certainearnings information," he says. "The obvious way is [toask] existing franchisees. Another way is to look at the disclosuredocuments of competitive companies and compare their earningsclaims with what you receive from this company. Even though itwon't be precisely the same, there shouldn't be dramaticswings on certain basic cost and revenue items."

Diversification of Products and Services

Franchisor says: "We have a concept that works. Addingproducts and services is not something we want to put our moneyinto."

Franchisee says: "I expect you will continually come upwith new ideas and products for me. I bought this franchisethinking it would stay on the cutting edge."

Solution: Kushell feels part of the franchisor's role is, infact, to look ahead and develop new products and ideas."Enlightened franchisors will do this," he says."Unfortunately, many will just go along with whatexists."

These franchisors, Kushell believes, should rethink theirattitudes and see innovation as an opportunity to provide extraservice to franchisees and assure them they're getting valuefor their royalties. And logically, increasing franchisees'revenues boosts revenues for franchisors as well.

Kushell recommends that franchisors involve franchisees in thisprocess. "One of the most significant benefits of thefranchise relationship is what I call the feedback mechanism.Franchisees are one of the best, if not the best, source of newideas and products," he says. "Franchisors have abuilt-in R&D system all over the country--they just have toknow how to engender [creative] spirit."

Alternative Retail Methods

Franchisor says: "I want to grow my own business, andI'm looking for new things to do. Promoting my product in, say,a supermarket will bring me more revenue and will promote the nameamong consumers, which is good for everybody."

Franchisee says: "All of a sudden, instead of coming hereand picking up the product in my store, my customers can get it atthe supermarket. That's taking business away from me."

Solution: Kushell believes tensions over alternative retailmethods can be lessened if the franchisor addresses them upfront inthe franchise agreement. However, just because a franchisor has thelegal right to do something if it's stated in the agreement"doesn't mean it'll be smooth," says Kushell."Franchisees could still be unhappy and could still litigateagainst [the franchisor]."

Again, he suggests franchisors work in concert with franchisees."If [a franchisor tests a method] in a small area, and findsout during that test there was no loss on the part of the existingfranchisees or the loss was minimal, or if they even had anincrease in business, that makes it easier for the franchisor to[use that method] elsewhere," he says. "But gaining morebusiness at the expense of existing franchisees is not a goodidea."

Contact Sources

The Franchise Consulting Group, 1888 Century Park E.,#1900, Los Angeles, CA 90067, (310) 552-2901.