Change to Grow, Lead to Change

The biggest concern summit attendees came with this year? Change. Like with most any- thing, change is inevitable and necessary for growth in any franchise system. Customers demand change, and a brand must change or become irrelevant. In a non-franchise system, the CEO and executives decide on system change, the company bears the cost, and the employees implement the adjustments at the unit level. The dynamics of change in a franchise system, however, are dramatically different. While the franchisor typically reserves the right to make a decision on system-wide change, how it gets there can make a difference for all stakeholders in the brand. No one disputes that a franchise system unwilling to change will not survive. The key is how to design and implement change effectively and efficiently.

Summit attendees focused on system change. We discussed the differences between a franchisor making a system change based on edict and a franchisor implementing change collaboratively with franchisees. Key components of the latter approach include discussions about the brand and its customers, the competition and the unit-level economics of the business.

Leadership

The other theme on the minds of summit attendees this year was leadership. Leadership in any organization is critical, but especially in franchise systems. Leadership in a franchise system makes the difference between thriving and floundering through change. Regardless of product or service quality, if the franchise system has poor leadership from the franchisor, the system will not be sustainable.

In fact, when someone today asks me about “hot” new leading franchise concepts, I usually say, “It doesn't matter what is hot.” That's short-term thinking. What matters is leadership in a franchise system; that includes the franchisor and its franchisees, as the franchisees are key stakeholders in the brand. Whether we're talking about quick-service restaurants, blow-dry bars or fitness clubs, the franchise systems that last are those with the strongest leadership and the greatest adaptability to change.

Here are some more thoughts on leadership from the 2013 Summit.

The results you are getting are exactly the results you are designed to get. To get different results, do something different. For different results, aspects of your overall organizational design must change. Take a critical look at how you include franchisees in the process of system change. Do you have an attitude of collaboration or one of confrontation?

Leadership occurs at every level of a franchise system. Many franchisor CEOs and founders will have an undying devotion to the brand, but does that undying devotion extend beyond the CEO to all levels of the franchisor management team, and even beyond that to the franchisee level and the individual employee level in the franchised locations? Franchise systems with that kind of brand enthusiasm and multi-level leadership will succeed on a sustainable basis and deliver an unmatched brand experience to customers. The challenge to every franchise system is to move the “undying devotion to the brand” needle at every level. This is the emotional intelligence component of leadership going beyond the franchise system's products or services. It's powerful, and it separates highly successful franchise systems from those that struggle.

System change must focus on unit-level economics. Franchisors who include franchisees in system change conversations will not overlook the impact on unit-level economics. This approach does not mean the franchisor cedes all decision-making authority, but rather that it includes franchisees in the conversation and listens so that franchisees feel that their voices are heard. In fact, one veteran and highly respected franchisor CEO said he wants to make every decision that impacts the franchisees' pocketbooks, but franchisees still can feel empowered if they feel they are being heard in the franchisor's decision-making process.

Design a culture of inspiration and accountability. Too often, tradition keeps franchisors from making change (i.e., “That's not the way we've done it in the past.”). The blame game keeps team members unaccountable, or the franchisees resist change from higher management, so the franchisor defers to the language in the franchise agreement to “force” the system change. Breaking through that paralysis requires the franchisor to inspire change within the system by holding people accountable for their commitments at all levels and respecting the key role every stakeholder plays in order for the system to succeed.

Culture begins with the franchise development process. Highly successful franchisors design a franchise development process that includes managing franchisee expectations and conversations about system culture and system change. A process focusing on selling ' getting as many deals done as possible ' will result in unmanaged expectations and franchise relationship challenges in the future.

Attitude is everything. Leaders can't dictate attitude or blame others for system failures. At the same time, leaders are responsible for instilling passion and attitude throughout the entire system.

Fire “they.” Many attendees left the Summit determined to fire “they” immediately at their businesses. Shortcomings are too often blamed on an indefinite “they,” which is unproductive and unrealistic. Examples: “I didn't get my piece done because 'they' didn't do theirs,” or “It's their job to get that done, not mine.”

Fill your people's passion buckets. Leaders inspire through filling and refilling team members' and franchisees' “passion buckets,” which are the areas where individuals get energy and inspiration. Empty passion buckets affect people and affect the brand and customer experience. Listen to your people, inspire them to identify what they're passionate about, and work with them to keep their buckets filled. In order to do that successfully, leaders need their passion buckets filled by others as well. You can't fill the passion buckets of others if yours is empty.

Franchise law. As a franchise attorney, I've concluded that almost every dispute in a franchise system is attributed in one way or another to a breakdown in communication between franchisors and franchisees. Franchise relationships fail if franchisors and franchisees do not adequately address those breakdowns and collaborate early to find solutions. When parties stop actively listening and communicating with one another, they resort to litigation or legislation. At times, litigation is inevitable and necessary, but more often than not, litigation will not produce the desired outcome. Or, if it does, it comes at an incredible cost to the brand. No franchisor or franchisee should want a court or legislature to determine the outcome or direction of the franchise system.

Conclusion

The power of franchising lies in collaboration between the franchisor and franchisees to protect, enhance and develop the brand. That doesn't mean the franchisor and its franchisees will always agree. But it is the franchisors who are dedicated to leadership that will thrive today and in the future. The energy of the franchise system ought to be focused on beating the competition; not on beating one another.

Franchising is not for the faint of heart. The unique relationship between franchisor and franchisee creates nuances not found in other business models. Franchise lawyers who take the time to understand the business of franchising, not just its legal aspects, will serve clients more effectively. The interdependence between business and law requires franchise lawyers to go beyond legal theories and principles typical in general business disputes to find solutions. That's not to say that every dispute should be settled. In fact, this understanding of franchising complexities is even more important in litigation, and this understanding allows a franchise litigator to more effectively argue his or her client's case.

In that respect, the best takeaways from the FaegreBD Summit apply equally to franchisors, franchisees and franchise lawyers. Leadership, passion and attitude matter. Change is vital to growth, and leadership is vital to change.

Brian Schnell is a partner and the Franchise Practice Leader for Faegre Baker Daniels LLP in Minneapolis. He can be contacted at [email protected].

'

SPECIAL OFFER:'Twitter, LinkedIn, Facebook and Google+ followers can get an online subscription to'Franchisng Business & Law Alert'for'only $299.'Click'here, select'Digital Only'and use promo code'FBLAOL299'at checkout.'This offer is valid for new subscribers only.

Facilitating best practices conversations among franchising's leaders has been the driving force behind the FaegreBD Franchise Summit since the first event in 2006. In August, we held our eighth annual Franchise Summit, keynoted by Steve Romaniello, chair of the International Franchise Association (IFA) and managing director at Roark Capital. Over 100 leading franchise executives from more than 50 companies, with headquarters in 20 states and Canada, attended.

Many franchise executives spend most, if not all, of their time working in their businesses and their franchise systems. They have few opportunities to get together with other franchise executives and exchange best practice ideas and solutions for their major challenges. Over the course of a day-and-a-half, the Summit enabled franchise executives to talk and listen to one another regarding common challenges and opportunities, potential solutions and what solutions have and haven't worked.

Change

The biggest concern summit attendees came with this year? Change. Like with most any- thing, change is inevitable and necessary for growth in any franchise system. Customers demand change, and a brand must change or become irrelevant. In a non-franchise system, the CEO and executives decide on system change, the company bears the cost, and the employees implement the adjustments at the unit level. The dynamics of change in a franchise system, however, are dramatically different. While the franchisor typically reserves the right to make a decision on system-wide change, how it gets there can make a difference for all stakeholders in the brand. No one disputes that a franchise system unwilling to change will not survive. The key is how to design and implement change effectively and efficiently.

Summit attendees focused on system change. We discussed the differences between a franchisor making a system change based on edict and a franchisor implementing change collaboratively with franchisees. Key components of the latter approach include discussions about the brand and its customers, the competition and the unit-level economics of the business.

Leadership

The other theme on the minds of summit attendees this year was leadership. Leadership in any organization is critical, but especially in franchise systems. Leadership in a franchise system makes the difference between thriving and floundering through change. Regardless of product or service quality, if the franchise system has poor leadership from the franchisor, the system will not be sustainable.

In fact, when someone today asks me about “hot” new leading franchise concepts, I usually say, “It doesn't matter what is hot.” That's short-term thinking. What matters is leadership in a franchise system; that includes the franchisor and its franchisees, as the franchisees are key stakeholders in the brand. Whether we're talking about quick-service restaurants, blow-dry bars or fitness clubs, the franchise systems that last are those with the strongest leadership and the greatest adaptability to change.

Here are some more thoughts on leadership from the 2013 Summit.

The results you are getting are exactly the results you are designed to get. To get different results, do something different. For different results, aspects of your overall organizational design must change. Take a critical look at how you include franchisees in the process of system change. Do you have an attitude of collaboration or one of confrontation?

Leadership occurs at every level of a franchise system. Many franchisor CEOs and founders will have an undying devotion to the brand, but does that undying devotion extend beyond the CEO to all levels of the franchisor management team, and even beyond that to the franchisee level and the individual employee level in the franchised locations? Franchise systems with that kind of brand enthusiasm and multi-level leadership will succeed on a sustainable basis and deliver an unmatched brand experience to customers. The challenge to every franchise system is to move the “undying devotion to the brand” needle at every level. This is the emotional intelligence component of leadership going beyond the franchise system's products or services. It's powerful, and it separates highly successful franchise systems from those that struggle.

System change must focus on unit-level economics. Franchisors who include franchisees in system change conversations will not overlook the impact on unit-level economics. This approach does not mean the franchisor cedes all decision-making authority, but rather that it includes franchisees in the conversation and listens so that franchisees feel that their voices are heard. In fact, one veteran and highly respected franchisor CEO said he wants to make every decision that impacts the franchisees' pocketbooks, but franchisees still can feel empowered if they feel they are being heard in the franchisor's decision-making process.

Design a culture of inspiration and accountability. Too often, tradition keeps franchisors from making change (i.e., “That's not the way we've done it in the past.”). The blame game keeps team members unaccountable, or the franchisees resist change from higher management, so the franchisor defers to the language in the franchise agreement to “force” the system change. Breaking through that paralysis requires the franchisor to inspire change within the system by holding people accountable for their commitments at all levels and respecting the key role every stakeholder plays in order for the system to succeed.

Culture begins with the franchise development process. Highly successful franchisors design a franchise development process that includes managing franchisee expectations and conversations about system culture and system change. A process focusing on selling ' getting as many deals done as possible ' will result in unmanaged expectations and franchise relationship challenges in the future.

Attitude is everything. Leaders can't dictate attitude or blame others for system failures. At the same time, leaders are responsible for instilling passion and attitude throughout the entire system.

Fire “they.” Many attendees left the Summit determined to fire “they” immediately at their businesses. Shortcomings are too often blamed on an indefinite “they,” which is unproductive and unrealistic. Examples: “I didn't get my piece done because 'they' didn't do theirs,” or “It's their job to get that done, not mine.”

Fill your people's passion buckets. Leaders inspire through filling and refilling team members' and franchisees' “passion buckets,” which are the areas where individuals get energy and inspiration. Empty passion buckets affect people and affect the brand and customer experience. Listen to your people, inspire them to identify what they're passionate about, and work with them to keep their buckets filled. In order to do that successfully, leaders need their passion buckets filled by others as well. You can't fill the passion buckets of others if yours is empty.

Franchise law. As a franchise attorney, I've concluded that almost every dispute in a franchise system is attributed in one way or another to a breakdown in communication between franchisors and franchisees. Franchise relationships fail if franchisors and franchisees do not adequately address those breakdowns and collaborate early to find solutions. When parties stop actively listening and communicating with one another, they resort to litigation or legislation. At times, litigation is inevitable and necessary, but more often than not, litigation will not produce the desired outcome. Or, if it does, it comes at an incredible cost to the brand. No franchisor or franchisee should want a court or legislature to determine the outcome or direction of the franchise system.

Conclusion

The power of franchising lies in collaboration between the franchisor and franchisees to protect, enhance and develop the brand. That doesn't mean the franchisor and its franchisees will always agree. But it is the franchisors who are dedicated to leadership that will thrive today and in the future. The energy of the franchise system ought to be focused on beating the competition; not on beating one another.

Franchising is not for the faint of heart. The unique relationship between franchisor and franchisee creates nuances not found in other business models. Franchise lawyers who take the time to understand the business of franchising, not just its legal aspects, will serve clients more effectively. The interdependence between business and law requires franchise lawyers to go beyond legal theories and principles typical in general business disputes to find solutions. That's not to say that every dispute should be settled. In fact, this understanding of franchising complexities is even more important in litigation, and this understanding allows a franchise litigator to more effectively argue his or her client's case.

In that respect, the best takeaways from the FaegreBD Summit apply equally to franchisors, franchisees and franchise lawyers. Leadership, passion and attitude matter. Change is vital to growth, and leadership is vital to change.

Brian Schnell is a partner and the Franchise Practice Leader for Faegre Baker Daniels LLP in Minneapolis. He can be contacted at [email protected].

'