6 Factors to Maintain a Franchise-Franchisor Relationship

When we talk about investors in companies, there is seed funds private equity or a venture capitalist, who may be ‘sleeping investors’ or ‘mentor investors’. They do not get involved in day-to-day operations and rely on promoters to achieve business targets and review the success of the business they have invested in from time to time. Thus, the fate of business does not heavily depend on the investors’ execution or operation capabilities.

However, we are in the business of franchising, and for us, investing has a whole new meaning. I’m eager to share my experiences with franchise investors. These investors are also operators of their business. And the ROI for their business depends on their execution and operational capabilities. What’s more, their execution also affects the over all brand equity and good will. Franchise investors hence work with more enthusiasm towards recovering the returns on their investment. Their behaviour affects the overall brand performance and other franchise investors. In a business like ours, there is a need to carefully choose the franchise as they form an integral part of company’s vision.

Here are some traits while you are choosing an investor for your restaurant:

CHARACTER SYNERGIES FOR SUSTAINABLE GROWTH: Coming together is the beginning. Keeping together is progress. Working together is success. We firmly believe in this old adage. But there’s a lot more required for the sustainable growth of a franchise. Our first main task is to spot investors who synergise with the franchise’s characteristics and have a special aptitude for the brand. Knowing that investors are in complete sync with the brand is a pre-requisite. It’s something that assures that this will go a long way.It is very important for the investor to be able to relate to the brand he is investing in. After all, it is going to be his daily ‘go to’ place for the next few years. He should be looking forward to visit the store every morning when he gets up and that can only happen if he relates with that brand.

ACCOUNTABILITY IS A NECESSITY: As a franchisor, one can provide know how, training, support and feedback to the franchise. And, can guide them and make them understand the businesss and various tactics of the business. They can also offer back end support, marketing and brand building support. However, the investor can reap returns of his investments only by taking ownership of the business on his own. The success or failure of any franchise depends on the accountability he has towards the store. The franchisee has to wear both hats in proper proportions: the hat of an investor and the hat of an operator. He has to understand that he is accountable for running the store as per set standards. He can leverage franchisor knowledge and support, but cannot rely on them.

THERE IS NO SUBSTITUTE FOR SKILL AND HARDWORK: A franchisee is not a typical investment model, where the investor is not expected to operate. The franchise investor should be actively involved in the running of the store. For that, he or she must treat this business as a full time business and not as a part time income source. Restaurant business requires your own time and involvement, at least till the time the store has reached optimum sales and efficiencies and till it has started to acquire customers who want to come back. There is a lot of hard work that goes in to it and we only prefer investors who are willing to put that much of dedication into the store. Our first question to them during their interview with us is “Who is going to operate the business full time?”

MUTUAL UNDERSTANDING STRENGTHENS OUR RELATIONSHIP: Like every relationship, it is imperative that the franchisee-franchisor relationship is respected. The franchisee must follow set norms and standard operating procedures (SOPs) set by the franchisor and not bypass them. Many a times, franchise owners tend to deviate from the SOPs, which adversely affects business. That’s why, we test the franchsie on his flexibility to amend his learning’s and adapt to brand’s standards. We partner with investors who add value in terms of their ideas for the brand, but we hesistate to partner with investors who give us the feeling that they will bypass the brand rules and start dictating their own rules. This results in inconsistency, which affects the overall brand name.

MONEY MATTERS: The franchisee should be well capitalised. The investor must bring the required investment capital and working capital to the table as there should be sufficient funds to acquire assets and run the day-to-day business without having to cut corners.Apart from that, they must also ensure that there is adequate money to put in negative cash flow, required to sustain the business.

PATIENCE IS A VIRTUE: Rome wasn’t built in a day! Every business or project requires a gestation period. And a franchisee must always take into account the fact that there may be teething issues. During this period, the investors are expected to follow prescribed standards consistently. With time, their hard work will pay off and they will not just break even, but achieve all the targets they had set. That's how we do things at Yellow Tie Hospitality.

Hence, we can say that a franchisee investor is a very interesting type of investor. He is accountable for his own returns. It is wonderful to work with investors who invest in the store to grow a brand and also provide their valuable human resource towards overall the development of the brand. The business will only grow if the brand helps franchisee investors get great returns on their investments. And for us, it is most important that the franchise investor gets good returns, so that he can perhaps reinvest with us or share his success story, thus adding to the credibility of the brand.