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THE E FACTOR

by Greg Nathan,
last updated 23/07/2009

Most franchisors recognise that the type of support a franchisee needs changes as they become more familiar with running their business. However, franchisors may not understand the psychological changes that take place as the franchisee develops in confidence.

 A few years ago, I developed a model called The E Factor which describes how, as a franchisee's satisfaction level and needs change, the franchisee/franchisor relationship itself moves through six stages. These are:

GLEE - The franchisee's thinking probably goes something like this: I am very happy with the relationship; you obviously care about my success and you have delivered all you said. I am excited about my new business and full of hope for the future.

The franchisee's initial excitement at buying a business is accompanied by emotions such as nervousness anticipation, and the hope of making lots of money. This is a time during which the franchisee needs reassurance within a structured format which teaches them how to run the business properly and to manage wisely so that they create a solid foundation for future growth.

FEE - Although I'm making money, these royalty payments are really taking the cream off the top.

This usually occurs about a year down the track. It comes from a growinThe E Factor Graphg awareness and sensitivity to profitability issues, and surfaces particularly as the franchisee is writing out the regular royalty cheque. The franchisee's level of satisfaction starts to drop. They have become more questioning, and more commercially-focussed. This stage needs open, non-defensive communication from the franchisor.

ME - Yes, I am successful. But my success is a result of my hard work. I could probably be just as successful without you.

During the 'me' stage, a franchisee will attribute his or her success to their own hard work and initiative. If things are not going so well, however, the franchisor is inevitably held to blame. Either way, the franchisor usually starts to receive some criticism, which must be responded to in a positive, patient, mature way.

A clarification process can be extremely useful. This should cover such areas as 'what are our obligations, and how are we meeting them?' 'What areas of assistance would be most valuable to our franchisees at this time?' 'What resources do we have available?'

Sometimes the franchisor will need to meet with the franchisee(s) to reclarify the obligations of both parties. This can be done in such a way as to take the emotion out of the interaction and allow everyone to focus on the real issues - how to develop the business to everyone's best advantage.

FREE - I don't really like all the restrictions you are putting on the way I run my business. I feel frustrated and annoyed at your constant interference. I want to be able to do my own thing and express my own ideas.

As the franchisee's confidence grows regarding the operational, marketing and financial aspects of the business, so the drive towards independence asserts itself. If dissatisfaction grows, the franchisee may try to break free by breaking the contract or selling the franchise.

The free stage is a difficult time for the management of franchise companies. The underlying issue here is usually whether people feel the franchise system is providing genuine value to its franchisees. The best way to address this issue is to face it squarely and attempt to define and measure the principle of value.

One way of doing this is via a benefits audit, which can be done by taking some typical outlets and systematically calculating the impact of various factors on the outlet's bottom line profit.

Such factors would include 'how do licence fees impact on gross profitability?', 'what is the impact of buying power benefits on the profit margin?', and 'what impact does the use of signage, trademarks and advertising programmes have on sales?'

Conflict seldom goes away by ignoring it. The franchisee will only move to the see stage through some frank and open discussions with the franchisor.

SEE - I guess I can see the importance of following the system. And I do acknowledge the value of your support services. I can see that if we all did our own thing standards would drop, and we would lose the very things which give us our competitive edge.

As the franchisee reviews the value and benefits of the system, a renewed conviction will often emerge that the system is a good one and does work. They may become more open-minded, inquisitive and empathetic.'

At this stage, the franchisee needs to be listened to with a commitment to helping increase their profitability

WE - We need to work together to make the most of our business relationship. I need some specific assistance in certain areas to develop my business, but I also have some ideas which I want you to consider.

To reach the 'we' stage, the franchisee must be mature, objective, commercially minded and, most of all, they must be profitable. The franchisor, on the other hand, must be patient, fair and consistent in their dealings with franchisees. With the new recognition of interdependence is likely to come a re-commitment by the franchisor to the franchisee. The real power of franchising kicks in here.

The franchise relationship is a complex and, at times, difficult one, but the E Factor model offers franchisors and franchisees alike a way of negotiating their way through the minefield. Franchisees who have arrived at the we stage are a network's greatest asset. They will often be quiet achievers who keep one eye on profit and one eye on cultivating healthy business relationships, not just with their franchisor but with their suppliers and, of course, their customers.

A very useful tool for franchisors is what I term the Mood Monitor, which the Franchise Relationships Institute has developed to measure how a franchisee feels about the relationship with their franchisor in five key areas: confidence in leadership; moral and practical support; belonging & involvement; resolution of conflict; and feelings of achievement. Franchisees are asked to rate their level of satisfaction in over 20 aspects of these areas, and the resulting feedback can give the franchisor a valuable benchmark against which to measure progress.

Find out more about The E Factor.

Find out more about the Franchise Relationships Institute.

This article first appeared in Franchise New Zealand magazine. The E Factor name, concept and graph are copyright Greg Nathan and the Franchise Relationships Institute.

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