Developing a Franchise System

by Greg Nathan

last updated 29/07/2009

Greg Nathan is principal of Nathans Corporate Psychology and author of the book Profitable Partnerships. For more information and ideas on how to succeed in franchising, visit

The Must-Do's

by Greg Nathan

last updated 29/07/2009

Greg Nathan is principal of Nathans Corporate Psychology and author of the book Profitable Partnerships. For more information and ideas on how to succeed in franchising, visit
Greg Nathan details the essential factors a franchise system must have in order to succeed

In my work with franchise organisations throughout New Zealand and Australia, I find that many problems which they experience often have similar causes. As a result, I have realised that there are certain essential factors which every system needs if it is to thrive and prosper. In my presentation to aFranchise Association Conference a few years ago, I called these "The Must-Do's For A Successful Franchise System". The following article is based upon that session.

Know Your Business

The first question every franchisor must be able to answer is, 'What business are we really in?' Whether the end product is hamburgers or homes, every franchisor is actually in two businesses: marketing and franchising. You have to keep both aspects working together.

As a marketing company, you use your brand to attract customers to your franchisees' businesses by promising to meet their needs for a particular product or service. If you are achieving each of these three elements - brand, promise and needs - they build on each other in a rotating wheel.

Marketing Wheel

Needs - People's needs can fall into several categories. For example, which of these needs does your product or service fulfil?

The need to:

  • Feel well
  • Follow their dream
  • Save or make money
  • Look attractive
  • Have a good time
  • Have more time
  • Achieve their goals
  • Feel important
  • Protect their loved ones
  • Travel safely and quickly
Brand - What do you want people to think and feel when they see your brand? How do you reinforce their reactions with every experience?

Promise - What are you promising the customer that they can't get anywhere else? One of the franchises represented at Napier was The $2 Shop. They have a great promise - you know what you'll spend before you walk in the door.

Franchising Wheel

Once you have the marketing wheel quite clearly defined, you still need to address the franchising side of your business. As with marketing, there are three elements to successful franchising.

Systemise - Your business must be systemised to make it easy to operate properly and efficiently. This applies to all aspects of the business - operations, marketing, customer service, staff management, record-keeping and so on.

Train - Franchisees and their staff must be properly trained to enable them to use the systems to maximum advantage.

Motivate - You need to be able to lead, encourage and motivate your franchisees and staff.

If you are a franchisor, think of your business as being like a motorcycle. You need both wheels constantly rotating if you are to move forward and not fall over! 

 Clear Vision

The next 'must-do' is to have a clear vision with a big ambitious goal supported by specific steps or goals. There are two important elements here. What the mind conceives, the mind achieves, so it is important that you set out your vision as clearly as possible and share it with those supporting you. As a franchisor, your vision might detail:

  • Type of franchisees you attract
  • The experience of franchisees in your system
  • Ultimate size of network
  • Profitability of franchisee and franchisor
  • Supplier relationships
  • Type of support you provide to franchisees
  • Culture
  • Customer experience
In order to start achieving your vision, you must ensure that all of your structures, resources and documents support your goals. You cannot provide a high level of, say, field support if you are the only person able to assist franchisees, or if the appointed person is not adequately trained. Remember that 'structure follows strategy' - once you have a defined goal, put the structure in place to make it happen.

Close Relationships

Develop close relationships with a team of trusted suppliers and advisors. Do not expect to be able to do everything yourself - you might be coming across a problem for the first time, whereas someone else might have seen it often. You sell franchises because of the experience you have to offer in your business - so don't be too proud to buy it from other people.
Be prepared to use outside people to get high-level input. Pay for expertise when you need it (and remember, when you don't need it you're not paying for it). Use suppliers to provide training and as a sounding board for new ideas. They can also provide access to useful research and information, as well as networking leads and introductions.

Understand Your Franchisees

Understand the psychology and needs of your franchisees. 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. Read about it here .

 Select The Right People

Invest in good franchisee selection systems. Selecting the right people is fundamental to the success of any franchise system. If you choose the wrong people they will not only under-perform, but will take up a disproportionate amount of your resources in trying to raise them to an acceptable level. Far better to recruit the right people in the first place and to train them properly.

The four vital principles of good franchisee selection are:

1. Work out a proper selection system then follow it. Use checklists to ensure that important information is not accidentally missed during the selection process.

2. Develop specific and measurable selection criteria. Create a profile of your ideal franchisee and a rating system whereby candidates can be assessed against this profile. Use professional selection tools such as behavioural interviewing and profiling to assist you in understanding the strengths and weaknesses of potential franchisees.

3. Gather good quality information about your existing franchisees which can be used to determine their learning and development needs as well as provide a further basis on which to evaluate new candidates.

4. Link selection, induction and performance management to ensure that franchisees receive the training and support they really need to bring out the best in them. Each franchisees' needs will be slightly different.

Manage Change

Change is inevitable in a growing business - in fact, if you don't change, you can't grow, so you must tirelessly seek worthwhile improvements and opportunities which will help your business prosper and your franchisees succeed.

But change creates conflict. In a franchise, you're dealing with a large number of disparate personalities, each of whom is used to making their own decisions. So the franchisor has to be careful to innovate and manage change intelligently.

There are actually two types of change: the change that we choose, and the changes that chooses us. Most of the time, franchisors are the ones who choose the change, while the franchisee experiences the powerless feeling of BOHICA - which stands for 'Bend Over, Here It Comes Again'.

People resist change for several reasons:

Loss - they fear losing identity, power or status.

Habit - they are locked into certain paradigms of thinking

Cynicism - not every change in the past will have worked. Past mistakes make people less inclined to make new ones.

Insecurity - they fear the change will lead to failure in some sense.

Tiredness - they are burned out and cannot raise the energy required to change.

Personality - some people are more adaptable than others.

Because change is so important to every company's future, a franchisor needs to have a way to handle the process of introducing changes so that the need for change is understood and the majority of franchisees buy into the solution, while the rest at least accept it. A good way of doing this is to identify the needs of key people. Before instituting any change, work out

  • Who are the stakeholders affected by the change?
  • What are their needs?
  • What are their concerns?
  • How can we get them involved in a positive way?

Be Honest

Be firm, fair and friendly in all your dealings. There are two great myths about the franchisor/franchisee relationship. The first is that franchisees are customers. They are not - the relationship is much more complex than that. After all, a customer can walk away if he or she is not happy. The second myth is that franchisees are the franchisor's friends. They are not, because the relationship is based upon unequal power - but it can be a friendly relationship.

Franchisors need to be leaders. Research shows that the most important thing people want from leaders is honesty. More than anything else, franchisees need to know that their franchisor will tell them the truth and take them in the right direction. This 'believability' factor is built up through the franchisor's acting with integrity, demonstrating reliability, proving his or her competence, and showing concern.


There are three styles of decision-making which are often used in franchising: Directive; Participative; and Consultative.

Directive The franchisor tells the franchisees what they are to do. This approach is efficient, but does not involve the franchisees. It therefore generates low commitment levels from them.

Participative The franchisor canvasses the opinion of franchisees on every subject, seeking consensus before progressing. This requires a high level of involvement from franchisees and generates high commitment levels - providing they all agree. However, it is very inefficient and often ineffective.

Consultative The franchisor uses consultative decision making to build commitment and trust by setting out the problem or opportunity to franchisees and seeking their input. This approach gains moderate commitment and is often effective, but can be time-consuming. In most cases, however, it is the best option.

The rules of using consultation effectively are as follows.

Prior to making your decision, agree on the ground rules that just because you are consulting franchisees does not necessarily mean that your ultimate decision will be one they all agree with. Your job is still to be leader. However, you should listen to the views of franchisees without comment and practise 'active listening' - take notes of their key points and questions and reflect these back to them.

During decision-making, evaluate the assumptions and recommendations made by franchisees and look for commonalities with your own views. Try to link your views when expressed to specific franchisee input.

Once you have made your decision, present it to franchisees by pointing out commonalities with their input. Focus on commonalities, not differences, and point out specific contributions and links.

At Napier, we had three volunteers playing the roles of franchisors addressing a group of franchisees in each of these styles. It was interesting to note how many of the franchisors present greeted the 'Directive' mode with approval!

Clear Roles

Although every franchisor needs the enthusiastic participation and feedback from franchisees on ideas, opportunities, what works and what doesn't, and so on, it is vital that both parties maintain the focus on their specific role in the business.

The franchisee's role can be defined as:

  • Run a profitable business
  • Grow a base of happy customers
  • Support the values of the brand
  • Hold the franchisor accountable
The franchisor has a different role:
  • Provide clear, positive leadership
  • Help franchisees achieve their goals
  • Monitor performance and standards
  • Protect the strategic position of the brand

This is often summed up as 'the franchisee's job is to work in the business, the franchisor's job is to work on the business.'

Creative Tension

The final 'must-do' is to accept and manage the inevitable creative tensions which occur in any franchise relationship. People have different expectations, assumptions and perceptions about things depending on their perspective - and because of their different roles, franchisors and franchisees are bound to come from different angles.

The result is tension - but the tension can be a creative one because it brings different sets of strengths to bear on any problem. As a result, the outcome should be more considered than it would have been if the problem were being seen only from one side.

Clever and successful franchisors use this tension as a means of driving their business, harnessing the energies it creates to produce better results for all. Of course a perfect outcome is not possible every time, but by using good consultation, having clarity on everyone's roles, and managing the creative tension, the franchise can be a living, breathing - and growing - business for all concerned. 

Summing Up

To sum up, the factors essential to franchise success are as follows:

Two businesses

Have a vision with specific goals

Ensure Structure follows strategy

Maintain closeness to advisers & suppliers

Understand needs of franchisees

Selection & management systems

Tirelessly innovate and manage change

Define roles of both parties

Open up decision-making process

See creative tensions as okay

And... be firm, fair and friendly in all your dealings.

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.


Greg Nathan is principal of Nathans Corporate Psychology and author of the book Profitable Partnerships. For more information and ideas on how to succeed in franchising, visit
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