As we have just surpassed our freshman year of franchise sales, and are on our way to opening the first franchise locations in 2019, I thought it would be great for us to reflect back from where we have come. We have learned so much from the point that we first analyzed the brand for franchise readiness until now. I would be remiss if I didn’t share some of these nuggets of learning. It could be valuable to other new franchise brands, brands contemplating franchising, as well as prospective franchisees.
If even a couple of people can take away some valuable pieces of information, then it is time well spent in an exercise of transparency and shared learning.
One of the things we are extremely grateful for as a franchise brand is the relationship that we have built with our franchise law firm, Manning Fulton. They have been there at our first analysis of franchise readiness, through franchise disclosure building, FTC compliance training, as well as providing ongoing counsel. Because of this, I thought it important to ask one of our franchise attorneys, Ritchie Taylor to weigh in on some of the bigger questions that emerging franchises should be thinking about. With more than 20 years of experience and in his leadership role on several IFA Membership and legal/legislative committees, he has been a consistent source of candid and grounding advice for our brand as well as some of the largest multi-unit franchises in the country.
What are three assessment questions every prospective franchisor should ask before starting down the path of incorporating and building their legal documentation?
Before deciding to franchise their business, a prospective franchisor should ask themselves:
- Do I have something unique or is this simply a me-too concept
- Do I have my business model sufficiently systemized so my franchisees can replicate it, and
- Am I prepared to launch and maintain two different businesses, which are operating my existing unit(s) and licensing my intellectual property to others as franchisees. If the answer is no to any of those, then they should question whether franchising their business is the right decision.
Ritchie is right on so many levels here. I would also add a franchisor or franchisee, you have to EXPECT that people will try to copy your model if it’s a good one. Your systems, manuals, training, strategic direction, leadership, and ultimately your execution of all these things will greatly determine how much of a differentiator that you are in your category of sales or services. I’m sure you can think of franchise restaurants right now, as examples, that are consistently well executed with copycat brands right behind them that just never seem to make that mark. You can’t fake a good thing and over time, brands suffer because they don’t maintain the standards they set out to stay true to. You see this in a tangible way when brands have to close multiple locations, retract on their fast-paced growth strategy because they didn’t keep that end game of standards in mind.
What are some common mistakes you see new franchisors make?
Not being completely committed to expanding through franchising and retaining the wrong counsel who lacks either the technical knowledge or the practical experience to guide them in building their brand. Just as you would hire an experienced Sherpa if you are hiking Mt. Everest, working with people who have been along the path you want to travel in business is just as essential.
When I thought about Ritchie’s response, it meant something more than just the decisions you make about your legal counsel, but also about any advisor or counsel you choose to partner with. We can attest personally to making some choices in our first year with marketing and sales counsel partners that were wrong fits for our brand. Looking back, there was a lot of learning and a lot of additional questions that we should have run down prior to retaining the counsel. As a new franchise, I think we were wearing rose-colored glasses when met with the years of experience or sales statistics for other brands that had worked with these companies. As I mentioned above, though, the relevance and alignment of your counsel to your brand and your goals is the most important piece that you should start from. If you design interview questions and your background research around this first, then you will be starting from the right place.
What makes a great franchisee?
The best franchisees:
- Investigate the system with their eyes wide open in an unemotional way
- Recognize franchising is about developing a cooperative relationship with the franchisor and other franchisees
- Even the best intentioned franchisors will make mistakes and aren’t perfect
- Everyone associated with the brand’s success is interrelated.
What are the most commonly litigated issues you have seen in the last 10 years and how does your firm design FDDs to assist with protecting franchisors with these issues?
The most commonly litigated provisions in a franchise disclosure would relate to financial performance representations also known as earnings claims, disclosure and use of advertising funds, and disclosures of cost information. Using our experience representing over 50 different brands in launching and growing their franchise system, we work with franchisors to try to address these common friction points on the front end both through proper disclosure and sound counsel to minimize these risks.
Early on in the process of designing our FDD with our counsel, we were made aware of the gravity of the information it contained and our responsibility for it. We take our integrity very seriously, and as a new franchise, it’s the foundation for what we will build on. Thus far, our franchisees and franchise candidates have told us that they appreciate that we are open about not having all the answers, but that we seek guidance and push for quick responses after doing our research.
What suite of services does Manning Fulton provide for franchisors and franchisees?
As one of the largest and most established franchise law practices in the Carolinas, we have represented over 50 franchisors and distribution networks in launching, expanding, and defending their franchise systems from emerging brands to some of the largest brands in their industries. Our full-service capabilities are unique for a mid-size law firm allowing us to deliver responsive, practical legal solutions at a competitive price compared to our peer group whether it is with franchise compliance, state registrations, or outsourced general counsel services. When representing franchisees, our firm assists franchisees ranging from single unit operators to large multi-unit franchisees with their legal due diligence in buying the franchise, ongoing legal issues associated with operation, equity and debt financing transactions, lease reviews, and merger and acquisition.
Franchising is no slouch business. We require our franchisees to be financially viable, have counsel or advisement in gap areas where they are less experienced in business and have a passion for the work that we do. Our franchisees are all this and more. We are looking forward to our next generation of Wake Foot Sanctuary franchisees showing off their skills!
This article was written by Melissa Long, CEO and Founder of Wake Foot Sanctuary.