January 2014 Archives

Franchisors often need to coordinate actions across the franchise community.  

Get buy-in for a new business plan or direction, which while permitted by the franchise agreement, requires more than a mere majority vote to work.

This is the greatest source of value in a franchise system - the ability to coordinate actions that produce or create value.  The business equivalent of the Marching Band - another unique "Made in U.S.A invention".

But having a good idea, if adopted by many operators, and getting many of those operators to try it out are not the same.  Many operators will rightly fear that enough of them will sign on, and so not enough them do sign on - a self-defeating prophecy.

You need a buy-in strategy - a thoughtful set of responses to the objections you know you will hear.  You know you will hear these objections because you have heard them before.

Sometime, you will be in front of your franchise owners explaining both the business problem & your idea for a solution.

There are (3) general ways a group could derail your good idea - even when lots of them think it is worth trying.

1.  The group could deny the existence of the busines problem.

2.  The group could accept that there is a problem, but deny your idea is a good solution.

3.  The group could accept your definition of the problem, concede that your idea is a good one, but insist it won't "work here and now".  We are a special case.

Sometimes, you will hear words and you won't be sure  of what type of objection you are facing.

For example, the words "We don't have budget for that" could be any one of the three objections.

Before responding, stop and make your attacker explain the concern:  No problem, not a solution, or won't work here.

Sometimes a common type 2 objection runs like this.  "While we agree that there is a problem, your idea is untenable.  It's a chicken and egg problem."

The attacker means to use this old philosophical paradox as a way of saying your solution is impossible.

It is easiest to point out that: We have an abundance of both chickens and eggs, and nobody now cares how that came about.

The attacker may press on.  "But, for your solution to work we need to get more franchises doing X before it becomes profitable.  And just not enough are going to buy-in.  So, your good idea is dead in the water."

You can anticipate this type of attack with a good story about how your Franchise Convention grew, from its humble beginnings.

"Remember, we only had a few stalwart franchise owners who could be counted on to join a regional meeting.  

This attracted only a couple of vendors.  In fact, only the bottling guys showed up.  But, they showed up with a patronage check.

Next regional meeting, we had a few more curious franchise operators - wondering where their check was.

This larger group of franchise operators attracted more curious vendors - who wanted to both sell their products/services, and have a chance to educate you on how to use their products /services.

Remember how the other regions got mad & demanded their own regional shows?  Then, how we "had to have" an annual show - with more than 80 vendors paying, and drawing over 600 franchise operators interested in attending & buying?"

The story show explain that chicken & egg problems do get solved.  That you have solved them before & everyone should have enough faith on this one to go foward.  Systemic change managed.

(Source of Idea - Buy-In: Saving Your Good Idea from Getting Shot Down, Objection 8)

The franchisor must furnish its FDD to a prospect whenever the prospect reasonably requests it. If you merely represent the franchisor and do not handle disclosure directly, you must communicate the request to the franchisor. The franchisor then must fulfill the request.

A request from a person who has not yet qualified and been accepted as a prospect does not trigger this step. Only a request from a bona fide prospect triggers it.

The purpose of the step is to permit the prospect to obtain and review the FDD before incurring significant costs to investigate the franchise or travel to the franchisor's office. Therefore, the franchisor may not refuse to furnish the FDD until, for example, the prospect attends discovery day.'

The FTC franchise rule does not require a request to be in writing, and does not say how quickly an FDD must be furnished after it is requested. Presumably, most prospects will make requests by telephone or in emails. You and the franchisor must establish and maintain a system for recording and responding promptly to these requests.

The FTC franchise rule assumes a prompt response, but permits some flexibility based on extenuating circumstances such as a poorly timed request (for example, a request made late on Friday afternoon) or a request made when the FDD is being updated.

If a request is made when the FDD is being updated because of a "material change" (see "Step 9: Re-Disclosure If 'Material Change' Occurs" below), you or the franchisor may respond that the FDD is being updated and will be furnished after it is updated or registered.

The FTC franchise rule permits you to furnish the FDD directly to the prospect or to a representative of the prospect, such as a partner, owner, officer, employee, agent, lawyer or accountant.

Some states may not permit you to accomplish disclosure by merely furnishing the FDD to a representative.

Check with the franchisor's lawyer or compliance manager.

You are not required to furnish an FDD in the particular format requested by a prospect. However, if the prospect refuses to accept delivery of an FDD because of its format, you may not make a franchise offer or sale to that prospect.

Neither you nor the franchisor may charge any fee in connection with a prospect's right to receive an FDD whenever he or she reasonably requests it.

(This was the fifth post in a series of 11 posts on making compliant franchise sales.)

If you would like all 11 of these tips in a bound book, for a handy desk reference, why not click here & sign up for the Franchise Seller's Handbook.

Flee, freeze or fight are the 3 known animal brain responses to danger.

1. Zebras flee from lions.

2. Deer freeze when facing danger.

3. Yet, crocodiles fight for their food.

All of three responses involve spending energy, or in business terms - money.

How you respond to danger is a matter of both personality and tactics.

A different sort of problem faces us when we run into difficulty, trouble or an obstacle in our business - expanding our business, growing sales, or keeping our customers.

We have different tactical choices - beyond flee, freeze or fight.

We can try to fake-out our adversary who can spend more money and energy to stop us.

Fake-outs are well known in war.

Facing an enemy of even roughly the same size, it becomes dangerous and too bloody to go through them.

Even facing smaller forces -with their backs to the wall- can be trouble: the Texans at Alamo and the Greeks holding off the Persians at the Thermopylae pass.

When an adversary is truly committed to defending a position, has dug in, with no good escape route, successful armies have chosen to fake-out the enemy. Pretend to engage, bypass, and have the enemy waste or expend its supply line.

The early Scottish had an advanced fake-out strategy. With their bagpipes blaring from miles away, the Scots marched into battle promising great fierceness, yet from far enough way that some the enemy could slip away. Enough slipped away and the battle was won without a fight.

We see remnants of this advanced fake-out strategy when a franchisor announces a new multi-unit deal or some international expansion.

They are announcing from afar that they intend to occupy the field very soon and that the independents would be better off selling, shutting down or moving on. Keep this in mind the next time you see this type of announcement.

What are you revealing about your own company's intentions with your announcements? Are you credible?

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No one doubts that the interest of the individual is not the same interest of the group the individual is part of. Stars on teams, athletic or management, have special troubles aligning their interest with the team's goal. Even more so, when their team is unlikely to succeed at achieving the team goal.

The star may, despite being nominated as the leader, put his own goals ahead of the team's goal -bringing about a poor team performance.

Seeing how "lousy" the team is, the leader may be even more emboldened to put his interests ahead of the teams because team performance is so lousy.

Soon, team performance completely unravels.

Can you tell in advance which leader will fail to be effective?

Fail not because they are not talented, but fail because his followers don't believe that the leader believes that he can effectively discipline the "lousy" group to act as a unit?

Training Exercise

Here is a short exercise to determine how effective a leader is when confronting this problem - how to form coalitions when trust is needed to overcome skepticism.

This is a simple Simon Says task. The team and individuals gets points for following you. You win by getting the most points. But people also get more points if they accurately predict that the small group will not form a coalition, and ignore you. (This exercise is based on an exercise by Gerald Williams, the "Win as Much as You Can Game." Thomas Schelling analyzed a similar problem with his multi-person social dilemma games.)

The task is easy to describe. You have to get people, 3 on your team, to follow your commands, but your interests are not completely aligned with your team's interests.

You can utter one of two commands, "Left" or "Right". If you say "Left", the team wins if they all follow and say "Left". The entire team, including the Leader, wins one point. But, if you say "Left" and some other people say "Right", then you are penalized, along with your followers who also said "Left".

If you say "Right", however, only those who say "Right" win and those who say "Left" lose. But there is a catch: this time, if the entire team says "Right", then they all lose, including you.

To allow for learning, cooperation, and communication, play ten rounds of the game. Have a 5 minute discussion at round 3, 6, and 9. Otherwise, play in without overt communication. Limit the time in each of these rounds to 30 seconds.

The individual with the highest highest score wins the game, whether the team leader has the highest score doesn't matter.

Payoffs for the Game

Here is a chart which summarizes the exercise in terms of outcomes and pay-offs.

Are You an Effective Team Leader?

(As an exercise, play a couple hands, using ordinary playing cards to get feel for what happens. Pick 4 red cards, for "Right", and 4 black cards for "Left".)

The game starts off with everyone making a guess about what you and the others will do.

How can you be an effective team leader in this simple game? You want a high or the highest score - but how can you achieve this?

A good and effective leader will get everyone to say "Left", even though some people will be better off by saying "Right". Can you hold your group together? Or will some just pretend to follow?

Achieving Disicpline

How would you turn this group of individuals into a disciplined group that would play only four Lefts?

Suppose that you started out by saying "Left" yet not everyone guessed this. How would you persuade those in the Right to give up their gains? How could they credibly commit to giving up future gains on future plays? How could they do this before the communication round?

What if you started with saying "Right" and found out that one other person guessed "Right" and two others guessed wrong. You would get 2, the other Right person would get 2, while each of the players who guessed "Left" would lose 2.

What would you expect on Round 2? Likely, those who lost would switch their strategy. It is reasonable that everyone would now play "Right" and each team member would lose 1.

It is reasonable, but if as team leader you could coordinate everyone on 4 Lefts, then each person would win 1. Can you do that? Can you do that after winning 2 from each Left on the first round? Can you do it without communicating with them, until the third round?

Now, let's make it harder - reward the team leader with an big bonus at the selected times, rounds, 3, 6, and 9, if he or she can get the group to say "Left" while he or she alone says "Right". Increase the size of that bonus - to reflect the "talent" of the team leader on the bonus round.

Will the group stay disciplined, or will it grow resentful? Will your followers expect you to eventually say "Right" and so "protect" themselves by guessing "Right" before you do? If everyone says "Right" on one round, who is going to say "Left" on the next round?

Try this exercise at your next franchise convention - see who can and who cannot effectively discipline the group. You might be surprised with the results. It would be very telling if none of the franchisor's C-Suite were effective leaders in this simple discipline game.

If your franchisor executives cannot lead in this simple game, then how are they doing in the real world?

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Sometimes a franchisor wants to pay a franchisee for helping sell a franchise.

But there are many potential problems, here. I want to point out just one and its solution.

Before furnishing an FDD to a prospect, you must confirm that both receipts at the end of the FDD identify all "franchise sellers" who have been or will be involved in offering the franchise to the prospect.

The receipts must state the franchise sellers' names, business addresses and business telephone numbers. Or, the receipts may refer to an exhibit containing the franchise sellers' names and contact information.

The meaning of the term "franchise sellers" is narrow for this purpose. The FTC wants the receipts to identify the persons who have been or will be dealing directly with the prospect, including key officers or employees and any broker. The FTC does not want the receipts to identify all persons who arguably might be franchise sellers in a broad sense, or to cross-reference lists of brokers or other persons who might sometimes represent the franchisor.

A few key persons who are involved in all or most franchise offers and sales for the franchisor may be pre-identified on all receipts. Other persons, such as brokers who deal occasionally with the franchisor's prospects, must be identified in typing or handwriting on the receipts, on a prospect-by-prospect basis.

Any person who, under a contract, will receive a sales commission or quota credit if a franchise is sold to the prospect must be identified.

This may be difficult to keep track of. What should be done if a franchise seller not identified on the receipts becomes involved with the prospect after disclosure has occurred?

When this happens, you or the franchisor must revise the dated and signed receipt previously obtained from the prospect so that the receipt identifies the new franchise seller, and must furnish a copy of the revised receipt to the prospect.

Revising the receipt may involve merely making a copy of the receipt with the new franchise seller's business card shown on the receipt or with information about the new franchise seller handwritten on the receipt. You and the franchisor are not required to have the prospect re-date or re-sign the receipt.

The cost of violating the FTC rule is $11,000 per occurrence per day.

The are a number of other risks when paying for franchisees to validate the franchisor's concept. Be sure to review your entire selling process with a franchise attorney with compliance expertise.

(This was the fourth post in a series of 11 posts on making compliant franchise sales.)

If you would like to know if you can franchise your business, connect with me on LinkedIn and give me a call.

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