Franchisee lawyer Richard Soloman suggests there may be watershed changes in franchising over the next 15-20 years in a post on BlueMauMau. It’s an interesting post from a lawyer who has seen many franchisees lose their life savings in franchise operations gone awry.
Some prospective franchisees reading Richard’s post may be surprised. Are the problems in franchising that serious? After all, isn’t it safer to own a franchise than an independent business? The answer is an emphatic NO!!!!! The fact is that franchise businesses fail at about the same rate as independent businesses. One could argue it’s even tougher to make a franchise work financially when you consider that franchisees are required to pay royalties, advertising and other fees even when the franchisee’s business is not profitable. The notion that franchises offer a proven system that will work for franchisees really isn’t the case in many circumstances. Many franchises are neither "proven" or a "system".
I agree that franchising could use some important changes over the next 15-20 years. A few things could make a big impact in my opinion:
- Uniform Franchise Laws. Franchising laws vary widely from state to state. Although it wouldn’t be easy to get all the stakeholders to agree, it would be helpful for franchisors and franchisees to have uniform franchise relationship laws so that everyone is operating under more predictable standards. I don’t think most franchise lawyers see this on the immediate horizon but it should happen in my view.
- Unprofitable Franchisees Should Be Permitted to Terminate. Should an unprofitable franchisee be forced to stay in business or pay lost royalties for the duration of the franchise agreement? I know that risk is inherent in business and franchisees are contractually bound. Not every franchisee will be successful and sometimes failures occur through no fault of the franchisor. But most often there is blame on both sides and franchisors should acknowledge their involvement (or lack of involvement) in unprofitable franchise locations. But my idea isn’t that franchisees get off scot-free. Instead, how about lawsuit immunity for franchisors that give franchisees the right to terminate unprofitable locations? It might just lead to a better team approach.
- Franchisors must actually be obligated to do something under the Franchise Agreement. I’ve read franchise agreements where the franchisor is essentially not obligated to do anything for the franchisee. In one recent franchise agreement I reviewed, everything the franchisor agreed to do for the franchisee was "in their discretion". Why should one party be obligated to do something when the other is not? Just getting the franchisee in business shouldn’t be enough for a franchisor.
Those are just a few things in my view that could level the playing field and make franchise opportunities better and safer investments for franchisees. Now I want to make it clear that I don’t view every franchisor as evil or bad. But many franchise-franchisee relationships could definitely benefit from a more even playing field. I also don’t see any these ideas occurring any time soon and I’m sure there are many franchise lawyers who think these ideas are bad anyway. Of course as George S. Patton said, "If everyone is thinking alike, then somebody isn’t thinking."