Doc Franchise Writings and Ramblings

- A Compendium of Info For Franchisor and Franchisee - Ergo Certainly not Exhaustive

A few weeks ago I promised I would develop some thinking about the Franchise Disclosure Document (FDD) previously called the Uniform Franchise Offering Circular (UFOC). Let me clear the air about the FDD in a single sentence as it relates to how I feel about it: The FDD is a significant and important document.

Any franchise professional, franchise attorney, franchise company executive, franchise consultant...even franchisee should agree that it is a significant starting place in your understanding of the franchise you have under your review.

It is so important to me I would suggest you read 3 or 4 FDD's! More on this later.

Franchiser Key Point 1:If a franchise company has someone they believe to be a "hot" candidate and somehow the person drags their feet on the reading of the FDD, you should not shout for joy because they won't have to deal with the significant aspects of the business that might concern them once they are read and revealed. No, you should be concerned because they are taking are not facing up to A) the process of acquainting themselves properly with your concept and B) Operating by their gut which may or may not be in synch with your business model.

Now, to a thinking man, especially someone who revels in details and information, it would be unthinkable that someone would ignore this document. I am sure that it seems ridiculous, given the size of the investment, that anyone would just not pay attention to it.

But, the reason you read the FDD isn't why you might think. The Federal Trade Commission (FTC) does in fact (regardless of what they might otherwise state) evaluate and approve every document. In fact, if you read 4 or 5 of these you realize that 80-90% of the content is identical one to the next regardless of the kind of franchise or brand. Why? Because they all need the FTC's approval. A Simple way to do this is to make sure that the language used by previous approval's is part of your document.

Franchise Candidate Point: You don't read the FDD to determine how the franchise company is attempting to trick you. They're not. They gain nothing by tricking someone into a multi-year business relationship! You read it to understand that particular franchise companies nuances. The document has no legalese and is written in 5th grade English. You can or should be able to understand it.

Franchise candidate even when considering a highly recognized national branded franchise opportunity, you still need to read all the franchisor's documents carefully, yes, every single page. Because you need to understand your responsibilities to operate your business and there minimum level of commitment to train and support your efforts.

If there is anything about the franchise business opportunity that you do not understand (you may be new to the field or to a form of marketing, etc.) you need to have it explained to you by the franchising company (and they will) or a franchise consultant (always a good idea) or maybe a franchise attorney (But it's kind of silly to have someone explain what is written in 5th grade English then charge you $1000-$7500).

There is a huge difference between franchise business opportunities to invest in and, typically those differences show up in the unique business proposition of the operating systems and the expenses of a particular franchise offering. The 15% unique content you find in an FDD is found here and you need to understand it thoroughly.

Franchisee Candidate Point: The terms, conditions, financing, equipment, exclusive territories and price will surely be different, sometimes by extremely wide margins from one franchise to the next. You will find this information within the FDD.

Some words of caution to everyone.

Consultants: Do your job and understand, deeply, the concept of the FDD. You do not have to know every franchise FDD that you might be associated with; particularly those consulting firms that evaluate and have hundreds in their inventory. You do have to be able to talk a candidate through each of the 23 points of the FDD so they know what it means. You also need to have enough knowledge to help them understand why certain language is used, how it protects the system, a part of which they are considering becoming. Otherwise they get stuck in "Us vs. Them" mode and the document appears to be written with the company only in mind and not with the entirety of the franchise system.

Franchise Companies:Every year you have to "re-up" your agreement with the FTC and with the 13 (currently) unique registration states. Use this time to consider ways to simplify the language and create an agreement that has more possibilities to develop "win-win-win" scenarios (You, the franchisee, the end-user). Anything you can innovate that gives your system an opportunity to rise to a higher level of relationship and client concern (franchisee's and end-users are both your client) will provide you with energy and positive momentum. You might consider using representatives within the franchise system to do this. If you have questions about this give me a call. I can help.

Potential Franchisee or Franchisee Candidates The Franchise Disclosure Document is meant to provide you with information relating to:

1. The business of the franchise company

2. The operating system and how it works, is trained and supported

3. Your involvement, responsibilities and expectations

4. The investment and ongoing expenses related to the business in their entirety as understood today.

5. How the franchise company, (with the support and help of the FTC) is attempting to ensure the survival of the holistic and entire organization. Remember, today you are on the outside attempting to protect your right and reduce your risk. But one day you might be a part of the organization. Ask yourself, what rules and regulations do you want the next guy to have to follow so that your business, good name and reputation and ongoing reasonable expectation of success is not diminished?

One last note to those of you looking at franchise disclosure documents, remember 438,000 +/- franchisee's operate in the United States today. They all signed franchise agreements having had to review an FDD or similar document (UFOC). These are not all dumb people. Do yourself, the franchise company, and perhaps the consultant who represents you (especially the consultant) a favor. Do not make yourself look dumb. Don't try and talk anyone into the notion that this document is some evil, diabolical trick to destroy you and your family to the 5th generation. Along those same lines you need to know that no one, operating a franchise in the USA (or Canada) goes to their place of business each day and opens up the FDD, reads it, so they make sure they don't brake a rule. The document information is common sense people. Owning a franchise, regardless of what goofy thing you hear is simply another way of owning your own business. Only you and your crew can ensure your success because you are the ones daily who are on the firing lines. The FDD simply gives you the parameters within which to operate that potential success.

Make the FDD work for you but then put it on the shelf. You'll be opening it again about 6 months prior to deciding whether you wish to re-sign your agreement! And that will be 3, 5, 7, 10, 12 years down the line.

John is a 26-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at docfranchise@gmail.com. or direct office 480.838.1641

I recently got onto a plane, settled in with my computer case at hand, my ipod Touch at the ready - my Bose headset set up and my computer in my pre-planned position to swipe it out of said aforementioned case.

Then came the flight attendant.

He looked at me, grinned and asked if I would "be so kind" to switch seats with a husband who was needed by his wife so the two of them could keep their baby from exploding onto the passengers in and around where she was currently seated. Now, here I am. I am comfortable. I have perfected my environment. And this clown disrupts my mental zen. Further it will require some deliberate focus and nurturing to get me back on track once I have settled into my new digs.

This of course is a minor thing isn't it?

Imagine that same seat-swapping scenario occurring during a period of severe weather turbulence. Not only would you be anxious and feeling unstable in your current seat, you now have to collect yourself, mobilize without falling on your pa-toot with such concern related to spilling all over the passengers along the way and then get re-oriented in the new situation.

Organizationally change is usually difficult. It typically comes in the midst of failure and chaos. Change amidst instability is the worst. Yet many employees are feeling lost, anxious, hurt and confused lately as their companies reorganize, reallocate resources, cut costs and downsize staff.All the while, in the bigger picture, the economy searches for stabilization.

Franchisee's, are typically once-bitten victims of this kind of turmoil. Actually, many of them may have been bitten several times by downsizing or more generally, by being deeply and personally affected by change that caught them off guard in their previous careers.

It is then no wonder, now, at a time when they seem to have more control as business owners (often a significant reason they became business owners in the first place) when put into similar transitional scenarios in their franchise business, they resist strongly. They dig their heels in, shut their ears and just refuse change.

My experience also tells me that franchise organization must be better at forecasting and predicting change within the company and in the greater market than their corporate counterparts in business. This higher standard of expertise is something the franchisee, though it may be unspoken, is buying when he invests that fee into the franchise.

Franchises need to make a core competency out of looking at their current situation, considering options and executing on those well in advance of the changes needed. Franchise organizations, compared to companies that operate multi-unit/multi-regionally have many "owners." They have many decision makers and to get this distributed leadership onboard takes a significant communications effort. That effort must start sooner and create an atmosphere of listening, learning, hearing, training and teaching.

While we are at it, think of communication as the second core competency that every franchise desiring success must have or acquire. Period! Franchises must be communications experts.

If it typically is a 6-month ramp up time to changes required for a corporation then a franchise needs double that time. This time should be allowed for contemplation and preparation before transition can be deeply understood and welcomed. Occasionally changes are made under emergency circumstances. If this is the case, just know that success and acceptance is not likely to be 100% or even 75%. You will have to manage to another lower level of acceptance (and should you get better, because of your culture of trust then count it a blessing!)

To encourage employee buy-in, a executive I met recently shared how her company applied the "head, heart, hands" concept as an organizational imperative as they underwent some restructuring. I believe this kind of methodology is even more significantly exercised within a franchise since the cultures of franchises are so very personal (and the more personal the better in my estimation.)

Here's how it works:

Knowing that staff would find any change unsettling, the company's leadership created a unified plan to fully communicate and engage their teams before taking any action. Explaining all the logical and rational reasons for the change would enable staff to begin intellectually processing the information (head); acknowledging how the change would make employees feel before, during and after implementation would assuage their fear (heart); and outlining the tactical plan and ensuing goals would satisfy their need for action (hands).

Franchisers, remember, you have a very sensitive leadership team. They are your franchisees. They come in all shapes and sizes. They are however acutely concerned with change. Keep them abreast of unique opportunities or concerns in their area of concern (which includes the home office by the way.) Change, in our current climate may be inevitable but it does not have to be excruciatingly painful. Your leadership will make all the difference.

John is a 26-year professional in the franchise industry. He has been a franchisee, a franchise executive and an advocate/consultant to the public and to dozens of franchise companies. He is the founder and managing partner of Wilson Associates and can be reached at docfranchise@gmail.com. or direct office 480.838.1641