Negotiation and the Franchise Relationship

A fellow named Herb Cohen, put it this way, "If you want to persuade people, show the immediate relevance and value of what you're saying in terms of their needs and desires… Successful collaborative negotiation lies in finding out what the other side really wants and showing them a way to get it, while you get what you want." Indeed, and so relative to franchising.

In franchising we must play by the rules. From the original franchise contract to renewals, the rules are specified within the agreement between the franchisor and the franchisee. However, there are times these topics could be negotiable, considering the new normal economy.

I learned from some of the best hagglers in the world after working for 10 years on Capitol Hill in Washington, D.C. We have all met rascals who, in a fifty-fifty proposition, insist on getting the hyphen, too. In franchising we strive for what is considered fair, just, and equitable for all parties involved in the legal concurrence.

Good franchisors are interested in franchisees' ideas, and franchisees are interested in the range of experience franchisors bring to them. Neither side needs to cheat or bend their values, or regulations, to succeed in business through franchising. As with playing a game, it's not really fun to win by breaking the rules. So, who of us dares to win?

In the business of franchising, one can still beat the competition, stick with what they believe in, follow the rules of the contract, and prevail without being deceitful. Each must know the rules, understand them, be willing to accept or question the rules, and challenge for change, while advancing the system.

That is specifically the motivation to develop a sturdy contract. It helps illuminate the way to understanding and success. But, before a potential franchisee forces a discussion to the point of an argument with the franchisor, he or she should take a good look at all sides, their side, and perhaps, the outside. This brand or industry may not be for them. Inevitably, the franchisor will always have the final word, and that tends to protect the other franchisees already part of the branded system.

Some potential franchisees may fear that they will be required to conform to an overpowering, intimidating corporate system that the franchisor has established. This kind of pressure, of course, exists to some degree in all organizations in business and social life. Without it in franchising, we could not protect the validated value of the brand, the trademark, and the rich history of a product or service. The franchisor could lose the quality, consistency, or the existing other franchisee's investments within the system. Efficiency dictates such rules, and devoid of them, no franchise chain could stay organized or fulfill the contractual agreement. Remember, leadership is from the front.

Talking, good old fashioned communications, is a natural way of doing business. It generates innovative, fresh ideas. If a franchisee has an opinion, a proposition, a proposal that would alter the franchise contract, or anything about which he or she feels very strongly, my suggestion is: speak up. Not all franchisors will listen. They are getting better at this accommodation. If one doesn't ask the questions, one may never know what they can get.

Nothing is more difficult, and, therefore, more precious than the ability to make one's own decision, one of our prime personal freedoms. Franchisees always hold that card. They can choose not to buy into a system, a culture, a brand, but rather to take their money, their will to work and to succeed, and go elsewhere. In my studied opinion, that should happen more often than not in franchising. Comparison shopping is a healthy tenet in life.

From the franchisor's perspective, they must figure out in advance what the potential franchisee investor really wants out of this relationship. At what point will the franchisee sign the agreement and still feel as if he or she is coming away with a good deal? This is much different from, "How far can we push them?" Many times a negotiator can push someone to the wall and still reach an agreement, but the resentment will haunt that relationship for the term of the relationship. In this case, nobody wins, all lose.

As with all binding accords of legal consequences, it is imperative to consider that the big print giveth and the small print taketh away. Prospective franchisees must read the contract in full, every word, and understand it. Knowledge is what one gets from reading the small print in an agreement, and experience is what one gets from not reading it. Always seek counsel.

During my 32 years in franchising, I have found that the first-rate franchisors will try to surround themselves with strong, driven, ever inquiring franchisees, while conveying new ideas for the system to improve during the contractual agreement. The second-rate franchisors will surround themselves with second-rate franchisees that will persistently change the system, bend the rules to their perceived needs, and even skimp on the royalties, with no discussion involved. The third-rate franchisors will surround themselves with anyone who can pay the franchise fee and who really doesn't care to remember the rules. These franchisees are the ones who will say that they agree with the contract in principle when they truly mean they haven't the slightest intention of carrying it out in practice. They sense they know more than the franchisor ever will.

President Abraham Lincoln once declared, "When I am getting ready to reason with a man I spend one-third of my time thinking about myself and what I am going to say, and two-thirds thinking about him and what he is going to say."

We all need to listen better, and, on occasion, put ourselves in the other person's billet. Do we really understand what someone wants? Have we tried to accommodate his or her request? Is it possible to do more than expected, yet keep the deal in place while providing for a fair relationship built on mutually rewarding growth and development?

My experience is that most franchisors will listen if the franchisee makes a good point and can defend his or her position with a sturdy argument. One must be within the realm of acceptable business practice, and, of course economically balanced. In other words, the proposal should make sense to the franchisor and be equally worthwhile to the system. After all, the franchisor wants to promote the brand, and the new franchisee is the proverbial engine that pulls that train.

A franchisee with average ability, good discipline, a definite goal, a clear conception of how that goal can be gained, and the power of application along with labor, will succeed. This is the pentacle of a franchisee model. The franchisor must also be willing to be there through the entire contractual process, pulling together. Training should be a lifelong course administered by the franchisor, while conveying new market products, services, and procedures to constantly improve the bottom line.

Considering the myriad of possible consequences, one can view the art of franchise negotiations not so much as a case of crafty maneuvering but as one tempered with common sense. As Mitchell's song goes, "Something's lost but something's gained in living every day." After these many years in the business of franchising, I frankly do see both sides more clearly now. And, I endure to sponsor the good things franchising generates for both sides within the franchise agreement.


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This article was written for The Franchise Handbook and is reprinted here with permission.