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Franchise lifecycle - a love hate relationship

I Love you, I don’t need you, I love you!

Every relationship has its struggles and its triumphs. These trials can be as difficult as they are rewarding. The relationship between a franchisee and a franchisor is no different. An oft-cited scientific paper(1) sought to understand overall franchisee satisfaction levels during the “lifecycle” of operating a franchise. While the paper is largely academic, it split the lifecycle into four distinct categories, each of which can serve as a valuable resource for anyone seeking to open a franchise or those who already have a franchise. Let’s explore the four lifecycle phases and dissect them a bit more.

Introduction Phase (3-12 months)

Think of the Introduction Phase as the “courting phase” between franchisee and franchisor. At this point in the relationship, both parties want to impress the other: the franchisee wants the franchisor to know that they have what it takes to run a successful operation and that they’re the right choice for the job. The franchisor, for their part, wants to let the franchisee know that they are there for them. It is in both parties’ interests to work to take the relationship into the next phase.

During this time, franchisees rely heavily upon the franchisor for support and information. The cited paper states that during this phase, 90% of franchisees are satisfied with the franchisor/franchisee relationship.

An important takeaway here is to understand the mutual need both franchisor and franchisee have for one another. Franchises are based on very reciprocal relationships: franchisees rely on the franchisor for brand name recognition, advertising, training, and a proven business model, and the franchisor relies upon franchisees to perpetuate the brand image to the consumer and uphold the brand principals. With a 90% satisfaction rate among franchisees during the Introduction Phase, the relationship is ready to evolve to the Growth Phase.

Growth Phase (1-2 years)

Once the ink has dried on the contract, the franchisee and franchisor begin in earnest to find the ideal location for the franchise (point of distribution). This process has the potential to bring a bit of strife into the relationship if the franchisee and franchisor have different ideas as to where the franchise location should be. Franchisors, though, have swaths of research and data that they bring to the table when making these decisions.

The Growth Phase is also a time when the knowledge and skills necessary to run a successful franchise are passed from the franchisor to the franchisee. Like the Introduction Phase, the franchisee is heavily reliant upon the franchisor for their knowledge of the business and understanding of important policies and procedures.

During this phase, some franchisees are caught off guard when they are asked to begin making the monthly franchise fee payments. In most cases, this isn’t a problem since the fee amounts, timing of payments, and other similar details should have been discussed during the contract phase. Understandably, as the franchisee begins making royalty payments franchisee satisfaction during this phase drops from 90% to 78%.

While franchisee satisfaction takes a hit during the Growth Phase, franchisees still have a lot to learn from franchisors, and they should use this opportunity to strengthen the bond and relationship with their franchisor if they experience doubt or frustration.

Mature Phase (2+ years)

At this stage of the franchise lifescycle, franchisees have the lay of the land, and they’re much more comfortable running their franchise. For some, this level of comfort causes deviation from the franchisor’s required procedures, which can lead to some tension between franchisees and franchisors. From the franchisee’s perspective, they know what they’re doing, and they have the successful franchise to show for it. On the other hand, the franchisor is frustrated because they invest time and resources into the brand with the expectation that franchisees follow the rules for optimal brand success.

This can be a particularly tough phase for both franchisee and franchisor. Research indicates that only 70% of franchisees are satisfied in the franchisee/franchisor relationship at this point. In many cases, a franchisee has been running her business successfully for a few years, and may forget the level of training and support needed to get to where she is today. As such, some franchisees experience a feeling of having achieved their success solely on their own, whereas franchisors credit much of a franchisee’s success to the ongoing support and resources given to them.

At this phase, communication is key. By openly and clearly communicating with one another, franchisees and franchisors can avoid further relationship deterioration. In fact, up to this point both parties have invested heavily in one another and overcoming these difficult times together (just like a marriage making it through tough times) can really strengthen the relationship  and allow both to prosper in the coming years.

Decline Phase

Once franchisees make it past the Mature Phase, there is a phase that is referred to as the “Decline Phase.” Similar to the Mature Phase, this is a time of major transition for the franchisee and the franchisor. The franchisee has (presumably) had several years of success under her belt and may be feeling the need to be a bit more independent. At this point, the franchisee satisfaction level is at its lowest level, just 56%.

This is clearly much lower than at any other point in the franchisee/franchisor relationship. However, it is important to note that there is light at the end of this trying time. Considering this is the last “phase” in the lifecycle, the next step in a successful franchisee/franchisor relationship is contract renewal. Often by this time (especially if the brand was newish when the franchisee invested) there may have been improvements made to unit economics, additional revenue lines have been rolled out, advertising and systems have been tweaked and improved – and if there is a franchise advisory council the relationship between Zor and Zee should be working well. Of course, disasters happen and sometimes the exact opposite occurs.  But in most cases at renewal, once again, both parties are back to the  “Courting” phase, and satisfaction rates climb back to the higher levels.

Anyone who tells you owning and operating a franchise is easy has never done it before. Any honest franchisee will tell you that the process is fraught with stress, anxiety, and yes, even disillusionment from time to time. However, the successful franchisee will also tell you that those feelings are common in any business, and by running a franchise, you can more easily become a successful business owner with a strong partnership with the franchisor and fellow franchisees. Perseverance is key when running a franchise, and good things come to those who wait.

Understanding what awaits you when you invest in a franchise is one of the most important educational lessons you can learn. To learn more about what it is really like to own and operate a franchise, we  put together this eBook to help you continue your education into the world of franchising. Start asking the questions and find out if Your Franchise is Waiting.

(1)  Gerhad van Wyk and Johan de Jager, “Franchisees’ Level of Satisfaction with the Franchise Relationship,” Acta Commercii; Vol 9, No 1 (2009), 119-128.

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