New disclosure requirements give power to past franchisees

Past franchisees have a lot to offer the system – and changes to the code’s disclosure provisions may be the positive filip the model needed.

Changes to the disclosure provisions of the Franchising Code of Conduct, which come into affect from 1 March, should have franchisors rethinking how they deal with former franchisees.

Under the new provisions, franchisors will be required to disclose a list of former franchisees, and their contact details (subject to privacy considerations for individuals) for the last three years.

The impact of this additional disclosure requirement can have a profound effect on the future success of a franchise brand. But in itself, this is not necessarily a bad thing.

Most discussion about the changes to the code have been centred around the cost or effort required to comply and update documents, but little has been said about introducing management practices that are conducive to maintaining positive relationships with former franchisees, who from 1 March will have the ability to influence potential new franchisees.

There is an old cliché about franchising that compares it to a marriage. However differences between a franchise relationship and a marriage are stark.

The franchise relationship is highly documented and defined by the franchise agreement and system operations manuals, whereas a marriage is based on a few short vows. Moreover, marriage is still a “till death us do part” arrangement (even if more than 30% now end in divorce), but franchising has always been a “marriage”’ which exists for a defined period of time, and subject to both parties holding up their end of the deal along the way.

The point is that when a franchise ends through a term coming to a close and not being renewed, or through a franchisee selling-up and moving on to something else, the relationship need not come to an abrupt end. Anyone who has dedicated several years of their life to running a business under the brand and systems of a franchisor will still be engaged by the brand, even if they are no longer part of it. So what then, are franchisors doing to maintain that engagement by past franchisees?

For many franchisors focused on growing their networks, this question remains unanswered. Alternatively it goes in the “too-hard” basket perhaps because non-compliant, underperforming or unprofitable franchisees have made the franchisor’s life difficult during the relationship when the two parties had to work together – and after the relationship the franchisor is relieved just to be left alone.

But rather than neglect past franchisees, franchisors should seek to actively maintain an involvement, through an alumni (for want of a better term), the purpose of which is to allow franchisees to continue to enjoy their association with the brand, as well as each other, and act as mentors for new franchisees.

This can also provide more strategic and objective franchisee-centric input to the system’s development. In such an alumni environment, a past franchisee could well be elected to a system’s internal franchise advisory council, marketing committee or both.

There would be many other ways that franchisors could engage with and harness the energy and passion of past franchisees, if they really put their mind to it – and perhaps this change to the code is the catalyst that was needed.

A past franchisee has more power than ever before to affect the future growth and expansion of a system by positively or negatively influencing the perceptions of future franchisees. Recognition of this represents great opportunities – and some challenges – to the sector that astute franchisors will embrace.

Jason Gehrke has a passion for franchising. He has been involved in the sector for 17 years as a franchisee, a franchisor, provided PR and marketing services to more than 30 leading Australian franchise systems, and presented to literally thousands of potential franchisees and franchisors over the years. He is a director of the consultancy Franchise Advisory Centre and is the immediate past CEO of automotive paint and plastic repair franchise, Kwik Fix International, a 2004 Australian Franchise System of the Year winner.

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