Many, if not most franchisors nurture their business with the ambition (and hope) of a future exit. There has gone considerable amounts of time and money into building a brand with the market, but even more so internally with franchisees.
The following article brings up some valid points and take-aways, but at the end of the day, any change has to be supported by clear, consistent and relevant information and communication. If there are even small discrepancies in what is internally communicated to different parts of your network in a process like this, expect chaos and mistrust. Check out some of our articles on these topics
How to hand over the reins of your franchise with care when it's acquired
When your franchise is being acquired, it’s important to make sure the transition is as smooth as possible for the network
Entrepreneurs in the franchise space dedicate a huge amount of energy to signing their first franchisee and growing their networks but just as important is considering your end game. In recent times, there have been many franchises achieving high-profile exits, with Countrywide Grounds Maintenance, Bright & Beautiful, Barking Mad, Home Instead Senior Care UK and Northwood all being snapped up in the last year alone. But while these kinds of exits give franchisors a much welcome chance to reap a reward for their hard work, they require careful planning to ensure the network doesn’t suffer during the transition.
It’s unlikely to provoke many gasps to hear that planning to sell your franchise isn’t something that just happens overnight. “You’re talking years,” says Stephen Hemsley, chairman of Franchise Brands, the multi-brand franchisor that owns Metro Rod, ChipsAway, Ovenclean and Barking Mad. “You can’t start planning three months before you leave.” However, the more heavily a franchisor is involved in the day-to-day running of the network, the more the complexity of planning their departure increases, as losing both its owner and the lynchpin of its leadership in short succession could have a devastating impact on a franchise. “You don’t want the franchisee community to be faced with a change of leader and then a change of owner,” Hemsley says. “So if a franchisor is very involved in recruiting, motivating and liaising with the franchise community, then planning their exit will take a lot longer.”
This is why it’s absolutely critical for any franchisor to ensure the right person is waiting in the wings for when they exit stage left. “You need some strong leadership so that whoever buys the business can continue to run it successfully,” says Jeff Meyers, VP of international operations at Dwyer Group, the multi-brand franchisor that owns franchise brands including Drain Doctor, Bright & Beautiful and Countrywide Grounds Maintenance. “They then won't have to go backwards in trying to replace key people or knowledge that has been lost.” Fortunately, it’s rare that many franchisors are the chief cook and bottle washer: they have a legion of experienced strategists and leaders in the making supporting them. And even if there’s nobody that fits the bill, the new owner may have an idea of where they can locate the right individual for the job. “If there is already a strong second that could be moved into that position, you’d probably look within the company first,” Meyers says. “If not then you’ve got to come into the acquisition with somebody in mind because you can’t have a lack of leadership for very long.”
However, maintaining continuity once the founder exits isn’t just about having someone to assume command: making sure that there won’t be significant upheaval in the people franchisees are dealing with at head office will also help keep any adjustment period to a minimum. “I’ve never come across a franchise yet that isn’t dependent on the head-office team,” says Hemsley. “And the most important people to have in place are the franchisee-facing team, whether that’s business development managers or trainers.” Conversely, franchisees are unlikely to have much regular interaction with back-office functions, meaning that introducing new faces in the finance department is unlikely to ruffle many feathers. “Marketing sits somewhere in the middle: if they’ve got a central national advertising fund and the franchisees are heavily involved in directing that, the people running that team are absolutely key,” Hemsley says. “If that’s not the case I would say it’s a skill set you can buy in.”
While talent and skills are important, a smooth transition from old owner to new also requires some simpatico when it comes to their ethics and culture. “The bond between franchisor and franchisee is amazing: family doesn’t quite do it justice,” says Meyers. “So most founders of the company want to ensure their children are going to be taken care of.” Ensuring that the franchise is being bought by someone that shares its values helps prevent a jarring culture clash between the existing network and the incoming owner and means franchisees will still feel right at home. But cultural compatibility will only go so far if it isn’t supported by a leadership style franchisees are used to. “Sometimes you’ll have very firm leaders that are very compliance orientated and then you have others that have a much softer approach, share more and show more concern,” Meyers says. “When franchises are used to one style and then get something else, that results in a long transition period.”
However, not every entrepreneur selling their business beats a swift exit: some stay on to help usher in a new age of growth, as is the case with Barking Mad’s Lee Dancy who struck a deal with Franchise Brands in order to take the business to the next level. However, while this means there are fewer wobbles around a lack of leadership or complementary cultures, it’s still important to ensure that the new owner and its current leader will be pulling in the same direction in the future. “If the vendor is staying with the business, there’s a lot of detail you need to agree beforehand or those things become subject to friction after,” says Hemsley. When Franchise Brands was striking a deal with Barking Mad, it inevitably had to thrash out details around marketing and franchisee recruitment. But given the former was based in Macclesfield and Kidderminster and the latter in the Lake District, a major condition of Dancy staying on was that her team was allowed to stay put. “It was fundamental to the deal that she was going to keep her people and the office,” Hemsley says.
And there doesn’t just need to be dialogue between the franchise and its potential owner: it’s also important for the franchise network to be part of the conversation, although it’s not a good idea to spill the beans that the company is being considered for a sale. “But you should do some sort of third-party survey of the franchisee to judge their happiness with the system and the opportunities they see for growth,” says Meyers. Once the sale has been agreed upon and announced to the network more personal dialogue can take place, allowing franchisees to get things off their chests and put forward any ideas to improve the network. “There’s a lot of panic there, there’s a lot of uncertainty, fright, fear of the unknown, all of those things,” says Meyers. “So open communications are so important. You have to get a full pulse of the network early on or you’re going to make bad decisions as you move forward.”
As a friendly, familiar face, the founder also has a pivotal role to play in talking franchisees’ through the transition. “Once the deal is done, it should be fundamental that the founder communicates very thoroughly and endorses the new owner as the right and proper owner of the business,” says Hemsley. While this can be quite a disruptive time for the network, it’s worth recognising that this allows the new owner the opportunity to act on some of the insight it has received from the franchisees. “Once they get over the initial shock of the founder leaving the business, they quickly move into ‘wow, I wonder what this new guy can do?” says Meyers. “They start to wonder if you’re going to fix all of the things that they perceive to be wrong.” Because of this, there is a short period in which an incoming owner can easily make much-needed tweaks to the franchise’s model, potentially winning a lot of favour with the network. “But that window doesn’t stay open for long,” he says. “So you’ve got to make some changes that are going to impact the franchisees positively, then you’ve got to quickly settle back down and focus on making smaller, more incremental improvements.”
While the sale of a franchise network seems like it could cause an awful lot of upheaval, with a little foresight and planning franchisors can ensure the transition is a positive experience for all involved.