The Value of Conflict

Bob McDevitt

Date

Aug 15, 2016

For 20 years I worked for a guy who often said, “If two people in business agree on everything, one of them is unnecessary”.   It was his way of saying that he wanted his team to express a different opinion if you had one.  It’s one of the inherent advantages of the franchise model; people with different backgrounds and talents working together towards a common goal will almost certainly look at ideas and business challenges differently.

Conflict is valuable.  Disagreement and friction about direction give the franchisor reason and incentive to demonstrate to the franchisees that the system direction benefits both the brand and the unit level economics.  Unless both of these are in sync, the system won’t prosper. There are plenty of examples of systems that failed or almost did, two come to mind in the restaurant space I live in.

The collapse of Boston Market was driven by a system focus on brand growth without paying enough attention to the unit level economics.  In the early to mid-1990’s the steady stream of development fees and the early royalty income made the system seem like a sure bet from the outside. But as restaurants opened and franchisees began to rely on cash flow and unit level profit the picture changed and franchisees began to fail as sales tumbled.   In 1998 the company filed for Chapter 11 bankruptcy. 

It’s not a simple story and can’t be told entirely in one paragraph. But it’s a clear case of not enough challenge to the business model and too much focus on system vs. unit economics.  There were franchisees involved in this story but they were large and well financed, at least in the early stages, and were too willing to wait for the unit success to come. It never did.

A more recent example is Chipotle.  Chipotle is not a franchised concept but if it had been I don’t believe they would have gotten themselves into the mess they are in. Franchisees, by their nature, are willing to confront the franchisor on issues of trust and confidence.  Chipotle’s very brand identity was built on locally sourced “food with integrity”.  Franchisees would have easily seen the potential problem created with a concept built on a promise that was not being fulfilled, it apparently never was.  

On the positive side, Popeye’s Chicken has been completely repositioned to Popeye’s Louisiana Kitchen with significant input from their franchise community. Sales and unit level profits have increased dramatically.  Talk about conflict: there was a completed remodel plan presented to the franchise Advisory Council that the FAC just didn’t like for basic cost and design reasons.  The company, headed by Cheryl Bachelder, elected to start over and incorporate more of the franchise input.  The revised remodel was a big part of the turnaround. 

There are others…think Denny’s and Arby’s, both legacy concepts bucking the current negative restaurant industry sales trends after revising their strategy with significant input, and not a little friction, from their franchisees.

If you are looking at a franchise concept to be a part of: 
  • Inquire about the franchise involvement in the decision making process.  Ask questions of the franchisor and of current franchisees of the concept.  Are they committed to brand growth and unit level economics?  
  • Does the company operate any of their own concept or are they just growing the brand?
  • Pay close attention to the unit level economics in the FDD and ask the franchisees about their performance.
Conflict isn’t always fun but it creates sparks that start creative fires.  If you don’t agree with the direction or have better idea or saw somebody else’s better idea, speak up, that’s one of the values of franchising.

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