Franchisors move through phases of growth, development, maturity and in some cases, decline.
This is the same lifecycle for most businesses (including franchisees), however the nature of franchising and the resources available to a franchise business network to plan a sustainable offering is usually able to ensure the ongoing relevance of the franchise brand and franchise business model, effectively extending the franchise lifecycle and providing longevity in the market.
Franchisors however are not immune from failure and can move through all stages of their business lifecycle including decline and failure, in the same manner as any non-franchised business.
The most dangerous stages in the business lifecycle are the start-up and growth stages. These are where any new businesses, franchised or otherwise, are most vulnerable.
For franchisees during this early phase, the support provided by the franchisor, the strength of the franchise business model, brand, marketing and operating systems all help to provide stability and security to see the franchisee through.
Franchisors on the other hand, do not have the same support available to them as they grow and develop, and potentially are more vulnerable to business failures in their early days, and often prior to, or just shortly after franchising has commenced.
The support provided by the franchisor to the franchisee makes a big difference to the franchisee’s own life cycle.
High levels of support early in the franchise relationship will accelerate a franchisee’s growth and facilitate their early maturation.
Similarly, support provided by franchisees to one another add strength to the franchise business network and also assist in the early maturation of each other’s franchise businesses.
Franchisors usually find the nature of support provided to a franchisee during the course of their lifecycle in the franchise business changes from highly technical and operationally focused at the start, to management, financial and marketing expertise as the franchisee matures.
Extending the Franchisee Lifecycle
Due to the limited period over which a franchise operates, franchisees are able to extend their lifecycle by committing to additional terms.
Renewing a franchise agreement, and therefore extending the franchise business lifecycle, is a conditional grant.
Franchisors and franchisees must agree on the basis of new franchise agreements term in advance, however if the relationship is mutually acceptable to both parties, it is more likely than not to continue.
Exiting the Franchise Business
As well as extending their franchise business lifecycle, franchisees can also choose to exit (usually by selling), which under new management provides the franchise business with a further extension of its lifecyle.
Once franchisees have exited the franchise business, the relationship with the franchisor need not end there.
In Australia and other parts of the world, franchisors are required to maintain a list of contact details of past franchisees as part of the disclosure document information given to potential new franchisees.
This requirement to provide contact details of former franchisees should encourage franchisors to consider the nature of what ongoing relationship is appropriate to maintain goodwill with former franchisees.