New York Franchise Law Blog : Franchise Lawyer & Attorney Charles N. Internicola, Providing National Representation of Franchisees and Franchisors

For both (a) franchisees deciding on the right franchise investment and (b) franchisors establishing a solid franchise system, the right "mindset" is critical.  That is, it is critical that your understanding of franchise opportunities and franchise systems go beyond the generalized and  involve a  detailed understanding and evaluation of the overall mindset that a successful franchisor brings to the table. Reflecting on "some" of the critical points that my clients have raised over the years, the following is my take on some of the factors that you (whether a prospective franchisee or franchisor) should be considering in evaluating a "franchisor's mindset":

• Focus on Franchisee Training is Paramount - Smart franchisors, that is franchisors that are focused on the "long-term" are focused franchisee training.  That is, the long-term road to franchise growth and the development of a valuable franchise system must be premised on the consistent development and training of its franchisees and not just a quick sale of a franchise unit.  Is the franchisor focused on evaluating franchisee qualifications and and developing systems for for both initial and on-going training?  

• Franchise Growth Must be Planned and Controlled - Somewhat related toward a franchisor's "training mindset" is the franchisors "mindset toward growth".  Franchise systems that grow to "fast" (i.e., at a rate that is not readily supported by expanded training, system development and market evaluation) are bound to fail.  Is the franchisor focused on controlled growth and growth that takes place only after developing the necessary support and brand development systems?

• Product Development must be Ongoing - One of the primary advantages of becoming a franchisee (in the right franchise system) is leveraging off of the franchisors centralized efforts in constantly developing, refining and improving the products and services that its franchisees offer.  Product and brand development is a constant and on-going process and is critical to the continuing success of a franchise system. Is the franchisor focused on systems and a  process that continuously reinforces and refines its brand and the products and services offered to its customers.

There are many, many more points and steps that successful franchisors follow.  However, key to every franchise is a franchisor and franchise management team that approaches each day with a "mindset" focused on controlled growth, franchisee development and product development.

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Short Answer:  Avoid lawsuits.  That is, work on and establish with your legal counsel "legal systems and procedures" that is designed to avoid unnecessary litigation. (Slightly longer answer follows)

While the advice that I am offering here may sound obvious and, possibly, even a little self-serving, it is nevertheless an honest and critical point that far too many franchisors and business owners overlook.  That is, in most (but not all) litigation once your are involved (either as a plaintiff or defendant) the advantages and benefits that may or may not stem from the outcome of the litigation will, many times, be outweighed by:

(a) the legal fees that you will incur,

(b) lost productivity associated with your focus on the lawsuit (as opposed to building your franchise systems), and

(c) the uncertainty that is inherent in all litigation - no matter how strong your case is.  

Faced with the inherent costs in all litigation, the best course of action for both start-up and established franchisors is to establish with your legal counsel open channels of communication focused on cutting-down and mitigating your "litigation exposure".  That is, in addition to the critically important task of managing your regulatory requirements and disclosures as a franchisor, you must discuss and establish with your legal counsel a fair and flexible relationship and system focused on the management and monitoring of your day-to-day legal activities. Some of these activities should include:

(a) The review of vendor agreements,

(b) The establishment of standardized franchisee communications and compliance notices;

(c) The quarterly evaluation and review of your trademarks and the filing of supplemental trademark applications and affidavits;

(d) The establishment and maintenance of a specified and well documented "encroachment policy" respecting the grant of additional franchises;

(e) The establishment of a clear and concise policy respecting the negotiated modification of your franchise agreements;

(f) The maintenance of strategic employment agreements with your key employees that are focused on the implementation "enforceable" restrictive covenants;

While establishing an on-going day-to-day working relationship with your legal counsel may be more expensive than "doing nothing", the value of this planning process will far outweigh the cost associated with unnecessary and avoidable litigation. Once tasks become standardized and well establish, my experience has been than many activities may be incorporated into the tasks of your "in-house" staff and, over time, serve to reduce your long-term legal fees.

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