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Partnering franchisees with the right vendor is a winning proposition for everyone.
By Danny Goldberg (original article - https://www.franchise.org/locating-the-best-vendors-for-your-franchise)
The association between a franchise company and its franchisees is often compared to a family relationship. The franchisee looks to the franchise system for all the training, knowledge and support it can possibly give.
New franchisees need a community of laborers and experts of sorts, to help them expand. In the business world, this community represents the vendors that supply the ancillary products and services that help make a company run smoothly.
The Little Things
New franchisee owners need and want more than just a star product or fancy commercial. In many instances, most of a franchisee’s needs translate to all the little details that keep business owners from becoming overwhelmed. This is especially true with franchisees’ largest need and expense: their employees.
Some franchise companies tend to overlook the details that are required to build an effective staff for their franchisees. Their primary focus is on opening the store and helping to sell products or services. Consequently, the employee headaches some new franchisees face may be hidden from view. Is the franchisee complying with labor regulations? Are illegal aliens being hired? What’s happening with the employee payroll?
In this case, offering pre-screened vendors that remove some of the responsibilities and burdens associated with payroll, human resources and benefits can help franchisees to focus more on enlarging their businesses. This step will help to minimize the frustration these new owners feel when they become overwhelmed by new responsibilities and ensure that the brand’s logo doesn’t disappear from their neighborhood.
As an added benefit to the corporate office, this step also provides a business model that’s easier to implement and manage since nearly all of the franchisees are using the same vendors.
Big Vendor versus Local Vendor
Most vendor options will either fit into a big, national vendor or a local vendor category. The big vendors are the companies with expansive buildings and manicured lawns. If one visits them, he may not even get a hint from where their products or services come. In many cases, the representative who calls on the client is a clean-cut kid fresh out of college. These are the representatives who wine and dine prospective customers and offer them everything they could possibly need for their new business. Potential customers are dazzled and stunned by their pitch. One quickly signs on the dotted line and one of two things happens: Everything comes true or the vendor-representative is never seen again. The people from the corporate office who have courted the client suddenly seem to disappear. When an issue comes up, someone calls the office and the problem goes up the corporate ladder. One quickly realizes it’s a very tall ladder on which no one seems able to make a decision on how to help.
The local vendor might be a regional company with offices in the same building from which it delivers services or manufactures the products. In most cases, the representative who comes to clients seems more experienced, sincere and personable. Often, it’s a vice president or even a company owner.
Yes, there are big vendors out there who are able to overcome the inherent problems that prevent them from giving good customer service. More and more local vendors, however, are proving their worth to businesses and customers by focusing hard on their client relationships and client services. The trick for franchise companies is to choose the local vendor wisely before committing to any agreement.
How to Choose the Right Vendor
There are many factors that come into play when choosing the right vendors. Ask questions that will indicate how the relationship with them will be affected by how they conduct business.
Over-communication. Does this vendor seem the kind of person who will “over-communicate” with you? While over-communicating seems like it might be tedious, in a client-vendor relationship, it keeps any potential issues at bay.
A good vendor should not only follow up to ensure the success of the program, following up should also be a weekly routine. Vendors who make it a habit to contact the corporate office and chat about what’s working and what’s not, can catch issues that may fall between the cracks. The more proactive calls that are received, the less reactive calls a system is likely to get from unhappy franchisees.
Monthly Reports: Does the vendor offer monthly reports that indicate how the business process is going? Monthly reports should show what’s selling and what is not. It’s also the perfect place to document any questions, comments or concerns affecting the business. For example, if the vendor is managing payroll, are there any indications in the data that can help streamline the business?
Discount Pricing: What kind of price breaks is the vendor offering based on the volume the franchise system will be giving them? Does the franchise company have to ask for the break or is the vendor bringing the company an offer? Is the vendor open to renegotiating this break if business is booming or does it seem like it’s just interested in short-term profits?
Meeting Attendance: Will this vendor be willing to participate as a speaker at regional meetings or corporate outings? Does it show interest in attending national conventions and advertising at them? Does the contact person seem interested in getting to know the franchise system’s personnel better by attending corporate social functions? Is this vendor willing to sit in on district manager meetings so it can offer solutions to issues affecting the program?
Non-exclusivity: A lot of vendors want exclusive agreements in exchange for their discounts. Insist on a non-exclusive agreement. If the vendor refuses, avoid it and look for another vendor. If such a vendor’s facility burns to the ground overnight and it has no way to provide its product or service the following day, its 30 percent discount is not going to help the company’s business.
Some franchise companies insist that franchisees must use pre-selected vendors. Contractually, the franchisee has no choice. New owners rarely consider how this will affect the way their business is managed. When the franchisee hires his brother-in-law to do the payroll instead of the vendor specified in the agreement, problems may arise between the new business and the corporate office.
Franchisees who come to realize the constraints they’re under with such an agreement might view the franchisor negatively. Not surprisingly, their relationships with corporate quickly sour as many of these owners look to bail out a year or so down the road.
Franchise systems that provide franchisees the freedom to not use their pre-approved vendors fare far better in their relationships with them. In this scenario, franchise organizations offer franchisees a list of approved vendors that have already demonstrated their value to the program. In essence, these franchise companies are telling the new franchisee that the corporate office has done its due diligence to find the best vendors possible.
When a new franchisee is hiring staff, is the owner thinking about how his brother-in-law’s personnel company will conduct drug testing and background checks or how it will handle unemployment compensation management and COBRA issues? Will the brother-in-law be able to advise him about the efficiency of direct deposit payments or what the latest options are available for health, vision and dental insurance?
Should a business owner choose a vendor that’s not on the franchisor system’s preferred vendor list, he may encounter issues that the corporate office won’t be able to help him with. In this scenario, the burden of responsibility shifts to the franchisee when he chooses to work outside of the system. The new business may fare better—or it may not. If the franchisee fares worse, the choice was his and his alone. Ultimately, the owner is left frustrated and unhappy.
Closing Your Agreement
Once a franchise system has found the perfect vendor, it should practice due diligence and first check out the company. Is this really how this vendor works or is this just an empty pitch from a sales representative? Ask for a few references and follow through on thoroughly checking things out. Just don’t ask if the reference was satisfied with the vendor. Probe and ask the reference to explain “why.” What is it that made this vendor so much better than the rest? For example, is this company truly equipped to do business in all 50 states?
Next, get what was discussed and agreed upon in writing. Avoid the boilerplate type of preferred vendor agreement that many law offices have ready in their back pocket. Create an agreement that truly states what is expected of the vendor and also how it will be done.
Building Value for Franchisees
When franchisees are first setting up shop, they’re clambering for a lot. They need help. They’re suddenly hit with quickly putting together all the pieces of the puzzle from A to Z. Most importantly, they need people—vendors with expertise in specific areas that can do each job correctly. If the franchisee discovers that corporate is only offering A, B and C, the new owner may panic, become frustrated, and may ultimately fail.
Getting the franchisee set up right is a winning proposition for everyone. The franchise firm avoids conflicts, minimizes failures and enhances the franchise’s reputation for value.
Franchise systems can’t do everything for the new franchisee. But if they can design a more comprehensive program that will remove some of the burden and stress new owners’ experience, the franchise will become the better choice for entrepreneurs looking for that next new money-maker.
Danny Goldberg is the president of EEnucleus, LLC, which is located in Scottsdale, Ariz. He can be contacted at firstname.lastname@example.org or at 866-504-3434 ext 118.