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by Greg Nathan

There is a path on which I traveled as a franchisee and which almost every other franchisee I have ever met has also traveled. The places this path leads to are not physical, they are psychological in nature and include emotions such as hope, joy, disappointment, frustration and renewed confidence.

If you are beginning your journey into a new franchise business, chances are you will also travel along this path. And in so doing you will fall under the spell of what I have dubbed ‘The Franchise E-Factor’.

The Franchise E-factor is not a mental aberration or something to be fearful of. It is simply a natural maturing of the relationship you will have with your franchisor as you gain greater competence and confidence in running your franchise.

Six distinct stages
If you have a commitment to your business and are prepared to work through the ups and downs of life as a franchisee you will travel through six distinct stages. Some people move through these stages swiftly and more or less painlessly. For others the path is frustrating and full of interpersonal strain and resentment. Some people even get bogged down half way through and decide that franchising is not for them.

If you are a franchisee you may find it useful to use The Franchise E-Factor as a way of making sense of the frustrations you may feel from time to time in your role as a business owner who wants independence yet can’t quite have it. As you read through these six stages below it will become clear why this progression is called The Franchise E-Factor.

The Glee Stage
"I am very happy with the relationship I have with my franchisor. They obviously care about my success and have delivered all they said. I am excited about my new business and full of hope for the future."

Initially franchisees are filled with glee. Along with their decision to buy a franchise comes the anticipation of whether things will work out and of course the hope of making lots of money.

During the opening stages of the business the franchisor will also be busy providing encouragement and support to their fresh and motivated franchisee. Like a wedding ceremony, the speeches at opening ceremonies of franchised outlets usually contain profound commitments such as;
"We will always be here for you";
"You are the reason for our existence"; or
"If you have any problems at all, just call and we will be there".

Positive emotions run high at this stage. There is a great sense of achievement for everyone as the numerous hurdles in establishing the business have now been cleared.

The Glee stage covers the lead up period to buying into the franchise and will usually stay with a franchisee for between 3 and 12 months, depending on their past business experience.

The Fee Stage
"Although I’m making money, these royalty payments are really taking the cream off the top. What am I getting for my money?"

The second Fee stage kicks in as the franchisee gains more of a handle on the business’s finances. It comes from a growing appreciation that profit is the result of sales minus expenses. At this point they may become particularly sensitive to the royalty and advertising fees, which they see as annoying expenses that into their profits.

Questions such as, "What am I getting for my money?" will surface in their mind, especially when they review their weekly royalty fees.

At this stage the franchisee’s level of satisfaction starts to drop.

There are basically two paths from the Fee stage - either back to Glee, (this can happen when the franchisor provides significant assistance, for example with a rent reduction), or into the Me stage.

The Me Stage
"Yes I am successful. But my success is a result of my hard work. I could probably be just as successful without my franchisor."

As the franchisee moves into the Me stage he or she will typically be thinking that their success is due purely to their own hard work and effort. This natural tendency to take the credit for the good things, is known in psychology as the ‘Attribution Effect’ or the ‘Self-Serving Bias’. Attribution theory explains the thinking process we go through in searching for the best explanation of an event and also suggests that we are not all as rational as we might like to believe.

When we perform well or achieve something we tend to attribute this to our inherent skills and personality. We take the credit. But when we make mistakes or don’t perform up to expectations we tend to blame someone else or outside circumstances.

The human ego has always been a master at playing with our minds - giving us reasons why we are right and others are wrong, why we are good and others are bad, why we are smart and others are stupid, and so on. For some people it is a way of protecting their self-esteem.

Not surprising, we find the Self-Serving Bias alive and well in the franchise relationship. It tends to be at its strongest when the franchisee moves through the Me stage where they will tend to attribute their success to their own work and initiative. If things are not going so well however, the franchisor is inevitably held to blame. Either way the franchisor usually starts to receive some criticism.

The Free Stage
"I really don’t like all these restrictions my franchisor is putting on the way I run my business. I feel frustrated and annoyed at their constant interference. I want to be able to do my own thing and express my own ideas."

While the franchise relationship tends to begin with the franchisee relatively dependent on the franchisor this does not last. As a franchisee’s business confidence grows, their drive towards independence will increasingly assert itself. A franchisee at this stage might feel resentful having to follow the franchisor’s standard operating procedures all the time.

The Free stage is characterised by a need to break free of the restrictions and limitations of the franchise and a testing of the system’s boundaries. A franchisee might also test out how tight the franchise agreement is and try to break free of their contractual obligations.

The franchisor might also decide to break free of the franchisee, either through a forced sale or termination of the agreement. Obviously chances of conflict are greatest at this point.

A franchisee who is stuck in this stage can become trouble to him or herself and a negative influence on others. They may also be a ripe target to be exploited by someone wanting to provoke trouble in the franchise network. As we saw in Chapter 6, unscrupulous lawyers or consultants have been known to use franchisees who are unhappy about specific issues as their ticket to make some money.

At this stage the franchisee will either get bogged down in resentment and continue to bicker with their franchisor, revert to the Me stage with intermittent but harmless grumbling, or move to the next stage - the quantum leap - the See stage.

The See Stage
"I guess I can see the importance of following the franchise system. And I do acknowledge the value of my franchisor’s support services. I can see that if we all did our own thing standards would drop and we would lose the very things that give us our competitive edge."

Conflict in relationships seldom goes away by ignoring it. For the franchisee to move to the See stage there needs to be some frank and open discussions, where franchisee and franchisor listen carefully to each other’s point of view. There may be some blood letting as previous disputes or disagreements are reopened. Mistakes and misunderstanding will no doubt have occurred on both sides of the relationship. There needs to be an acceptance and letting go of the past by both parties.

The franchisor might need to be more open in involving the franchisee in future planning or appreciating their specific needs. If the franchise system has been managed fairly and effectively the franchisee will generally come around to seeing that without consistency and adherence to the systems, the strength of the entire group would be lost. It is this shift in perception that characterises the See stage.

The We Stage
"We need to work together to make the most of our business relationship. I need some specific assistance in certain areas to develop my business but I also have some ideas that I want my franchisor to consider."

From the See stage there is a natural progression to the We stage - a move from independent to interdependent thinking. At this point the franchisee is prepared to put his or her ego aside and recognises that success and satisfaction generally come more easily from working with, rather than against, their franchisor.

To reach the We stage a franchisee must be mature, objective and commercially minded. Most importantly, they must be profitable. As long as a franchisee is not making acceptable profits and feels their franchisor is not responding to their needs they will shake the system for change.

A franchisor that wants their franchisees to move into the We stage must deliver on their obligations and be fair and consistent in their dealings.

Franchisees who have negotiated their way through the franchise relationship minefield to the We stage are a franchise network’s greatest asset. They will often be quiet achievers who keep one eye on their profit and one eye on cultivating healthy business relationships, not just with their franchisor but with their suppliers, peers and, of course, their customers.

To find out more on The Franchise E-Factor and how to improve your franchise relationships go to,


The material in this article is copyright and must not be used for any commercial purpose without the author’s permission. For information on how to receive a comprehensive full colour Franchise E-Factor Pack, which includes coloured graphs and detailed management tips on how to manage people through each of the six Franchise E-Factor stages, contact Greg Nathan on,

The pack is ideal for franchisee induction (getting them off on the right foot) and franchisor executive training programs (how to manage the ongoing franchise relationship).

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Greg Nathan is the Founder and Chairman of The Franchise Relationships Institute. For more information on the Institute's research and publications go to

Phone: +61 7 3510 9000
Fax: +61 7 3870 2111


The material in this article is drawn from the book, The Franchise
, by Greg Nathan
Available at:
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