The importance of Culture and Values in any franchise

Growing up in Ireland during the 70’s and 80’s, values were important…in fact very important, both in terms of parental upbringing and education.

It wasn’t until I got my first job that I realised how important values and culture were in a company setting and how uncomfortable you feel when you experience behaviours that challenge your own values.

There were many times during my career where my values were challenged because of major internal issues but on each occasion the issue was addressed because new leaders were appointed who tackled the issues head on and changed the culture.

Daniel Ek, who founded Spotify at the age of 20, said that it wasn’t until he was 40 that he realised that company culture ‘was the single most important thing’.

Company culture is an area often ignored or overlooked by potential franchisees when doing their due diligence (blog link here) probably in the mistaken belief that they expect to be their own boss and can decide on their own culture and values.

The reality is that Franchisees may theoretically own the business that operates their franchise but they don’t own the intellectual property, the franchise ‘system’ including processes and tools, supplier relationships or even the customers. As a result, the Franchisor has a massive influence over the culture and values of the franchise, including its Franchisees.

Therefore, potential franchisees underestimate the importance of culture and values in a franchise with their peril. In fact I would argue that the culture and values of a franchise are as important as other decision factors, even the financial performance of the franchise, because if you join a franchise with a toxic culture or values that you do not agree with, it could end up being the worst 5-15 years of your life.

Working in a franchise where the values of the organisation are not aligned with your own personal values could result in a real ‘car crash’. If you encountered this in other organisations you would likely resign and find another job but with a franchise you do not have this choice. Examples of this disconnect could be as simple as pushy or underhand sales tactics, a lack of respect for people, lack of focus on diversity, lack of integrity….etc.

In addition, with a franchise, once you have signed the franchise agreement, you are stuck, at least until you either sell (which the Franchisor has control over) or you terminate your agreement, but the financial consequences of this could be catastrophic (see my earlier blog on ‘Are Franchise Agreements Ethical?’)

Culture and Values are defined by the overall leader

In most organisations, the Culture is underpinned by its values which help define the expected behaviours of its employees. Common values seen across many organisations are honesty, integrity, trust, respect for people, continuous development or learning, diversity, inclusiveness…

If there is one thing that is true about culture it is that the leaders are responsible for defining it in an organisation. As Steven Bartlett said ‘The best leaders are absolutely, virtue signalling proof, committed and unnegotiable about their company culture. It’s running through their veins. That’s why they’re successful.’

The day to day behaviours or actions of any leader will very quickly highlight if a leader is not living by their values which will then permeate through the organisation and start to have a negative impact on moral and performance, especially if these behaviours do not align with employees’ own values.

The culture of an organisation can change incredibly quickly after the ownership or leadership changes, especially if the new leader has different values and priorities.

The author Timothy R. Clarke put it very well when he said;

The culture in a franchise is more complicated than an independent business because of the added layer of the Franchisor and in some cases an overarching franchise group.

My belief, after connecting with many Franchisors, is that Franchisees are more likely to find a positive culture in a franchise where the founder continues to run the business as they will be passionate about the business and more interested in the long term success of the franchise (Vs short term gain).

Because of the one sided nature of Franchise Agreements, Franchisees very much rely on the ‘good faith’ of the Franchisor but if the culture is toxic this ‘good faith’ will likely be completely lacking. This is probably what Sir Geoffrey Cox was referring to when he talked about ‘unscrupulous and dishonest franchises’.

The legal firm a Franchisor uses can also influence the culture of the organisation. If the lawyers have a track record of being aggressive with their litigation, in my view it is more likely that the Franchisor is going be litigious (see my upcoming blog on litigation). Would the Post Office have been so litigious if they didn’t have such willing partners as their lawyers?

What are the benefits of a positive culture?

Since starting my campaign for regulation of the franchise industry in the U.K. at the beginning of 2023, I have discovered countless franchises, most of whom I had not come across before, that have incredibly enthusiastic Franchisors that are passionate about creating the right culture and values in their franchise because they likely see the massive benefits this can bring (but I cannot comment on what the culture is in reality nor how profitable the Franchisor or their Franchisees are).

Studies have shown that a positive company culture has significant benefits, such as;

  • Attracts and retains the best people because people want to work for companies with a positive culture
  • Improve collaboration and team work and provides for a more inclusive and open environment to work in
  • Brings out the best in employees and creates a healthy sense of competition on the job
  • Influences better physical and mental health which is so important in this day and age
  • Improves business productivity because employees feel more supported and are more motivated to do their jobs
  • Enhances team commitment to the goals of the business
  • Improves your brand identity because it will differentiate you from the competition in a positive way
  • Improves relationships with suppliers and other external stakeholders
  • Improves the profitability of the business

Conversely, a toxic or negative culture impacts team spirit and significantly reduces co-operation among team members, increases turnover of staff, reduces productivity and ultimately impacts the profitability of the business.

You have to ask yourself, with such a long list of positive benefits why would any leader not want a positive culture? My simple answer to this question is that they should not be the leader of any organisation because they don’t possess the right leadership skills or the right values. 

What should you do to minimise the risk of joining a franchise with a poor culture?

Without regulation of the franchise industry, the last thing a Franchisee needs is a one sided Franchise Agreement in the hands of an ‘unscrupulous and dishonest franchise’. This is why it is so critical to do a thorough due diligence, before making an investment decision which I have addressed in a separate blog called ‘Due Diligence….Ignore it at your peril’ (link here).

Your first point of contact with a franchise will likely be via a contracted franchise consultant or for larger franchises, a dedicated franchise director, responsible for signing up new franchisees. In both cases these people are sales people that are very likely incentivised, so please do not fall for their ‘charm’.

Recognising that it is the leader of any organisation that is responsible for it’s culture it is imperative that you get airtime with the MD of the franchise to see what they are like and to understand more about the culture of the organisation.

Never accept anything written on some glossy brochure, as the reality in the organisation could be very different. This is especially true of larger franchise organisations where culture is likely defined remotely from the operations, and maybe even in a different country

You need to do lots of probing about the MD’s leadership style, how they go about instilling values across the organisation and what behaviours they expect of their employees or Franchisees.

Asking questions like this of the MD will only scratch the surface and therefore it is critical that you use every connection, especially with existing Franchisees, to probe further (See sample due diligence questions here). Don’t be afraid to ask for real life examples to back up anything anyone shares with you because the Franchisee may be constrained in what they can say to you.

Examples of questions that potential Franchisees should ask of existing Franchisees include;

  • Has the Franchisor articulated what its values are and do they live up to these values in practice?
  • What is the culture like and how would you describe it?
  • Does the Franchisor provide ongoing training and learning and if so how effective is it?
  • Does the Franchisor encourage collaboration and sharing of learnings amongst franchisees?
  • Does the Franchisor have a franchisee council where views of the franchisees are taken on board?
  • Do you know of any franchisee failures and if so how did the Franchisor deal with them?
  • Have you heard of any litigation amongst franchisees and if so how did it end?
  • Knowing what you know now, would you invest again?

If you have a partner, there is no harm in bringing them along to meet the MD to give you a second opinion…..I wish I had! (But please make sure they do not sign the Franchise Agreement!)

Try and connect with previous Franchisees (if you can find them!) as they are more likely to give you an honest assessment of the culture, but failing this, check external workplace websites like Glassdoor to see what their current or ex employees are saying about the company.

Ask yourself honestly whether you feel any positive energy or vibes when talking to franchisees.

If you have any doubts, I would personally err on the side of caution, because the consequences of an incorrect decision could be catastrophic.

Unfortunately leaders can always change and with this you can end up with a very different culture and set of values and therefore there will always be a risk when investing in a franchise.

Some high profile examples of where culture has gone wrong

Sadly, because of the use of gagging clauses in franchise agreements and standalone Non Disclosure Agreements (see my separate blog on this here), issues regarding culture very rarely make their way into the public domain for fear of the franchise agreement being terminated which would result in the franchisee losing everything.

Despite this, there have been some recent high profile examples of major cultural issues with franchises making their way into the public domain;

McDonalds: One of the largest and best known Franchisors, McDonalds, clearly has some serious cultural issues if anything is to go by the press articles during 2023. The recent issues regarding racism and sexism were only brought to light because of many incredibly brave employees that risked their longer term careers by flagging up the issues. The claims are so serious that they have even been discussed in parliament. Examples of these press articles include;

Drugs, homophobia, racism and sexism’ rife at McDonald’s, say whistleblowers

McDonalds: There’s disgusting behaviour at my branch

The Post Office (which is also a Franchise): The Post Office Scandal, which is recognised as the greatest miscarriage of justice ever in British history, originates back to the 90’s and is still ongoing today. A recent drama series on the subject, called Mr Bates Vs The Post Office, that is now being shown worldwide, highlighted the extent of the cultural issues that have existed over many decades. It is difficult to know how to describe the culture but the best way I could put it is CORRUPT but other words that could easily be used include greed, entitled, disrespect, command and control….. 

Despite the outrage that followed the drama series, the culture is still said to be rotten to the core and, bearing in mind culture is set by its leaders, it is telling that the Chairman has recently been sacked.

Even LORD ARBUTHNOT, the conservative MP who has been very active (in a positive way) throughout the scandal, expressed this view…’The main problem is the CULTURE within the Post Office… traipsing before the public inquiry, all of these liars‘. OUCH!

My own experience

I couldn’t write a blog on culture without sharing some of my own reflections on my personal experience of franchising with a company called Dream Doors who are part of the Neighbourly group. As a bit of a backstory, I had to work incredibly hard over many years in a large multinational company to collaborate across the many business and functional silos, in order to get things done. The one thing I expected when joining a franchise was a very open and collaborative culture where experiences and learnings were freely shared between Franchisees. Surely this is one of the massive benefits of joining a franchise as opposed to going it alone? Sadly the reality in my case could not have been further from this.

The best way to describe the culture I experienced was ‘confrontational’ where, rather than a carrot and stick approach, the Franchisor preferred to use ‘threats and intimidation‘. They even tried to stop the group of franchisees that I started with from using a WhatsApp group that we created to share learnings with each other and which kept us going during tough times. It felt very much like a ‘divide and conquer’ approach where they did not want individual Franchisees sharing any issues they were experiencing with the Franchisor, with other Franchisees. More on this in my upcoming ebook…..

Regulation

We need regulation of the Franchise Industry in the U.K. to improve the transparency of information through a disclosure process similar to other countries like the USA and Australia, along with Franchise Agreements that are more balanced and better reflect the risk and reward of both parties.

What advice would I provide prospective franchisees?

Hopefully this blog has helped highlight the importance of culture and values to any prospective Franchisees that is thinking of investing in a franchise. Making the wrong choice could result in a really miserable 5 – 15 years, and even worse, having to terminate your agreement with the inevitable financial consequences. Do not be fooled by the amiable franchise director or franchise consultant that is unlikely to even work for the franchise and will instead be on a £ commission based on the number of franchise sales. Please take your time to do a thorough due diligence and do not be afraid to ask challenging questions of the Franchisor and its existing Franchisees.

In conclusion, if your gut feeling is not good, I suggest you go with your gut and do not invest in the franchise.

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My request to you…

I would love to hear back from both Franchisors and Franchisees about your own experiences with culture and values, both positive and negative.

  • Do you agree with the importance of this topic in the decision making process for any prospective Franchisee?
  • Do the points made in this blog resonate with you?

If you are worried about posting your experiences publicly, please share them with me directly through the contact form and I can then share them anonymously.

Please share this blog with other Franchisees as well as anyone you know that may be thinking of investing in a franchise and ask them to subscribe here for future blogs.

It is worth re-iterating the point that there are many good Franchisors that act in good faith but the focus of this blog is on ‘The Perils of Franchising’ as there is little or no public information available about the real risks involved in investing in a franchise.

Details about the author and his experience of being a Franchisee can be found here. Just to be clear, the authors’ views expressed in this blog are exactly that….his views, based on his personal experiences, by connecting with many current and past franchisees of many different Franchisors and through his own market research.

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