A strong and effective business relationship between franchisee and franchisor is critical to the success of both businesses and the franchise system overall. But good business relationships are also important in any other dealings you have with other businesses. Building and maintaining good business relationships can keep costs down and increase reputation and profitability.
Research commissioned by the Victorian Small Business Commissioner (VSBC) interviewed small, medium and large successful businesses, and business associations, to identify the key factors to forming and maintaining winning business relationships. All of these characteristics can be observed in successful franchise systems.
The seven key characteristics are:
1. Alignment
Alignment of the values and ethics of a business is essential both with the internal behaviour of the employees and externally with business partners.
In a franchise system, consistency in values, ethics and behaviours are critical, and help define the system. For full alignment, these behaviours need to extend beyond the franchise system to other business relationships. Sometimes it may be necessary to walk away from external business relationships if things don’t feel right.
2. Commitment
Commitment is necessary to build a long term business relationship as it provides a solid basis for trust between parties. Successful relationships are built and flourish by an investment in effort.
Commitment is about focusing on common, long term goals and intentions rather than one-off transactions or short term goals. Build trust by delivering on promises, and communicating intentions openly and honestly.
3. Mutual interest
The mutual interest of franchisee and franchisor is a key characteristic of a franchise relationship, but may not be so apparent in other business relationships. Seek to understand the other business’ expectations and points of view, and identify where mutual interests can be pursued for profitable and sustainable outcomes.
Adopt a collaborative approach to problem solving to achieve common interests.
4. Communication
Communications must be clear, transparent and frequent to ensure that everyone fully understands the other’s position, obligations are met and any issues or problems are raised early.
Poor communication is one of the most common reasons for breakdown in relationships. Businesses need to communicate with each other in a way that is relevant, comprehensive and timely.
Clarity with your business partners how they wish to be communicated with. Regular face to face communication should be undertaken wherever possible, as other (particularly electronic) means of communication can lead to unintended interpretations and consequences.
5. Accountability and responsibility
Business partners need to agree and be clear on their respective obligations and responsibilities, and be accountable to them at all times. Clear, written agreements and contracts can avoid uncertainty and mis-matched expectations. Where problems do arise, be prepared to inform the other party immediately to attempt to work collaboratively to address the problem.
Make sure you read and understand contracts and agreements before you sign them, and that you can meet your obligations. Once signed, contracts are binding and enforceable.
Take accountability for your mistakes as well as your successes.
6. Professional conduct
Conducting yourself professionally should be a prerequisite for any business relationship, no matter the size or sophistication of the business. This includes both the way you personally interact with the other business person, as well as how you go about your business.
Many of the behaviours associated with professional conduct are common sense. Treat others as you would expect them to treat you. Don’t promise what you can’t deliver. Meet your obligations.
Show professional business conduct by having a robust, well researched business plan, with input from relevant professional advisers. Join an industry association, chamber of commerce or other body to keep up to date with good business practice, obtain information relevant to your business, and to benefit from the networking opportunities presented.
7. Pre-agreed dispute resolution
All business relationships are likely to have a dispute at one time or another. Agreeing on dispute resolution procedures at the start of a business relationship can be critical in addressing disputes quickly and effectively when they arise, and enabling the business relationship to continue.
Litigation of commercial disputes should be a last resort. It is costly, time consuming, destroys the business relationship and usually has a winner and a loser. Agreeing to include low cost dispute resolution procedures such as mediation in your contracts can avoid matters unnecessarily escalating to litigation.
The Franchising Code of Conduct requires franchise disputes to proceed to mediation if matters cannot be resolved between the parties. This approach can be adopted for any commercial dispute, not just franchise disputes.
The Victorian Small Business Commissioner (VSBC) provides a quick, low cost and effective mediation service for business-to-business disputes. In 2013-14, 27 percent of disputes referred to the VSBC were resolved prior to mediation (at no cost to the parties), and 83 percent of matters were settled at mediation.
For further information on the Victorian Small Business Commissioner or to download a copy of the research into Building and Maintaining Successful Business Relationships, visit www.vsbc.vic.gov.au or ring 13 8722.