Tag

newsletter Archives - Duell | Law

A Paradigm for National Accounts

By | Newsletter

Technically a National Account or National Customer is one with two or more locations and structured decision making power within an organization. However, most everyone tends to associate a National Account as that of a client or customer that has locations throughout the country. Irregardless of the true definition, few Franchisees have the resources to negotiate national contracts or the ability to provide and deliver the services and products which the national client demands. Consequently, most National Accounts will not deal with a multiplicity of Franchisees but, instead will only negotiate with a single contracting source, the Franchisor. New Franchisors have had the benefit of watching the market place grow and have reserved the right to deal with National Accounts in their franchise agreements. More established franchise companies, on the other hand, have older contracts which convey “exclusive territories” with no right reserved for Franchisors to deal with the exclusive territory. National Accounts, however, want a single contracting source that can promise uniform service throughout the country and national discount prices. Under our old way of looking at the Franchisor-Franchisee relationship, we would approach the problem and attempt to resolve it by the Franchisor securing the national contract and attempting to retain all of the benefits flowing from the contract. This old way of thinking had its legal impediments and often led to litigation between Franchisor and Franchisee. In today’s marketplace, why not create a new paradigm, with both the Franchisor and Franchisee participating in the revenue stream. Unheard of you say, but what better way to strengthen the franchise system and create a win-win for your company and your Franchisees. Franchisees can significantly increase their revenue because they will have access to National Accounts and as a Franchisor your royalties will increase because your Franchisees sales will increase.

Also, as many businesses expand and buy out smaller vendors what better way to provide an answer to the age old Franchisee question of, “what have you done for me lately.” The answer could now be – look at your bottom line.

CONCLUSION

As the paradigm of traditional franchising changes, Franchisees can win by participating in National Account programs and Franchisors can also win by watching their bottom line grow from the increased royalty revenues generated by their Franchisees participation in the National Account programs.

Qualifying And Selecting Franchisees

By | Newsletter

One of the most important decisions you will make when franchising is finding the right Franchisee. To be successful as a Franchisor you must have successful Franchisees. The essential question then becomes how to select good Franchisees.

Step One: Determining criteria for a successful Franchisee.

What leads so many start-up franchising companies to a path of litigation is the mindset that they must sell to the first warm body that calls inquiring about their franchise.

I remember the lesson I learned from one of my first franchise cases. The Franchisor required the Franchisee to be heavily involved in selling and converting leads. When I deposed the dissident Franchisee, he had no previous sales experience, had no experience hiring sales people and hated cold calls or selling face to face. Obviously the franchising company had not done their homework. The chances of the Franchisee ever being successful were slim. Therefore, determine your criteria for a successful Franchisee from the very start.

Step Two: Qualifying prospective Franchisees. Key to successfully qualifying prospective Franchisees is building a chart containing each ingredient that makes up a successful Franchisee.

If you are an entrepreneur who founded the franchise company, you undoubtedly can look back on your experiences of what it took to make your prototype successful. But just as importantly, do you know what traits are needed to succeed as a Franchisee? Is the Franchisee value driven? What was his or her previous business experience? Was the Franchisee successful in that business? What kind of net worth does the prospect have to launch the franchise? Obviously a prospective Franchisee cannot be successful if he or she has to have 100% financing to open the doors to do business. It takes awhile before a Franchisee can net any money out of the business. As a result, it is critical  that  you  determine  a  prospect’s work ethic. No matter how you try to glamorize franchising, it still takes good old fashioned hard work to be successful.

After developing the profile of what you believe the requirements are for a prospect to be successful, work with your key personnel to create protocols in your company for finding the type of prospect you know should be successful. I say “should”, because we all know what can go afoul sometimes does go afoul, no matter what safeguards we put in place.

Once you have established the profile for a prospect, you are ready for the final test. Successful Franchisors I have observed go one step beyond developing the template for an ideal Franchisee.

The Final Step: The interview process. Focus on whether the prospect is the type of person you want representing your company. What are their goals and objectives and perhaps as importantly, will the individual you choose actually follow your franchise system? There are any number of industry tests available to assist you, but you want to make sure the prospect is a team player and not someone who after two or three months in the system will want to do things their way. What a waste of resources when you fail to properly qualify an individual who should never have been in a franchise system to start with. Usually the end result is termination and/or litigation.

CONCLUSION

The criteria you establish should be designed to produce the best possible candidate to represent your company. Don’t ever forget that all your hard work to build the company’s name can go up in smoke with one bad Franchisee, so choose wisely.

Saving Dollars By Using Intranets

By | Newsletter

Does your staff spend a significant amount of time mailing or faxing new manual updates, newsletters, reports or a variety of other information to your franchise system? Are you apprehensive about sending confidential information over the Internet? If your answer to either question is yes, you should consider implementing a plan to establish an Intranet site. If you think your company is too small for its own Intranet site, then this article is definitely for you.

An Intranet site, as opposed to internet is a company internal site with limited access. By using encryption technology and limiting access to persons with passwords, the site is not available for public view like normal internet sites. With a secure Intranet site a franchise company can feel comfortable in sending franchisees information, such as:

  1. Training documents, manuals, reports and other information normally copied or printed and sent through the mail;
  2. Software upgrades for immediate use;
  3. Newsletters;
  4. Continued updating of approved vendor lists;
  5. Changes in personnel directories, with the latest areas of responsibility;
  6. Last minute vendor close outs;
  7. And the list goes on and on.

It shouldn’t take too long to see that the above list just touches the surface of potential uses for an Intranet. In fact, not only can a Franchisor disseminate information over an Intranet site, but franchisees in the system can share ideas and experiences with other franchisees by using an Intranet bulletin board. Some Franchisors use their Intranet for franchisee reporting. By compiling the reported franchisee information over a period of time, Franchisors can analyze the reports and help franchisees strategically plan for the future or help them correct existing problems.

If a Franchisor’s Intranet site is set up to allow vendors limited access, franchisees can order supplies over the site from approved vendors with password access and guess what – your franchise company now has a new means to monitor franchisee orders and an additional tool to discover under reporting (See Franchisor Alert February 2016 “Do You Have Under Reporting Franchisees?” for other under reporting tools).

The potential uses for an Intranet site are unlimited and as a client with less than forty franchisees told me: “By eliminating many of our costly and inefficient methods of doing business, our site will pay for itself, but more importantly, our relationship with franchisees is at an all-time high. If I was starting my company again, I would have an Intranet site before I sold my first franchise.”

CONCLUSION

In Franchising it is important to never be satisfied with mediocrity. Intranets have proven to be successful in Franchising and can help provide value to your bottom-line.

Trade Dress: Is Your Franchise System In Vogue?

By | Newsletter

As a growing Franchisor, you constantly endeavor to make your company distinguishable from its competition. From the very beginning when you had the idea to launch your business, you no doubt struggled to find just the right name. Then after the name, you went through the legal process to register and protect that name and associated logo. In conjunction with finding the right name, you worked hard and spent many long hours to develop those secret recipes or methodology of operations and processes which formed the core of your trade secrets that set you apart from your competition. Unfortunately, many Franchisors fail to spend the same amount of time and effort in developing or protecting their company’s trade dress

Your trade dress is the overall appearance of the business. The items that make the business or product distinguishable and recognizable to the customer. When you drive down the street and see the golden arches at a fast food restaurant, is there any doubt about the name of the Franchisor? The golden arches symbolize the entire franchise system. Ask any kid.  They know what the arches mean when they are hungry. The golden arches constitute a major part of the Franchisor’s trade dress and are a very valuable asset. A company’s trade dress builds reputation and goodwill which in turn, becomes synonymous with the Franchisor’s name. But as you become successful in building greater market share through your trade dress, your competitors will seek to copy you and capitalize on that good will and reputation.

Fortunately, there is good news for Franchisors seeking to protect their trade dress. By employing Section 43(a) of the Lanham Act, a Franchisor carries a “big stick” to beat back its competitors. Under the Lanham Act, not only can a Franchisor obtain damages against the infringer, but the Franchisor can also obtain an injunction and destruction of the “copy-cat” materials. Additionally, the Act also enables a Franchisor to obtain attorney fees against the offender. And a Franchisor has the option of initiating the case in either federal or state court.

The most notable trade dress case decided under the Lanham Act was Taco Cabana v. Two Pesos. In this case, the U.S. Supreme Court upheld the Circuit Court’s finding that the defendant had appropriated the Plaintiff’s general appearance by copying the exterior of the restaurant, the identifying signage, interior kitchen floor plan, décor, servers’ uniforms and several other features of the restaurant. The court found that the above items created a “total image”. The total image constituted the Plaintiff’s trade dress and distinguished its products and services from competitors. 

CONCLUSION

Once your trade dress is developed, make sure it is used consistently by all franchisees. When used on a consistent basis, trade dress becomes a major asset of your franchise company and merits no less protection than that of your trademark and trade secrets.

Advertising Without Crossing The Line

By | Newsletter

Advertising is no doubt one of the most important components, if not the most important component, of a Franchise company’s success. It is also, however, one of the largest areas of litigation in franchising.

In today’s litigious environment, a plaintiff’s attorney representing a disgruntled franchisee searches for every mistake made by a franchisor. The ad your company places soliciting prospective franchisees can be the “crack in the door” that the litigator waits to slide through. So how can your company protect itself from the clutches of a plaintiff’s attorney waiting to attack? First and foremost, make sure you have reviewed the law of each state affected by the ad. Did your company properly register the ad before it was published? Surprisingly, a number of states require registration of ads before they appear to the public. These states maintain a listing of all ads properly registered by franchisors. An example of what can go wrong when you fail to register occurred in New York when a Franchisor advertised for franchisees using the New York Times. The Franchisor was not located in New York nor registered to sell franchises in New York. Normally the ad being placed in the New York Times would not have caused a registration problem because the majority of circulation was outside the State of New York. But the Franchisor made the mistake of also placing the ad in the New York Times Metro edition which has a majority of its circulation inside New York. As a result, the Franchisor was exposed to both civil and criminal liability under the New York Franchise Sales Act. Unfortunately, this is just one example of not having a proper compliance program for the advertising/marketing department.

A second important area that a franchisor should include in its advertising compliance program is the review of all ads to see if each ad is factually consistent with the franchisor’s Franchise Disclosure Document (“FDD”). It is only natural that a franchisor wants each prospective franchisee to think that their franchise is the “opportunity of a lifetime” and that it will provide “financial security” or that the franchise is one that a prospect has always “dreamed of owning.” The issue is not whether a franchisor “feels” the information is consistent, BUT whether the ad provides an opportunity for the litigator to show any inconsistency with FDD information provided his/her client. If there is a possible inconsistency, the franchisor has a legal problem.

CONCLUSION

If you want to be safe, include a legal review of your advertisements before they are published to ensure they have not “crossed the line” and exposed your company to civil and criminal liability.