5 Mistakes Start-up Franchise Systems Make

Starting a new franchise venture is exciting – the anticipation of building a system, helping others succeed, financial success … all fueled by entrepreneurial energy and adrenaline!

But nothing can put the brakes on an otherwise enthusiastic and formidable franchise start than the following five missteps:

1. Failing to secure and register the trademark – the essence of franchise success is uniformity and brand identification. Your trademark is your identity. Do you have a trademark or service mark that is unique, protectable and able to be registered with the United States Patent and Trademark (USPTO)? This is a federal registration that will protect you and allow you to ward off poachers – but not all names or marks are protectable. The USPTO registers allowable trademarks that are not already registered, not descriptive for the goods/services, a geographical term or a surname. To determine if your mark will qualify for registration (i.e. protection), you need the services of an experienced trademark or franchise counsel.
 

2. Using a “reactive” development strategy – allowing franchise buyers to control where you will locate your units is a huge mistake. Careful and determined placement of your franchise locations is a must – be “proactive” not reactive. I see too many start-up systems that attempt to sell nationwide – the result is a far-flung, unmanageable system that lacks geographic synergy and brand identification. Concentrate, concentrate, concentrate. A statewide or regional development approach makes better sense than “going national.”

3. Failing to retain experienced franchise counsel – because franchising is a “regulated” business process (similar to selling securities), retaining inexperienced legal counsel is risky and costly. Preparation of a fully-complaint Franchise Disclosure Document, as required by the Federal Trade Commission and franchise registration states (approximately 15 states), as well as thoroughly-drafted agreements, is not for neophytes. My recommendation is to select a member of the American Bar Association’s Forum on Franchising, the preeminent national association for franchise attorneys. Forum members are exposed to constant legal updates, attend national conferences, write informative franchise articles and maintain a national informational network. Using inexperienced counsel can set a system back to the very start.

4. Improper franchise sales training – selling a franchise is tricky business. Some of the issues include: knowing registration requirements, having the correct documents, knowing when and how to deliver disclosure documents and final agreements, knowing the rules about financial performance representations – just to name a few. Flawed sales can lead to major legal problems. Make sure you and your sales personnel know what you are doing. For a great sales guide, consult my friend Warren Lee Lewis’s The Franchise Seller’s Handbook. (warren.lewis@akerman.com)

5. Selling to the “wrong” buyers – just as a “reactive” geographic development strategy can set a new system on the wrong path, so too can poor franchisee selections. The first few franchisees are the most important. Take your time and make sure you are choosing the best “partners.” You don’t want just anyone, you want the best ones. Before you meet with anyone, develop your ideal “franchisee-profile” and then see how your candidates stack-up against your standard. Develop a solid franchise application, check references, vet personalities and capabilities. Engage in proactive due diligence.

Get your system off to a strong start – match that enthusiasm with solid preparation by avoiding the five basic mistakes.

The Aging Workforce: A Challenge for Franchise Systems?

Franchise systems employ over 8.5 million Americans – with more than 20 million employed in related and supporting businesses, resulting in 15% of all U.S. private-industry jobs. That’s a lot of people!

But how many of them are getting older? Well everybody … but the largest segment of our society will soon reach traditional retirement age and may continue working. This may present some unique challenges for employers. Franchise systems are not immune from this trend.

With the advance of years, come physical and cognitive limitations that can affect an employee’s performance. So when this occurs franchise-system-employers can just get rid of the faltering employee right? Maybe not.

While “age discrimination” may be the most obvious concern, amendments to the Americans with Disabilities Act (“ADA”) substantially broaden the protections available to aging employees (actually any employee) who develop a “disability.” With these new protections come expanded burdens on employers which may have a profound effect on how employers deal with their older employees.

A brief overview may help franchisors AND franchisees avoid unwanted legal claims.

The Americans with Disabilities Act

• The ADA applies to employers with 15 or more employees;

• The ADA applies to employees with a “disability.”  In the simplest terms, anyone who has a physical or mental impairment that limits their normal lifestyle or major life activities, will be deemed to have a disability;

• Only a disability which affects job performance or the ability to perform any aspect of a job is relevant;

• Once identified or obvious and a determination is made that a disability affects job performance, the employee or their representative may request a “reasonable accommodation” as necessary to perform their job to the satisfaction of the employer. The request for an accommodation must be made by the employee or their representative unless it is obvious that the employee is unable to make the request on their own behalf.  As a practical matter, however, when  a disability is obvious to an employer, it is recommended that the employer take affirmative steps to ask the employee if they want an accommodation;

• When the employee requests accommodation, the employer may ask for reasonable documentation to support the request.  Doctors’ reports, medical instructions or other supporting documentation may be requested. Documentation can come from a health care provider or rehabilitation professional. The request  must be limited to the disability and the accommodation issues (not all medical records);

• Once the documentation is obtained or the employer is otherwise adequately informed, the employer should meet with the employee and conduct an interactive meeting to discuss possible accommodations that may work for the employee and be satisfactory to the employer (the EEOC offers this explanation: The employer and the individual with a disability should engage in an informal process to clarify what the individual needs and identify the appropriate reasonable accommodation. The employer may ask the individual relevant questions that will enable it to make an informed decision about the request. This includes asking what type of reasonable accommodation is needed);

• The only statutory limitation on an employer's obligation to provide "reasonable accommodation" is that no change or modification is required if it would cause "undue hardship."  "Undue hardship" means significant difficulty or expense and focuses on the resources and circumstances of each employer in relation to the cost or difficulty of providing a specific accommodation. Undue hardship is determined through a “circumstances” test which considers not only financial difficulty, but whether reasonable an accommodation is unduly extensive, substantial, or disruptive, or would fundamentally alter the nature or operation of the business.

Again, while there are many nuances associated with the above factors and each case is different, the basic steps outlined above generally apply to any circumstance involving a disabled or aging employee. Please keep in mind that your state may also provide protections for disabled employees.

Given the complexity of workplace protections today, it is always wise to consult your legal counsel before a simple employment matter spins out of control.