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Why Some Partnerships Stink and What to do About it

October 7th, 2010


There are basically two types of partnerships: those that stink and those that are great, with those that stink apparently far outnumbering the other. As a result, many franchisors go as far as discouraging franchise candidates from forming partnerships during the recruitment process. “You can do it yourself,” they say. “Why would you ever want a partner?”

Because of the synergy frequently created by great partners’ complementary skill sets, often a committed partnership will outperform franchisees who go it alone. Therefore, Franchise Performance Group is not against all partnerships, just the stinky ones.

The quality of an existing operating franchise partnership is almost always designed to be that way from the beginning. Great partnerships are like the successful married couples who dated for three years before they got married, having survived the tough “How many kids do you want?” premarital conversations. As a result, they enter into matrimony with their eyes wide open and with carefully managed expectations. On the other hand, stinky partnerships are like the couple who met at the airport bar and decided (after a few belts) they were meant to be together and thought it would be a great idea to hop a red-eye to Vegas.

The mistake most franchisors make is they neither take the time nor ask the questions necessary to predict the likelihood of success of the partnership. Prior to awarding any partnership a franchise, the franchisor should probe the key areas below and listen intently on how the partners respond.

Key areas of concern How successful partners usually respond How stinky partners usually respond
Roles and responsibilities Partners have clear roles and delineation of responsibilities. They haven’t thought roles and responsibilities all the way through, but one partner thinks they might be better at sales and the other is familiar with Quickbooks.
Decision-making The have an upfront agreement on a mechanism for budgeting and strategic decision-making One partner got their way last time, now it’s the other’s turn.
Ownership They are clear on who invests what amount, who owns what shares, and if additional capital needs to be raised, what happens to shareholder value. Huh?
Conflict resolution They have a mechanism in place for breaking deadlock in the decision-making process, keeping the business moving forward. Rock-paper-scissors. If that doesn’t work, the one who doesn’t get punched in the mouth makes the decision.
Values Share common leadership and management philosophy. Do business according to the same set of principles. Values schmalues. As long as we’re making money, who cares?
Sharing the benefits They agree up front about what dollars are reinvested and what money gets distributed to whom and in what proportion.

A dollar for me and a dollar for you.

We just invested. Why should we reinvest?

Exit strategy They have negotiated a buyout agreement up front, allowing partners to cash out gracefully should their objectives not be met, while at the same time leaving the business intact. Pistols at 20 paces or running each other down in the parking lot.
Partnership agreement Drafted by an attorney and signed by all parties. Do notes taken on a cocktail napkins count?

If a franchisor doesn’t hear intelligent, well-reasoned responses to the franchisor’s questions regarding these areas of concern during the franchisee recruitment process, they should know up front the partnership is positioned to fail. The franchisor then has a choice to make: 1. Run like the wind or 2. Demand the partners think their partnership through and create a formal partnership agreement addressing the areas above and submitting it to the franchisor for feedback.

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