Flexible Contracts are Key to Long-Term Franchise Success
“What happens is you write a contract in 1988, and then it’s 2013 and the world has changed.” That’s how Ken Walker, former CEO of Driven Brands, puts it when describing the need for flexibility in franchisor contracts.
Walker knows that sinking feeling, when your business model is out-of-date. He was CEO when his company was called Meineke Mufflers, in the 1990s, and he oversaw the transition to Meineke Car Care Centers.
The reason for the change: “If 75 percent of what you sell is mufflers and someone makes a muffler that doesn’t wear out,” you’ve got trouble, Walker says. “So look at the long-term metrics of the business model.”
Walker was one of three speakers at a recent Association for Corporate Growth meeting in Minneapolis about private equity firms investing in franchises. Gaylen Knack, attorney at Gray Plant Mooty and another speaker, agrees that flexibility has to figure into the contract.
“What rights are being granted to the individual franchisee and what rights are being retained by the franchisor?” is the key question for Knack. “That language and the reservation of rights becomes very important in offering a glimpse of what the franchisee is getting.”
What stays out of the contract is important, too. For example, the types of goods and services offered should be part of the operating manual, not the contract, so franchisors can adjust to the times, he says.