Dear Franchisor: You preach "win-win" but often don't practice it.

Summary: Franchisor thinking is largely stuck in a 20th century time warp. In today's ultra-competitive environment, it's time to leave the past behind and forge more practical franchise relationships.

An impressive franchise success story

An unusually succulent sweet bun from Southeast Asia has gained a cult-like following in the UAE, with tens of its branded stores having sprung up everywhere in a relatively short time span. In its country of origin however, the bun is far from unique, with around half a dozen other brands selling an identical product. Curiously, their names are almost identical too, with a minor play of words separating one from the other.

Inspired by their competitor's spectacular success in this region, many of those other brands followed suit with their equally good, if not better buns.

Long story short - they all failed. Spectacularly.

Franchisee outdoes the franchisor

Full marks to the Master Franchisee (or Area Developer if applicable) for recognizing the local potential of this hereto unknown concept, whose product was good, but not necessarily one of a kind.

It took a well-executed strategy to leverage the first-comer's advantage - to the point that the bun and brand are now synonymous, and competition redundant. Bravo!

It also took foresight, conviction, grit and money. All four in copious amounts I presume. I just hope that the Master isn't being penalized for this extraordinary feat with 6 to 8% in royalties and a slew of overt and covert charges.

And if there’s a local marketing fund, I truly hope the franchisor is contributing at least a dollar for every dollar spent by the Master. That would only be logical in this case. And fair.

A widely neglected equation

Here’s a fundamental truth that is frequently and conveniently forgotten by fledgling franchisors - the kind who have a great product but scarce resources to fuel growth and recognition:

Franchise Proposition = Turnkey Operating System + Brand Equity in Prospective Territory

In the case of the buns, the brand likely ticks all the boxes for the operating system. But it had little or no prior recognition in the UAE, and hence no brand equity. However, thanks to the Master Franchisee’s commitment, it is now a household name in the country, the benefits of which the franchisor will reap by selling other territories at elevated prices.

In other words, the franchisee dramatically raised the brand’s global equity, but the franchisor probably retains all of it.

All franchises aren't created equal

Only a handful of franchised brands will ever have the instant recognition of the golden arches, the two tailed green mermaid or the bespectacled elderly gentleman in red. For the rest, relationships like the one cited above are perfect - provided they aren't governed by lopsided franchising notions stuck in a 20th century time warp.

Fees and royalties must be radically rethought and if the case warrants, equity must change hands too. Otherwise it makes little sense to invest in raising the blanket value of someone else's brand, opening new markets for it, but being limited to the narrow confines of a master franchise agreement in reaping benefits.

Time for a reality check in ultra-competitive times

I conclude with well-meant two cents to those franchisors with an exaggerated sense of self-worth and a rigid mindset to boot: In lacking local recognition in franchised territories, you're giving the franchisee just one leg to stand on.

Despite your wow product, this necessitates a significant additional spend by the franchisee on your brand - a disadvantage that must be tangibly offset in the terms of the agreement, especially fees.

Without such allowance, they are undoubtedly better off developing an original brand by incurring a one-time investment, no matter how steep.

Fact remains that many local investors have managed to raise franchised brands to greater heights than in their countries of origin, without sufficient reward for the risk taken and results achieved. It's time that changed.