Changing Sign From Franchise to Independent and the “After-Effect”

blank-sign“What is the effect on a business if you take down the brand name sign and put up an unknown brand?”, was a recent question for discussion in a couple of the LinkedIn franchise groups. The question turned into a good discussion as there were over fifteen responses but I was surprised there was minimal reference to legal obligations and potential ramifications under the franchise agreement. Below, please find a few of the comments submitted, including my own. As we have done in the past, the names of the responders will only be identified as their LinkedIn description and their names will not be included in this forum. Upon reading the comments please free to include your own at the end of this article.

Award Winning Franchise Sales Specialist and Business Consultant said: That is a very good question. This is purely antedotal experience but what I have noticed in two industries;

Hotels- Drop-off is immediate. However, only about 10% of the revenue typically comes from the sign itself. It is the lack of a global reservation system that has the greatest effect.

Real Estate Companies- Slower but I typically saw a decline of revenues of up to 50% over a much longer period. ie. 5-7 years. Was this because of the sign or lack of tools and systems that the brand provided.

As a zee and a zor I would never sell nor buy a brand merely on the benefits of the sign. It’s the tools, systems, and experience that the brand provides that is of most vaule to small business owners.

CEO/Founder & Managing Partner of a franchise consulting firm chimed in: The question is too broad to to have a strong singular answer.

A McDonald’s owner (just using an analogy for comparative purposes) with a six of seven figure marketing budget and with an organization that has a 55+ year history, deeply embedded in the American culture would be committing commerce suicide.

However, I have been a part of a franchise where a number of the franchisee’s left the system in a service business; having established their capability, customer service commitment and frankly a strong book of business. Still they lost sleep, hair and either gained or lost weight before having made the decision.

How much of who you are is about you, your service, your relationships, your ongoing knowledge and the trust you have developed compared to the value brought by the company branding?

Secondly, taking the sign down only one part of the thought process. You may or may not value the marketing or positioning that the franchise has established but are you gong to be able to replicate it? Are you also going to have the time and the competency to evaluate both the future of the service, its technology and it’s market while continuing as it’s operator? Do you have the professionalism, time and organization to replace the things that the franchise should be providing?

Things that make you go hmmm…or, if they don’t, they should.

Founder, Owner and President of a franchise consulting firm added: I think the best example I can provide has to do with a brand that has been with my family for 4 generations now, Dairy Queen. Most of us have seen the iconic mansard red roofs of Dairy Queen and the image box out front. Some have seen these businesses close down and become all kinds of businesses. In fact just within a few hours drive of my house these former DQ’s once serving those glorious soft serve treats are now Taco stands, Cuban sandwich shops, nail salons, and I even saw one that was a puppy store.

Not good for the brand indeed.

As a DQ franchisee, I can tell you that when this type of thing occurrs it definately DOES impact the neighboring franchisees who remain in the brand. Without question it forces consumer to question the concept. They question everything from the strength of the brand, the tastiness of the food (in this example), and even the cleanliness of the other stores.

In my opinion it is ESSENTIAL for brands to completely demark so that every traceable sign of the former brand is extinguished. Franchisors who get lazy about this hurt their concept.

Of course, I participated in the discussion and added my views accordingly: Let’s not forget the resale value as a franchised brand as opposed to selling the business as an independent and all that goes along with it including attracting more potential buyers, proven business sytem, training, support for the new franchisee, advertising commitments, etc.

All go a long way especially if having to carry some paper is the only way to make the deal happen. Which might very well be the case in today’s economic environment.

Certainly the seller would feel more comfortable financing part of the deal if the business was still a franchise as he knows there are systems to follow and reporting to home office that will somewhat keep the business in line. As an independent, there’s no telling what direction the new owner would take and for how long. What condition would the business then be in if the business needed to be repossessed and operated again by the previous seller?

…It’s just flat out suicide!

I also added the following statement: Personally, the chance of total failure would be far greater as an independent. If the decision is made to take down the franchise sign, then why not solicit franchisor’s assistance to sell the business and then use the proceeds to open as an indpendent. If necessary, negotiate with the franchisor to waive non-compete, etc.

Quite frankly, I believe no one would take this route because they probably feel it’s just easier to operate the current business as an independent because the business is already up and running. In the end, most decisions to de-identify is a matter of not wanting to pay royalties. So, I say, live up to the franchise agreement and if so desired, exit with dignity and your reputation in tact.

An interesting note: The large majority of responses were submitted by franchise consultants. Although most of the consultants were former franchise company executives or franchisees. Only a couple of responses, and brief ones at that, were from current franchise company executives. As stated above, it’s another one of those things that make you go hmmm…or, if they don’t, they should.