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Franchisor/Franchisee Fundamentals

Vimana Franchise Systems' Steve Belmonte shares the fundamentals for a successful franchisor/franchisee relationship.

Friday, August 10, 2012
Mr. Steven J Belmonte - CHA
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One of the greatest personal debates we often face centers on character. Do you believe that it’s possible for a person to possess both a public and a private character, even if the two are very different? What you do in private is your own business, as long as it doesn’t affect your public performance, right?

Not necessarily – especially when your individual personal performance impacts your business performance. Once you divide your personality and your actions into two or more categories, you deviate from the very definition of the word “character.” At its root, one’s character is defined by one’s integrity – “The quality or state of being complete, unbroken condition, unimpaired, of sound moral principle, uprightness, honesty and sincerity.” – (Defined by Webster)

Therefore, if your character – which defines who you are – is broken into two or more entities, you no longer have integrity because you are no longer “whole.” Without integrity, you don’t have much character. Unfortunately, without integrity it is still possible to run a successful business. However, the chance of your being successful is greatly minimized, and while certain people may do business with you, it’s most likely going to be out of necessity. When your integrity is low, “people know it.”

How many times have you heard a franchisor or franchisee claim to operate with integrity? In the hospitality environment, integrity is achieved by walking the talk and doing for your franchisees, employees or guests what you say you are going to do.

Sounds pretty simple. . . and a great formula for a successful partnership, right? Partnership is achieved by accomplishing goals together and by teaming for the good of all parties. Unfortunately, just as in personal relationships, business partnerships sometimes fail because one of the parties takes his or her eyes off the original goal, or somewhere down the road loses integrity because of a flaw in his or her character (dishonesty perhaps, impaired judgment or in many cases the person “just doesn’t care.”)

Sink or Swim?
In the movie “Titanic,” one of the primary reasons the ship was considered unsinkable was because of the way the compartments in its hull were designed. The theory was that flooding in one compartment due to a breach in the hull wouldn’t affect other compartments because of the high walls between them. What the ship’s designers didn’t consider, however, was that if the breach was big enough, water could spill over the walls from one compartment to the other, until the ship sank.

The same theory can be applied to the franchisor/franchisee relationship. If there is breach in the contract by either party, the negative impact on the relationship will begin to spill over from one area of your business into the next until eventually, the partnership crumbles, and the weaker of the two businesses possibly could sink.

How do you avoid such a tragedy? Franchisees looking to assure themselves of a solid, equitable franchise contract must first find a franchise company that is led by hoteliers with character and that is built on integrity. They will want to select a franchise based on the company’s ability to provide them with the tools necessary to run a successful business, such as knowledgeable senior management, great marketing efforts, field support, an effective franchise board that has a voice in what goes on within the company, along with various other areas of support.

Likewise franchisors must be certain that they are building partnerships with owners who are willing to follow the standards and guidelines set by the franchise company to be successful. If a franchisee has done everything possible to make his or her businesses successful – even requesting the assistance and consultation of the franchisor when the first signs of trouble arise – and the business is still sinking, then it is up to the franchise company to provide equitable franchise termination and exit strategies.

If the mutual goals of the franchisor and franchisee are not being met, then there is cause to terminate the partnership. As long as both parties keep their integrity in check, and maintain their character in the true spirit of hospitality – taking each other’s business and financial goals into consideration – then there should be an equitable separation.

Actually, sometimes it is just a prospective hotel owner, but whatever the case, it is always someone who has found frustration and confusion. The source of their problems is the contracts already entered into (or about to be entered) between them and the hotel franchise company. Whether I am in my office or attending a hotel-industry event, the conversation invariably is about problems that crop up between a hotel franchise company and a hotel owner.

Inference should not be drawn here that the problem in these matters has anything at all to do with devious franchise companies. While all of them are in the business of making money, none would survive for very long if they engaged in practices that are dishonest, unfair or morally bankrupt. So, it is clear that the problem is not that franchise companies are out to cheat potential and current franchisees. Precisely, the problem is that the franchise agreement is an intricate document designed to deal with as many situations as possible in favor of the side that draws up the contract—namely, the franchise company.

Besides, the franchisors and the executives they have hired are in possession of decades of experience, not only in the franchising arena, but also the hotel industry or other areas of hospitality. They have an ingrown advantage in dealings with hotel owners and that is something that will never change for as long as business is done.

The obvious solution is for the hotel owner to come as close as possible to simulating for himself the vast wealth of experience working in the favor of the franchise company. Knowledge must be drawn on wherever it is available, but it must be knowledge gathered with a critical eye and the realization that it is seldom the case that any two hotels’ circumstances are exactly alike. Thus, what the potential hotel franchisee learns from a current franchisee must be taken with a grain of salt. No two businesspeople do business in exactly the same way, and no two hotels’ properties can be run in an identical manner.

Hotel franchisors are already aware of this truth, and will go to great pains to prepare franchise contracts that are specific to the nature of the property involved. These companies have expertise in information gathering, historical data and travel-and-tourism patterns (to name a few items), and they know how to put all that data to very good use.

All of this is also pertinent to those hotel owners who are already in franchise agreements, and who now seek to be relieved of those agreements. There is an axiom about it being far more difficult to get out of a business contract than it is to enter one, and it seems that in all fairness the opposite should be true. But facts are facts, and whether entering a franchise agreement or seeking exit from one, the hotel owner must be as prepared and informed as is the franchise company.

Historically there has been only two ways of dealing with a franchise agreement, and liquidation or termination. You could endeavor to do it yourself or you could go out and hire a lawyer, who perhaps may be even more uninformed than you might be about the substance of hotel franchise agreements. The problem is that unless you are very knowledgeable about hotel franchise agreements or the varying atmosphere within the different franchise companies, you are probably not going to do an effective job entering or exiting a contract.

The franchisor/franchisee relationship is truly the ultimate in power sharing and character building. In the true spirit of hospitality, we as hoteliers need to look inwardly to see if our character is being defined by our business integrity.

Verbally trashing the franchisor if your business is doing poorly is not the way to seek an equitable resolution or to build your character in the eyes of your fellow hoteliers. Howling at the moon won’t put more heads in beds or improve your integrity in the eyes of the franchisor, which most likely is able to help you get back on your feet.

Yes, owners should expect to get the very most – the highest return on investment – from the fees that they pay every month. But recognize that not all franchise companies are the same. Some operate with integrity and some may not. The one’s that do will structure a fair franchise agreement that is equitable for both entities. If implemented correctly, there are ways to maximize the benefits provided by the franchise company to help increase guest satisfaction and improve overall asset performance.

True partners can weather any storm. Those who build a business relationship on integrity, looking inwardly at the character behind those building the partnership, will be those who swim up stream, even in the roughest waters.

About Vimana Franchise Systems LLC

Vimana Franchise Systems LLC is a hotel franchise company owned by CEO Steve Belmonte, President Neal Jackson and Vice President Cory Jackson Jr. In May 2011, Vimana Franchise Systems launched the Centerstone brand as a three-segment franchise designed to create a fair and cost effective model for the hospitality industry. In November 2011, Key West Inns was re-launched under the Vimana Franchise ownership umbrella as a fun and uniquely themed leisure brand. For more information on Vimana Franchise Systems LLC, contact Steve Belmonte at (407) 654-5540 steve@vimanafs.com. Visit Vimana Franchise Systems online at www.VimanaFS.com. Visit Centerstone online at www.centerstonehotels.com, on Twitter at @Centerstonehtls, or on Facebook at www.facebook.com/Centerstonehotels. Visit Key West Inns online at www.staykeywesthotels.com, on Twitter at @StayKeyWest, or on Facebook at http://www.facebook.com/staykeywest.
Steven Belmonte CHA    Mr. Steven J Belmonte - CHA
Chief Executive Officer / Owner
Owners, Principals, or Partners
Vimana Franchise Systems, LLC

Bio: Belmonte served a decade as President and CEO of Ramada Franchise Systems and Executive Vice President of Cendant hotel division from 1991-2001. In 2001 Belmonte founded Hospitality Solutions, LLC. Hospitality Solutions primarily negotiates the reduction of liquidated damages/termination fees for hotel owners who have been terminated or desire to cancel their existing franchise agreement. The company also negotiates fair franchise agreements for owners for all major brands. ...
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