This is a prerequisite for any development of a franchise network.
It must be sufficient.
Becoming a franchisor involvesanswering several questions:
- Have I experimented with my concept long enough to become a franchisor ?
- In other words, for how long should the franchisor’s know-how be experienced?
Experimentation of the concept before launching the franchise contract
Franchisor's business concept needs to be experienced
From a practical and commercial point of view, a franchise candidate will first ask for proof of success. He joins a franchise to benefit from experience, experimentation and limit his own entrepreneurial risks.
So from this point of view, yes, it is extremely important to have proof of success of your concept.
From a legal point of view, the franchise agreement will provide the franchisee with know-how and this know-how is defined as a set of practical knowledge drawn from the franchisor’s experience. So experimentation is obviously necessary for this know-how to exist, which is an element of the validity of the franchise contract.
Sufficient time for the future franchisor to experiment with the concept
Because for the franchise agreement to be valid, the franchisee must receive consistent consideration for the payment of its royalties, entry fees, royalties paid throughout the execution of the agreement and this is the reason why the agreement must be both secret, that is to say not immediately accessible and that it must be substantial, that is to say that it must provide the franchisee with an advantage compared to the situation in which the franchisee would have been if he had not joined the
franchisenetwork.
And so this experimentation will make it possible to guarantee a know-how that is both secret and substantial. So these are qualities that are extremely interrelated.
A franchisor provides the franchisee with know-how that must be proven. You don’t franchise an idea: you franchise an experience.
Clearly, the franchisor provides the franchisee with a set of tools and knowledge, which must have been acquired in the field, through research, development and experimentation.
It is therefore necessary to start by opening one or more pilot units. You have to exploit them yourself before engaging in franchise development.
The number of franchisor pilots
You need at least one driver: otherwise there would be no test. The requirement of a pilot should be considered as a minimum requirement.
The franchise agreement is a reiteration agreement, in the sense that the franchisee is asked to operate under the conditions defined by the franchisor, that is to say according to the know-how of the franchisor.
In order for a franchisor to be able to obtain from a third party that it succeeds in exploiting its know-how, it is good that it has itself tested its duplicability.
This assumes that the franchisor has operated at least two pilots. The success achieved in the first point of sale is confirmed by the exploitation of the second: we then know that the same causes produce the same effects.
In fact, the more pilots there are, the more we will have been able to verify the relevance of the know-how, to experiment it to the point of adjusting the concept, to define the optimum contours. The multiplication of tests allows the development, the enrichment of the experience: this is most often the condition of operational performance.
The judges do not require that there have been multiple pilots to admit that the know-how has been proven and say that the franchise agreement
is valid.The risk that they consider that the experimentation is insufficient decreases with the number of pilots: the more pilots there are, the more know-how will be considered validly experienced.
How long does it take to experiment with the concept before launching the franchise?
This is a very practical question that everyone is asking themselves. But the law does not provide an answer.
The franchise agreement is not named by law. So we must generally assess when this experimentation will be sufficient.
Now, the longer the experimentation will be and will have been repeated in many branch stores and the more, obviously, the know-how will have a proven character.
This experimentation must be sufficient: that is to say, it must last long enough and be sufficiently extensive for the franchisor to be able to see that the operation on the one hand is profitable, and on the other hand, that the experience acquired is reproducible, and therefore modelable.
In law, it is required that the know-how has been experienced for the franchise contract to be valid. This requirement is set by the judges, in the absence of any legal rule.
Most often, if the experimentation lasted less than a year, the judges consider that the know-how has not been tested and pronounce the nullity of the franchise contract.
If the test has been conducted for more than two years, it is generally judged to be sufficient.
Reproducible know-how under comparable operating conditions
At this stage of the steps to be taken to become a franchisor, it must be ensured that the conditions under which the future franchisor has exploited its business concept are comparable to those that will be proposed to the franchisee.
At the end of the test, we must therefore be able to describe a typical catchment area, a typical commercial location, an assortment of products or a list of typical services, etc. There must therefore be a typicality of your experimentation.
Thus, we cannot ask or allow a franchisee to lease a 150 m² space located in a shopping center while the pilots were operated on 50 m² areas in the city center: neither the rental conditions, nor the structures of staff costs, nor the assortments presented, nor the merchandising, etc. would be comparable.
The standardization of know-how therefore implies that franchisees operate under conditions tested by the franchisor.
What am I at risk for if my know-how has not been tested?
You risk the nullity of the franchise agreement: a franchisee could complain by saying “I did not have the counterpart to my royalties” because the know-how was not sufficiently experienced.
If the judge admits this argument, well, he can cancel the franchise agreement, that is to say, consider, finally, by a fiction that the franchise agreement never existed. And so, from that moment, he can pronounce restitution.
This is the automatic consequence of nullity. Therefore, restitution of the entry fee, the fee that will have to be reimbursed to the franchisee, but also, if the nullity has caused him damage, compensation for his damage.
If I still want to create a network with little or no experimentation, what are the solutions?
Then we can resort to other types of distribution contracts; the franchise is not the only contract that makes it possible to organize a distribution with independent distributors; we can think of exclusive distribution, which is based on a game of territorial exclusivity or supply, of which the concession is a form.
One can think of selective distribution if the product that is distributed is a luxury or high-tech product. We can still think of brand licensing where the distributor will have the obligation to operate a brand by respecting a marketing mix but without commitment to provide know-how.
There is a whole range of alternative solutions available to the entrepreneur if his time to market does not allow him to wait until he has experimented further with his business concept before launching his distribution network.
L'expérimentation du concept de Franchiseur
