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1. Put on the Red Ball Jets of franchising: Red Ball Jets were sneakers manufactured from 1951–1971. They did not make you actually run faster or jump higher, but they did give you the "attitude" to do just that. Display and instill in others (your employees, franchisees, lawyers, courts) a passion for franchising in general and your system in particular.
2. Contract away court/arbitrator control of your system: Limit and define the scope of the implied covenant of good faith and fair dealing by never using the "D-word" ("discretion") and preserving express rights, including your right to change the system. Make the business judgment rule as the test for good faith and fair dealing.
3. Choose arbitration: Use a commitment to arbitrate to control risks. Designate your home city as the locale/forum; preclude joinder of claims (including class actions); define arbitrator qualifications; preserve right to interim relief (but maximize mutuality); require arbitrator to follow agreement and apply law; consider expanding rights of appeal beyond FFA default rules.
4. Use airtight and specific disclaimers: Identify specific, potential representations and disclaim them. Use a closing checklist or acknowledgment addendum when the franchise agreement is signed to confirm a meeting of the minds regarding earnings claims, protected territory, site selection noncompete and other critical issues.
5. "Teach your children well": Teach your employees to create documents that win lawsuits—not lose them ("write smart"). Instruct salespeople on the Faegre & Benson "Ten Commandments of Franchise Sales." Develop systems for assuring compliance with laws. Consider using the FaegreFranchiseAudit.
6. Distinguish between "good controls" and "bad controls": Avoiding vicarious liability for the acts of franchisees means words and deeds that distinguish between control of the final product or service and control of day-to-day operations. Never control (or retain the right to control) the instrumentality that may create the harm.
7. Realize that the noncompete may be the glue holding your system together: Understand the concept of "good will"; maximize its protection in the franchise agreement; bring third parties within the scope of the noncompete; get control of franchisees' assets when leaving the system; never capitulate completely on enforcement of the noncompete.
8. Follow the Faegre & Benson "Five Habits of the Highly Successful Franchisor": Have an undying devotion to your brand; balance interests properly; find ace franchisees; obsess over the franchisee's bottom line; empower the franchisee.
9. Manage Carefully the Distribution Component of Your System: Reserve the right to designate a single source for products and services, including yourself, even if you do not plan today to engage in distribution. Also reserve the right to a commission on sales by third parties. Use knowledgeable attorneys to guide you through applicable laws, and remember that pigs eat but hogs get eaten' (i.e., be reasonable).
10. Understand deal-breakers: Settling rather than litigating disputes is almost always best—but not always. Focus first on "self help" (things you can do to resolve a problem without third-party intervention) and last on lawsuits and arbitration that make judges, arbitrators, and juries the decision-makers. Know when to take a stand.
In Closing: In all things, make "Be kind" your motto. Ultimately, everyone involved in the franchise system wants respect and a degree of control over their destiny. Honor these needs, but never forget you are the master of the system ship. Satisfied franchisees do not sue their franchisor.
