Finding the Right Fit
The franchise arena continues to see new entrants with exciting concepts in new categories, providing would-be entrepreneurs with the difficult task of choosing the right fi t. Prospective franchisees have more opportunity than ever to perform due diligence on concepts of interest, including internet searches and attending franchise trade shows. While there is much to learn when perusing the show floor, a good dose of patience is needed to keep moving through the concepts and collecting information. The real work comes after the show when you are narrowing down the choices and evaluating the potential of the concepts of interest. So, how do you determine “fit” with a franchise?
While there is no defined process, there are some critical steps that should not be overlooked. First, consider your interests and passions to make sure that your time spent over the next decade is in something you like. Research has shown that when you pursue something you are passionate about, the rate of success increases dramatically. Secondly, determine what the characteristics are of their existing “successful” franchisees. When you interview franchises ask them who the peer leaders are in the network. The franchisee network is an important component of support so make sure it’s a group you’ll fit into. Finally, don’t be so “passionate” that you overlook the financial performance indicators. You want to choose a franchise that has the potential to deliver a strong return on your financial investment.
Courting the Franchisor
Now that you have a few finalists that could be the right fit, it is time to work towards the winner of your investment, both in time and money. The art of courting is important to picking a mate for marriage and no less so in choosing a franchise. At the trade show you’ll get a glimpse into the companies’ culture based on how they present themselves. But, attending a discovery day program at the franchisor’s headquarters is an important stepping stone in the process.
You should be looking for a well thought out program that is professionally conducted, and it should provide you with access to key executives in all functional areas of the company. It should also create a clear path to franchise ownership that addresses all your questions including any you have with the franchise agreement and/or the Franchise Disclosure Document. Most importantly, it should build confidence in you that this is the place you want to spend your time and money over the foreseeable future. Don’t overly commit too early. You want the franchisor to pursue you as well. Courting is a two-way street of learning about each other to determine where there are synergies, commonality and to identify differences and potential issues.
Understanding the Relationship
The franchise agreement is the basis of the legal relationship between a franchisor and franchisee since that’s where the lawyers will go if things turn sour. In order to avoid that happening you should invest in getting to know the franchisor staff and several of their key franchisees…personally. Franchising is personal. You’ll be spending considerable time in your business
and seeking input, guidance and support from the franchisor. If you have not developed a good, interactive relationship on the front-end, don’t expect it to magically improve after you sign the franchise agreement. Statistically, it will diminish as studies show franchisees feel a “let down” after they sign the agreement. Some franchisors work hard to sell the franchise, which is okay, but
look for the franchisors that truly value the ongoing relationship with their franchisees. This is harder to identify but it can be a key element in determining which franchisor is right for you. And, a word of caution: if you can’t trust the salesperson or anyone on the franchisor staff for any reason you probably should not be committing to a long-term legal relationship with them. In my experience over the past two decades, a strong relationship works through problems and issues, and the absence of such leads to legal action and disappointing result.
Sealing the Deal
Although you may narrow the field to six or so franchise concepts, inevitably it will come down to one or two. Even if you really want a particular concept, it is always beneficial to keep an alternative concept available. This helps you keep an objective view towards the relationship and it lets the franchisor know that they are not your only choice. If you are inclined to negotiate your franchise rights, be forewarned that franchisors rarely make any exceptions. Besides any legal implications, it just doesn’t make good business sense to have different deals with franchisees. Franchisors know that the word will get out and it can be a very disruptive force within the network. Given the unlikely opportunity to make changes to the franchise agreement, focus on being the best franchise prospect they’ve ever had.
Franchisors have choices on where to allocate their resources and typically they go to the franchisees that they “like” and that are seen as team players. If you can identify concepts that match your interests and passion, and systematically evaluate the potential for a meaningful relationship, then it’s time to gain the favor of the franchisor and seal the deal. And that is franchising well…
Ben Litalien is the 2011 Karp Research Foundation Award recipient for his ground-breaking research on “Social Franchise”.
He is the founder and principal of Franchise Well, a
specialized consulting practice supporting franchise
companies, prospective franchisees and nonprofit
organizations interested in the franchise sector. Ben
is a Certified Franchise Executive as designated by the
Institute of Certified Franchise Executives and he teaches
the Franchise Management Certification Program at
Georgetown University in Washington, DC. He has an
executive MBA from the University of Houston in Texas and
is currently pursuing his Doctor of Management degree
at the University of Maryland University College.
For more
information visit the website at www.franchisewell.com or
Ben can be reached at ben@franchisewell.com.
