How Do You Size up a Potential Franchise? Schmooze.
When it comes to choosing the right franchise, the concept of due diligence is simple: Invest the time and fully understand a prospective franchise system before you buy, and you'll reap the rewards of success down the road.
As a franchise coach, I emphasize to prospective franchisees that "due diligence" absolutely must include talking to existing franchisees. Many people underestimate just how important this is to the process.
But the truth is, you cannot begin to fully understand a franchise system until you put in that time on the phone. Simply phrased: Franchisees are the window through to measure the success of the whole system. So, how do you do this correctly? Here are the six types of franchisees you should speak with to form a complete picture of the system you want to join.
1. The top 20 percent
A franchise system is like any other group of people. There are the top 20 percent, the middle 60 percent and the bottom 20 percent. Step one is to interview the top 20 percent so you can gain a sense of what success means in a given system. Does what you learn align with your personal view of success? Also assess what type of people these 20 percent are. Are they like you? Can you see yourself building the business they have built?
2. Old and new franchisees
The second step is to make sure you include a balance of old and new franchisees. The franchisees who have been in the system for a while have a different perspective from those who have not. Seasoned franchisees can tell you what it’s like to own the business for a long period of time, including whether it gets easier or harder. They have a historical perspective on the franchise system, and their knowledge of where the business has been can be deeply important. A new franchisee, on the other hand, can offer insight about the training program, initial support and what it's like to open the business in today’s business climate.
3. Franchisees who are similar to you
Next, you want to find franchisees similar to you. What better way to evaluate a franchise system than to talk to those who have gone through similar challenges? Not only will they provide a good comparison for your future success, but they will also likely be a great support system later on. Ask the franchisor to point you toward a few franchisees from similar backgrounds.
4. Franchisees who are underperforming
Every franchise system has locations that are underperforming. The critical question you need to ask is “why?” First, they may be underperforming due to external circumstances, such as weather or seasonality. In this case, determine if the same external issues are likely to affect you. A second reason may be personal issues, such as not having the correct skill set or not following the system. In this case, evaluate if you are likely to encounter the same issue. Finally, the reason may be that the franchise system is unable to drive success at the franchisee level. In this case, you will most likely find a large number of underperforming franchisees. And, of course, if the system does not reduce your business risk in a predictable way, it does not have much value.
5. Random picks
It is still important to pick up the phone and call a few random franchisees to get a better idea of the health of the system -- especially if the franchisor attempts to promote only its best franchisees and keep you from those who are less successful. In general, a strong franchisor will encourage you to speak with any of its franchisees.
6. The franchisee closest to you
Everyone wants to speak with the franchisee who is just down the road. However, you need to approach this situation with significant caution. First of all, this discussion is likely to be biased. That’s because most franchisees believe that having a franchisee down the road will either help or hurt their business. So, it may be hard for a franchisee to share honest, unbiased advice when your entry into the market will have a financial effect on his or her business.
More importantly, speaking to the closest franchisee may lead to a loss of opportunity. You might alert them to the impending sale of an adjacent territory. So, speak to the neighboring franchisee at the end of your calls, when you have already gained ample information from at least 10 other franchisees. That will put you in a position to correctly interpret this individual's comments and intentions.
Above all, it’s important to remember that these franchisees are not required to speak with you, so you need to be respectful of their time. As it is, a franchisor will only give you access to the franchisees after you have completed the initial steps and been deemed a good candidate. Once you do pass the initial steps and start calling for more information, remember these three vital tips:
- Go beyond yes and no questions. Always follow up to dig deeper and find the truth.
- Listen intently. Pay attention to how the answer is presented as well as the answer itself.
- Be appreciative of the franchisee's time and remember to send a thank you note.
Speaking to a variety of franchisees will give you a clear picture of the good, the bad and the ugly. In the end, have fun with the process, as this should be an enjoyable and encouraging, as well as informative, task.
Entrepreneur Leadership Network Writer
Rick Bisio is the Amazon-bestselling author of The Educated Franchisee, a leading franchise coach with FranChoice, the co-host of Rick Bisio's Franchise Focus, and the creator of the FDD Exchange and the Franchise Glossary. Since becoming a franchise coach in 2002, Bisio has assisted thousands of aspiring entrepreneurs nationwide explore the dream of business ownership. Prior to joining FranChoice, he was the director of international development at AFC Enterprises, the parent company of Popeye's Chicken, Church's Chicken, Seattle's Best Coffee and Cinnabon, establishing locations in more than 30 countries.