Mark Siebert delivers the ultimate how-to guide to employing one of the greatest growth strategies ever -- franchising. Siebert shares decades of experience, insights, and practical advice to help grow your business exponentially through franchising while avoiding the pitfalls. In this edited excerpt, Siebert explains why there are some prospective franchisees it's best to say no to.
Prospective franchisors regularly ask me about the most difficult aspect of franchising. Is it franchise sales? Ensuring franchisee success? Quality control?
And my answer always surprises them: “No, it's turning down a check for $40,000.” This is because the single biggest mistake made by novice franchisors is to sell franchises to candidates who are not truly qualified.
The temptation is understandable. When a new franchisor begins to market franchises, it will likely experience lower closing rates and longer sales cycles than it's ever encountered before. It feels like that first franchise sale will never take place. Doubt creeps in. “Will I ever sell a franchise?” And then a prospect the franchisor secretly knows is marginal indicates they want to sign the franchise agreement and pay the initial fee.
So what do you do?
Before you take that check, remember you are in this for the long haul. And nothing is more important to your success than the success of your franchisees.
Don’t forget, marginal franchisees require much more support than their stronger counterparts. This means you'll need to devote more resources to, and incur more costs for, supporting these franchisees, and they'll generate lower-than-average revenues and pay less in royalties -- if they pay them at all. Failed franchisees, of course, pay nothing.
Furthermore, they're much more likely to bring litigation against their franchisor. And that's just the start. For franchisors that use a financial performance representation in their disclosure documents, a bad franchisee’s performance will drag down reported averages -- making the disclosure less impressive. And, as every franchise salesperson will tell you, a system characterized by poor franchisee validation and failed locations will be harder, if not impossible, to sell.
You should also remember that every one of your failed franchisees (and your franchise-related lawsuits, should you have any) must be included in your disclosure document. A savvy franchise candidate will always speak with these franchisees as part of their due diligence.
Now, if a marginal candidate is your 25th franchisee, you can probably weather the storm, though I'm not advocating that you relax your standards as your franchise grows. But if this franchisee is among your first 10, you have a problem. And if they're your first, you may be so distracted by their demands that you never get your franchise program in line again. Moreover, your first franchisee will often set the tone for your entire franchise program.
Suppose you accept a franchisee who's unqualified, undercapitalized, and lazy. Do you really think they will tell a prospective new franchisee, “The franchisor was a great teacher, and the system is flawless. The only reason I failed is because I'm stupid, undercapitalized, and lazy.”
Not likely! Instead, your prospect is more apt to hear, “This was the worst decision I ever made. The business is failing. The franchisor was absolutely no help. This business is much harder than I ever thought it would be -- and much more expensive. It looks like I'm going to lose everything. My wife has left me and taken the kids. I’m about to lose my home, and by this time next week, I'll be living in a cardboard box underneath the railroad station.”
If your prospect talks to this franchisee, I can pretty much guarantee you'll never hear from that person again, regardless of the quality of your marketing materials or how well your development staff prepares them for “the one or two franchisees who may not be doing so well.”
Consider, on the other hand, what will happen if they hear a chorus of “This was the best decision I ever made. I didn’t have any experience and was worried at first, but the franchisor was great. They helped me every step of the way and were always there for me. My earnings are far better than what you're looking for, and frankly, after only five years, I'm planning on buying a fifth franchise out of the profits.” Any worries your franchise salesperson may have had about overcoming objections have just disappeared. Start preparing the paperwork!