In Franchise Your Business, author and franchise consultant 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 offers smart advice on how you can determine if a prospect is a good fit for your franchise system.
Franchise sales is not a hunt for the next check. It's a true screening process through which you'll identify the best candidates to join your franchise family. The success of your system depends on the success of your franchisees, and the biggest factor in franchisee success isn't the system -- it's the people.
A well-executed sales process in which franchisee candidates are heavily qualified will result in selecting the right franchisees most -- but not all -- of the time. If a franchisor starts cutting corners and placing too little emphasis on franchisee qualification, it will be lucky to select the right franchisee half the time. Choose the wrong franchisee too many times, and your focus on growth will be quickly diverted to quality control problems and managing disputes with franchisees.
Before you spend your first dime on franchise marketing, you must determine the nature of your ideal franchise candidate. Ask yourself if you'd be better off with experienced prospects or if you should look for those without prior experience so you can train them from scratch with your philosophy and methods. Going into the franchise sales process without this knowledge invariably leads to accepting marginal candidates. Savvy franchisors will start by establishing objective standards that can later be subjectively modified based on further examination of its specific situation.
Beyond capital requirements, franchisors should look at the hard skills needed for success in their system. These skills will be determined based more on the role the franchisee will play in the operation than on the ultimate product or service deliverable. This will influence the lead generation strategy, the sales process, and ultimately the types of support franchisees will require to succeed in their business.
Ultimately, your role in assessing and turning down candidates who are ill-suited to your business is perhaps your most important job. And it may seem counterintuitive, but in the long run, a franchisor who is willing to walk away from the wrong sale will sell the most franchises and build the strongest network.
So how should you go about qualifying your prospects? What criteria should you use? Start with the following big three.
1. Capitalization and credit.
Your new franchisee must have -- or have access to -- the necessary funds to start up the business and carry it until it's profitable. A franchisee’s capital requirements will vary depending on a variety of factors, but most franchisors can readily identify a number at which their franchisees will have sufficient capital to open a unit and get it to profitability.
Undercapitalization is perhaps the number-one reason for franchisee failure. Adequate capital gives the franchisee time to learn on the job and recover from missteps, so every franchisor should take a conservative approach to franchisee approval in this area. Generally, the criterion is based on net worth, liquidity of assets, and the candidate’s credit score.
As part of your qualification process, you'll want to ask each prospect to complete a personal net worth statement that shows where their investment dollars will be coming from and secondary sources of income that may help them support any initial losses during startup. Be sure to verify that those funds truly exist by requesting confirmation from the prospect’s bank.
If the prospect doesn’t have much in the way of liquid assets, home equity can provide a source of some of the needed funds. But be careful: You don't want to allow your franchisees to become overleveraged.
Be sure to check your prospect’s credit and other references. TransUnion, Experian, and Equifax are the three primary players in the credit reporting industry. Additional checking can be done through SentryLink, an excellent resource for conducting background checks including criminal history, property ownership, and driving records. Credit checks can be run nationally or by state. Intelius focuses on criminal checks, bankruptcies, small claims activity, tax liens, address history, and court judgments.
2. Work ethic.
The more difficult part of the screening process involves looking at the prospect’s work ethic. Today’s increasingly sophisticated franchisees know what most franchisors want and may tailor their answers to suit the situation -- even when the ultimate result isn't in their best interest. Simply asking, “Do you mind long hours?” will garner the expected response. And calling references will likely yield the same nonresult if the prospect has chosen his references well.
So it's imperative to ask your prospects questions that will elicit meaningful information. Over the years, the iFranchise Group has developed a number of approaches to draw out meaningful answers. For example, in addressing the question of work ethic, one might envision the following conversation:
Q. So what do you do in your spare time?
A. I like to work around the house and golf.
Q. Really? I’m a golfer too. What’s your handicap?
A. I’m a six. How about you?
You now know that this prospect may be spending too much time on the links to be an effective business owner. I have nothing against golf, but it is not often that you meet a low handicapper who is eager to put in the kind of hours most new businesses require.
The point is to examine how the prospect lives their life, their outlook, and their expectations. Ask about an average day, about hobbies and achievements. If your prospect is a “nine-to-fiver” who reports that after a “brutal” eight hours, they feel a need to go home and unwind before a brisk evening of TV, they're unlikely to have the energy level or drive needed for your business. Let your prospects know what they're in for, and don’t hold anything back. Franchisees expecting to sit back and watch the money roll in may wash out early, so it's in the best interest of both parties that such prospects fully understand the required depth of the franchise commitment.
3. Organizational fit.
As important as financial readiness and work ethic are in choosing your franchisees, the subjective value of how well the candidate fits into your organization’s values and culture may be even more important.
Ultimately, part of the screening process must involve your own judgment. How well do you and your prospect get along? Do you share the same philosophies? Or is your relationship contentious from the start? Many of our clients have told us they accepted a candidate who looked good on paper, but who they “had a bad feeling about”-- and they lived to regret it.
With this in mind, it's incumbent on you to get to know each candidate one on one, the way you'd get to know a life partner. For larger franchisors, it's vital that they work to institutionalize a practice of screening for cultural compatibility.
You'll also want to assess other criteria such as intelligence. While franchisors often work to simplify business operations, even the simplest business model requires some intelligence to run. And as the saying goes, “You can’t coach ‘smart.’ ” Short of intelligence tests, a candidate’s work history, academic achievements, vocabulary, and general presence will provide the clues you’re looking for.
Be sure to look at those personal skill sets that will help the franchisee succeed. Are natural sales abilities important? Do they need to know how to manage people? Is financial analysis key? What about marketing skills? Does your franchisee need a background in a particular industry or professional certifications or licenses? Will franchisees with a certain type of personality be more likely to prosper?
When making these assessments, it always helps to involve multiple people in the vetting process. Many franchisors require serious prospects to travel to their home office to meet their management team. Afterward, the department heads are often asked to evaluate the candidate before the final decision. In some cases, franchisors give members of the management team veto power over franchisee acceptance.
As you go through the evaluation process, think about traits like honesty, integrity, and compatibility, because you may be living with this franchisee for the next 20 years or more. If a candidate is confrontational in the interview process, constantly questions your established systems, or otherwise provides you with indications that they may not be a long-term fit, listen to your inner voice and walk away.