Don't Choose a Franchise Until You've Talked to People Who Already Own It
Entrepreneur's New Year’s Guide
Incorrect expectation is the chief reason for disappointment in life and business. With more than 3,500 franchise concepts in 90 or so industries, searching for a franchise can be a daunting task. Aside from finding something that is a good fit for you, your skills, your future and the community in which you will operate, how do you even know if the company itself is worthy of your time, effort and money? What should you expect from your investment?
The good news is that investigating a franchise is unique because it’s the only investment vehicle that allows you to actually talk with people who have made the investment already. This way you are not just reading spread sheets, brochures or listening to testimonials from people who may be paid actors.
Once you engage in conversations with the franchise representative of the company you’re considering, you will receive a plethora of information boasting about the greatness of their company. They’ll probably also say why they happen to be the best in their industry and why this is the perfect time to get involved with them. They will probably even throw in a comment about being recession resistant, too.
The voluminous, detailed, government-mandated, telephone-book-sized manuscript about the franchise you’re considering is called the Franchise Disclosure Document (FDD). If you have not heard of this item yet, you certainly will as you plunge into your franchise search. Although the FDD looks like an overbearing prospectus from a public company, it is really a document that makes the company transparent for the perspective buyer -- you. It is your best friend during the due diligence process. You must understand the information given in the FDD. The best thing about the document is that is provides the contact information for every franchise owner in the company at the time of printing including a list of units that have closed their doors or sold. For help with understanding this, go to www.TheFranchiseAcademy.com for further reading and videos about the FDD.
However, after distilling and digesting all the information disseminated by the franchise company, the very best way to gain clarity on the franchise and correctly set your expectations, is by talking to their franchisees. This process of validating the franchise is the single most important thing you can do in your franchise search and it may save you from franchise failure. Moreover, you’re permitted and encouraged to contact existing franchisees. Great franchise companies want franchise owners to come in educated and with eyes wide open, so there are no surprises.
I have some tips to help with making these calls and face-to-face visits. You need to plan on calling and, when possible, visiting a number of the existing franchisees. Talk with a sufficient number of the existing franchisees to ensure you have a sense of the prevailing attitudes of the group. You should begin making these calls after the sales person from the company gives the go ahead. (Remember the franchise company is evaluating you on how you follow systems so please follow their process for investigation.)
Though you want to find the overwhelming majority of franchisees to be happy and supportive of the franchisor, it is important to try to find an unhappy franchisee during your investigation. When you do, not only listen to the complaints but also try to determine what makes this franchisee different from the rest. If you find that you identify with the positive ones, and feel the negative franchisees are not at all like you -- that’s a good sign.
Remember, evaluating franchise owners is similar to assessing a football team. The players span a bell curve, meaning that 20 percent of the players will be the top of the heap, superstars. Next, 60 percent will be average and doing just fine. Then the other 20 percent will be under par and sitting on the bench. You want to emulate the superstars but also know why the under-par performers are not pulling their weight. This will help you define if the franchise is right for you or not.
When you make the call, introduce yourself as a potential franchisee. State the name of the salesperson you are working with so that they know you are not the competition just spying on the company. Also, franchisees with businesses very close to your area of interest might have future plans to expand into your area, so often times they will attempt to taint the success of the franchise. I suggest to first talk to franchisees who are far away from where you plan on opening, in order to get a real sense of the company, then talk to local franchisees to see what’s happening in your local market. If the local owner has some negative things to say, you can hold that up against the other information that you’ve gathered to understand what is the real, average situation within that franchise company.
Related: Franchise Basics
A good way to approach this is to begin by calling franchisees with as much history as possible. We want to know early if your financial goals can be achieved. Then call owners with one to two years history and focus on break even expectations. Finally, call a few owners that have just started, as they’ve received the most recent training, and have had recent interactions with the corporate office.
Please note, franchisees from systems that are undergoing significant growth may get inundated with calls from potential owners. It may take a while to connect with these owners. This is a good sign -- it means they are out building their businesses and not sitting home watching daytime TV soaps. Don’t get discouraged, be persistent.
I highly encourage you to make the most of these phone calls. This process may save you lots of time, money and heartache in the long run. I have a list of 39 questions to ask existing franchise owners. Email me for a free copy or go to my website to download the questions.
Enthusiastically following the system I’ve outlined in this article will save you from incorrect business expectations and disappointment in the long run -- you’ll thank me later.