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Franchising Insight

The Truth About "Discovery Days"

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Usually billed as friendly getting-to-know-you meetings, franchise introductory sessions often are carefully designed to close a deal. One expert's advice: Beware of the "hard sell" and leave your checkbook at home.

While attending "Discovery Day" at Cousins Subs Systems in Menomonee Falls, Wis., I discovered only one astounding fact. All 50 employees who work in its corporate office can eat Cousins Subs food free for lunch every Monday through Thursday, and most of them do just that, even if they've worked there for decades.

I also learned a tremendous amount about the franchise, from where it buys its ham and turkey to how long tomatoes and lettuce will stay fresh in the walk-in refrigerators (about 10 days). I learned about which end of a strip mall makes the best location (the left), what color schemes are most inviting to sub eaters (golds and greens) and even how employees should wash their hands before and during their shifts. I got a behind-the-counters tour of two Cousins subs stores and munched happily through a tray of sample sandwiches. I met the real cousins, Jim Sheppard and Bill Sprecht, who started the chain in 1972 because they missed East Coast-style submarine sandwiches after they moved to Milwaukee. And I met the entire roster of Cousins executives, the real estate, legal, operations and marketing managers who would be there to help me if I really had $159,000 to $291,000 available to invest in a sub shop.

Of course, the day wasn't designed for me but for Sminder Grewal, 26, and her father, Jasminder Grewal, 48, who do have the money and who had flown in from Mission Hills, Calif., to decide if they wanted to open a Cousins Sub franchise. Ms. Grewal is a safety specialist for a pharmaceutical company and her father owns a variety of small businesses including a fish-and-chips shop in London that a relative runs. "We always wanted to operate a business together," she says, "and found a Cousins in Los Angeles by accident, when we were out shopping for a car. We're here today to check them out."

Almost all of the country's 2,000 franchise companies hold some type of regularly scheduled Discovery Days, where franchisers and prospective franchisees can check each other out and start building a relationship. The format, like the one at Cousins, includes presentations by key executives, tours of existing facilities, and samples or demonstrations of a franchise's products or services. On the surface, all Discovery Days -- even those held far from Wisconsin-have a folksy, "Y'all come on over," theme.

But don't be fooled. Beneath all their friendliness, Discovery Days have serious agendas and have been intricately choreographed, right down to where you'll sit and whom you'll talk to. Their real purpose, says Cheri Carroll, of FranDevelop Consulting in Antonito, Colo., isn't building relationships, but closing franchise sales.

In some systems, Discovery Days have become so slick that salespeople no longer try to sell franchises-"They just sell people on going to Discovery Day," says Todd Vieyra, president of eMaximation, a franchise-lead-tracking company in Rosewell, Ga., and the former franchiser of Furniture Medic. In fact, the pressure to buy a franchise on the spot can be so great that Mr. Vieyra's first rule of attending a Discovery Day is: "Leave your checkbook at home."

Despite the hard-sell tactics, Discovery Days do let you peek inside a franchise company, meet its leaders and get a sense of whether you want to peg your dreams, and savings, to them for the next 20 years. They're also a perfect time to spot any red flags that might signal a reason for you to drop this franchise and move on to another one. To help you move beyond the chumminess and use Discovery Days to your advantage, Mr. Vieyra and other franchise insiders offer the following suggestions:

1. Don't be flattered by a mailbox full of invitations. For every 100 leads a franchiser pursues each month, only two will agree to attend a Discovery Day, says Mr. Vieyra. That means that 98 other candidates either didn't have the finances to qualify for the franchise in the first place or qualified and already turned down a Discovery Day invitation.

If you have several invitations, go to the largest, most sophisticated franchise system first, Mr. Vieyra advises, so you'll know what a well-organized Discovery Day can be like. If you start with a small franchiser, you may get so frustrated with the poor experience that you'll end the process too soon.

2. Ask how many prospective franchisees will be attending. Ms. Grewal says she and her father were turned off by a Discovery Day hosted by another sub franchise. "They had over 100 prospects there," she says, "and it was obvious all they wanted to do was sell franchises." Experts say the ideal Discovery Day should contain six to 15 people. At the same time, ask the franchiser to send you its Uniform Franchise Offering Circular (UFOC), the document it must give prospective franchisees at least 10 days before signing a contract, so you and your franchisee attorney can review it first.

3. Ask the franchiser to share the cost of your airfare. By now, says Mr. Vieyra, the franchiser has spent $2,500 to $3,000 in marketing expenses to get you this far and probably won't balk at $200 or $300 more.

4. As the day begins, keep tabs on its organization. Is there a schedule, and is it being followed? Says Brian Schnell, co-chair of the franchise-practice group for Gray, Plant, Mooty, a Minneapolis law firm, if a franchiser can't organize a single day, what will happen when you get to training classes?

5. Be prepared to ask questions. "There's no better time to get your marketing questions answered than when the vice president of marketing is sitting right across from you," says Mr. Schnell. And ask everyone you meet how many franchises the company has granted that aren't open yet. Some franchisers are notorious for collecting franchise fees, then stalling when it's time to help newcomers locate and build out their operations.

At the same time, expect franchise executives to ask you about your past experiences and why you're interested in their franchise. If they don't, it means the executives are focused more on getting the deal done than getting to know you, Mr. Schnell warns.

6. Beware of anyone telling you how much money you'll make with this franchise. The Federal Trade Commission requires all franchises making earnings claims to put them in writing, in their UFOC. The Cousins UFOC, for example, says that of 104 franchises open two years or more, 53% are bringing in gross receipts of $200,000 to 400,000 a year; 32% are doing better than that and 15% are operating at less than $200,000. But FranData, a franchise research company in Washington, D. C., reports that only 12% to 13% of franchisers make such formal earnings claims.

Here's the tricky part. If, during the course of a Discovery Day, you ask a franchiser who doesn't publish earnings claims how much you'll make, and he says he can't tell you because the FTC forbids it, he's lying. "They can publish that information," Mr. Schnell says, "and if they choose not to, it may mean that their earnings really aren't that good."

But if an employee of such a franchise whispers a revenue number in your ear, that's a major red flag, because then he really is breaking the law.

Many franchisers get around this dilemma by telling you to ask their franchisees directly how much they're making. They may even fly in successful franchisees to talk to you and other candidates that very evening, over dinner, for instance. "Be wary," says Mr. Vieyra, "because the franchiser is mating you with their singers, their most successful franchisees, who will tell you what you want to hear."

You'll get a truer picture by waiting until you get home, then calling random franchisees listed in the UFOC. Make sure you talk to some who operate in communities whose demographics mirror yours.

7. Never fall for high-pressure tactics, such as being told that a territory is available "for a short time only" or that the franchiser is reducing franchise fees "just this once." Again, it's a lie. Besides, buying a business should be a reasoned decision, not a bargain.

8. Do leave with the names and phone numbers of other Discovery Day attendees. You can share information during the research process and, if you all decide to sign on, share challenges and solutions later.

Back in Menomonee Falls, the Grewals left Cousins headquarters with piles of notes, stacks of brochures and business cards-and a sackful of sandwiches for the plane ride home. When contacted later by phone, Ms. Grewal was still praising the meeting's level of organization and professionalism.

"We could tell the staff believed in the product and company and that they're looking out for the success of their franchisees as well as their own success. Discovery Day made us feel very comfortable," she says. So comfortable that, a month after their visit, she and her father signed a franchise contract, sent Cousins a check for their $20,000 franchise fee and are now looking for a location, at the left end of a strip mall somewhere in San Fernando Valley.

Paul Hazlinger, Cousins' director of franchise sales, says that of the last eight groups attending Discovery Days, seven have purchased franchises. The average attendance-to-sale ratio, says Mr. Vieyra, is about 50%.

I was impressed, too, but I won't be buying a franchise. But I wouldn't mind if a Cousins opened near my neighborhood.

From StartupJournal.com

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