50 Shades of Grey?
This article appears in the November/December 2013 issue of Business Franchise Australia & New Zealand
Sorry ladies, but franchise research should be all about black & white.
Let’s face it making the decision to go into any business can be nerve racking, stressful, exciting, tiring, confusing, and of course when contemplating a franchise it’s really not that different.
In fact, it can be even more trying because there are so many different brands and concepts to consider nowadays.
One of the major benefits of buying a franchise is the potential opportunity to do a lot of research beforehand. So whilst on your journey to finding out what best suits you, these are some of the things I would consider to be the black and white facts you should seek out from franchisors, and just as importantly, franchisees.
Let’s assume you have been given a disclosure statement already and have either understood it completely or have sought expert legal advice. If I could only ask a franchisor a few questions, they would be:
1. What’s your number-one focus?
The answer you want is “the success of our franchisees.” But if you hear “the growth of our store numbers and our international expansion plans”, I might start to question who is going to look after my interests.
2. What is the brand strategy?
Is it clear and are you comfortable investing your money if competitive forces are of a concern?
3. Why do franchisees get in trouble?
Try to identify exactly what’s going wrong for troubled franchisees. If the franchisor says, “they didn’t follow the system”, press on by asking in what way. You want to learn where the pressure point is, and what the difficult thing is to do successfully in this system.
4. How are conflicts resolved?
Ask franchisors for details of a recent franchisee conflict and how it was resolved. You’ll learn a lot about the franchisor’s respect for franchisees and its commitment to making them successful. If the franchisor says there’s never been a conflict, be sceptical. Chances are if it has more than three franchisees, it has had a conflict at some stage already.
5. Which skills do their franchisees need most?
In many franchises, the most successful franchisees have similar skills - they may be former marketing executives or sales managers. See if you fit into their “winning” groups.
6. How long does the process take?
I would always ask how long the process from enquiring to potentially operating as a franchise is. This traditionally should not be a quick process. If a franchisor is overly enthusiastic about signing you up without hearing much about your qualifications, that’s another warning sign. Good franchisors are selective, searching for the best qualified candidates who possess the skills and capital needed to succeed.
WHAT TO ASK A FRANCHISEE?
Once you’ve thoroughly grilled the franchisor, you’re ready to chat to franchisees. After establishing a rapport, you’ll want to ask hard questions - but in a way that the franchisee will feel comfortable answering. Again, I have some specific questions in mind:
1. How well prepared were you when you opened?
This question covers many bases, from how forthcoming franchisors were to the thoroughness of their training program. If franchisees report that they were well prepared and things went smoothly, that’s a good sign. Unpleasant surprises or unexpected problems likely point to weaknesses in the franchisor’s support for its franchisees.
2. How effectively do the marketing programs bring customers to you?
Franchisors love to talk about the brand and building value, but what you need to know is whether customers will be coming in and spending money in your business. The answer you want? “From the minute we opened, we had business”.
3. What is the financial reality?
Nail down as many financial details as you can with the franchisees. You may have to speak with several different franchisees to get all your questions answered. How much does it really cost to open a franchise? How soon can you start making money? How much can you expect? Only franchisees can give you the real story.
HOW TO GET THE REAL BLACK AND WHITE STORY FROM FRANCHISEES
To get the best results from franchisees, don’t waste their time. Let the franchisees know you’ve learned a lot about the brand already. Present yourself professionally and as a serious prospect. The more they feel you’re close to joining their network the more information you will get.
There’s another reason for making a good impression on franchisees. Often, franchisors will follow up later by calling the franchisees you interviewed to ask them what they thought about you.
When you’re talking to franchisees, remember to consider their point of view, which may influence what they tell you. For instance, if you’re talking to a franchisee near the territory you want, he may tell you that business is awful because he wants the territory you covet to remain open to lessen his own competition, or so he can purchase it later. Alternatively, some franchisees may brag about their success because they’re too proud to admit they’re really in trouble.
Ultimately, you’ll have to use your gut instincts to decide whether a franchisee is being truthful, but if you detect a trend in any type of feedback there’s probably some truth to it.
If possible, try to spend an entire day with at least one franchisee. That’s the only way to find out how franchisees spend their time and what they’re doing to be successful. It also gives you more time to build a relationship with the franchisee and hopefully get more honest and detailed answers.
I would also advise asking franchisees how many of their ideas get implemented. The answer to this question will vary from franchise to franchise - some have very top-down management styles, while others encourage franchisee feedback and actively incorporate ideas from the field. If the franchisor isn’t very receptive to feedback, you have to decide whether you’d be happy in a cookie-cutter format, or you’d prefer a system in which you can be more entrepreneurial.
There’s a bottom line to being a franchisee. You’re giving up a portion of your sales in royalties to the franchisor in exchange for its help in running your business.
So factoring in all of the above, who do you trust your investment with? I know a good franchisor will be asking the same questions when assessing you.
Dean has been a long-serving Victorian State Chapter committee member of the FCA and until August of 2011 the President of the Victorian Chapter whilst sitting on the National Board of Directors of the FCA.
He has been an advisor to the sector for over 13 years, a franchisee and also worked with National Brands in development roles. Now Dean has combined two of his major passions – food and business – and in December 2012 he became a director of Rozzi’s Italian Canteen, a casual dining offer expanding nationally – buon appetito!
Phone: 0438 009 449