To Validate or not to Validate

David Banfield, President, The Interface Financial Group

To finish the expression maybe it should read, to validate or not to validate that is the question. It may be a question, but is it an option?

What is validation all about in the franchise world? In many franchise systems the validation process is a necessary and sometimes mandatory step towards a franchise award. Franchise disclosure documents talk about taking appropriate professional,  legal and accounting advice. They talk about understanding the risks of a franchise and franchise ownership; but they rarely, if ever, tell a franchise candidate that they must validate the franchise that they are exploring. It, therefore, becomes an  optional matter for the individual to validate or not. What is validation? One dictionary definition states ‘Validation: To establish the soundness of…’. In other words, check out what you are buying before you buy it.

In the world of franchising it usually comes down to calling existing franchisees in the chosen system to ascertain how their business is going, are they happy, would they do it again, and so on - on the face of it a sound and simple approach to  rounding out all of the ‘legal’ verification and review that a candidate does.

In practical terms validation breaks down to a candidate calling a perfect stranger to ask them what are often quite personal questions about their business. Why would anyone want to take such a call and, if they did, why would they part with such  personal information? Maybe that’s part of the franchising culture. After all, the existing franchisees being called were themselves once candidates and probably went through the same process. It was only the very first franchisee in the system that had no existing franchisees to confer with.

Franchises rarely come with a ‘money back guarantee’ as might be the case with a new 40-inch flat screen plasma TV. Once you have bought into the franchise, that’s it - there is no going back to the store for a refund. It makes sense, therefore, to do  s much research and validation work up-front as possible.

Is the validation process going to give the same protection as a ‘money back guarantee’? - probably not, but it may be better than no validation at all. It is important, therefore, to enter into the validation process not only with an open mind, but also  with a plan and an expected outcome.

Start with an open mind

One of the best ways to create the open mind approach is to put yourself, as the enquirer, into the role of enquired. Imagine someone is calling you asking for information. There needs to be a comfort zone in terms of what can be asked and  responded to. Timing is also a key element in getting helpful feedback. Depending on the nature of the franchise you need to pick your time carefully. A call at an inappropriate time may result in unsatisfactory information, even from the best of  franchisees - you just caught the individual at the wrong moment. An open mind should also pre-condition you to expect to hear the good, the not so good,  and perhaps even the bad. The larger the system and the size of the franchisee base, the more divergent will be the responses. Expecting to hear accolades for the franchise from everyone that you talk to is an unreasonable expectation.

Start with a plan

If you are a candidate looking at a mature franchise system, maybe with hundreds of existing outlets, are you planning to call everyone in the system? Clearly not as that would just leave you with days of work and information overload. Strike a balance based on the size of the organisation - maybe two or three calls is sufficient, maybe 10 is appropriate. There is no magic number providing you decide in advance what will work for you. Naturally if you get less than satisfactory feedback you may  choose to expand the calling base to see if there is a real problem or an isolated issue. The plan that you create should also set out what specific questions you want to ask - what do you need to know to encourage you to move forward? Always ask  the same questions to all of the franchisees that you contact in order that you can create a comparison chart at the end of the exercise.

Determine in advance the outcome you are seeking

When do you have enough information, when are your questions fully answered - decide these and other aspects in advance so that you know when you have completed the task. There is no advantage in calling franchisee after franchisee just for the  sake of making calls. You are seeking some basic information - once you have that you should be ready to move on. If the information that you gather is not meeting expectations then additional calls might help, however you would probably be better communicating with the franchisor at that stage to have a debriefing meeting with them.

Candidates working through a validation process need patience and direction. Existing franchisees may be hard to reach and the validation process may stretch out longer than a person would wish. It might, therefore, prove appropriate to ask the  franchisor at the outset of validation to suggest the names of some franchisees that would be easy to reach and willing to share their story. While this means that the candidate will be talking with hand-picked franchisees as opposed to ones randomly selected from the Disclosure Document, it does at least get the process underway and opens the lines of communication. Existing franchisees will often be happy to make introductions to other franchisees with whom they are acquainted within their  system.  This can be another good independent way to move forward.

There are also some ‘outsourcing’ opportunities in the area of franchise validation. We are not talking here about hiring someone to make your calls - that certainly would not be a positive approach. Many mature franchisors have found there is value  in having their system independently validated both as a management tool for themselves, and also as a means of speeding  up validation for new franchise candidates. This independent validation comes in the form of a ‘mystery shopper’ approach.

The franchise system hires a reputable organisation that is experienced in franchise validation, and then they survey, on a fully confidential basis, all of the franchisees already in the system. From their feedback they are able to produce a  comprehensive report that addresses many of the questions that candidates would ask. Not only is this valuable feedback because it is from an independent source, but it is also information gathered from the total system rather than just three or four franchisees that a prospect might call. Always check with your proposed franchisor to ensure that they have such an independent validation process, and the make sure to get a copy of their report.

To validate or not to validate - it’s not really a question - it’s a necessary part of becoming a franchisee.

David Banfield is President of The Interface Financial Group, a position that he has held for over 20 years. He has been instrumental in starting Interface as a franchise opportunity and building it to its current international status.

Prior to his involvement with Interface, he worked extensively in the banking, credit and factoring financial service areas.

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