Canadian Franchise

HOW TO SPOT A STRONG FRANCHISE SYSTEM

Wayne Maillet

There are some great franchise opportunities available in almost every industry. (Let me know if you find an industry that does not have the benefits of an established brand and the buying power of a group, as I see this as an opportunity to change an industry.) There are also a few poor franchise operators. How will you know the difference? What should a potential franchisee look for in a franchise system?

 

When one is looking at a franchise, it is important that one do the research so that you know what you are getting into. A little homework at the beginning will avoid surprises down the road. You will want to go into the opportunity you select with both eyes open. No franchise is perfect. No opportunity is perfect. Your goal is to uncover the strengths and weaknesses and make an informed business decision. Reputable franchisors will assist in you learning about the opportunity.

 

An ideal system will consist of the following key fundamentals:

 

Strong Leadership. The management must provide the kind of leadership that earns respect and trust of franchisees. Leadership should insure an appreciation for the operating system, help internalize the desire to follow the system and result in the franchisee’s profitability and success. Finally, they should provide a clear vision and have defined the company’s values.

 

Continuous Improvement to the Operating System. To succeed in franchising the franchisor must have a plan for systematically monitoring the franchise operating information and analyzing return on investment from the development, operations and training departments.

 

A Focus on the Customer. Strong franchisors listen to their defined customer and build the franchise concept around their expectations, wants, needs and desires. The franchisor will then measure how well they are doing in serving and satisfying the customer. Priorities will be to get and keep customers, build goodwill, which will result in the customer being the best form of marketing, and offering a wide range of products and services prompting the customer to buy more often.

 

Excellent Franchisees. Successful franchisors believe franchises should not be sold but awarded. The strong franchisor will have an efficient system for recruiting and awarding franchises to people who will:

  • Have the skillsets to be successful
  • Build the value of the brand
  • Follow the proven operating system
  • Use the ongoing support to dominate in local markets

 

Effective Manuals. At a minimum, the franchisor’s manuals should clearly and concisely document a proven operating system and allow franchisees to duplicate success. All aspects of the business model are documented so that nothing is left to chance.

 

Participative Management. Leading franchisors constantly promote a franchise-wide strategic-partner relationship. Everyone should work together towards common goals of disproportionate market share, enhancement of brand image and mutual profit. This is often done through franchisee advisory councils and continuous communication.

 

A Focused Staff. Successful franchisors will have a professional staff who will work in harmony with franchisees to help them deliver excellent customer service, build market-share and work with fellow franchisees to dominate local and regional markets. There is a positive corporate culture.

 

Effective Training Programs. A strong franchise system will have a carefully planned training program to assimilate new franchisees as smoothly as possible into the organization. Successful franchises will also provide ongoing training, which will help further develop existing franchisees and reinforce the purpose and practice of its systems and strategies.

 

Financial Stability. Ideally the franchisor is profitable and/ or showing over time increased profitabilty. It is not uncommon for start-up franchisors to have weaker profits and to be reinvesting its revenues into the development of the business. Established and successful franchise systems are generating more revenue from royalties than from awarding franchises.

 

DOING YOUR RESEARCH

In order to confirm that you are pursuing the right franchise you will need to do your homework. The system is strong if it has the above mentioned items. Clearly a franchise system with an established, recognized brand and extensive locations is a good indication of a strong system, but there are many start-up franchises that will be equally as strong and present a great opportunity. The established franchises often are sold out or have a high initial investment, unlike a strong start-up concept. Look at the above mentioned items and ensure that the key fundamentals are in place. You will want to ensure that if it is a startup franchise that it is well capitalized. Ask to see their financial statements and get clarity on the funding.

 

Don’t trust everything that you read in franchise directories or on the internet. Much of this information has not been independently verified by a third party. It may not be reflective of reality.

 

Look at the business model or franchise, and ensure that it is not dependent on a fad. Sometimes fads can be hard to spot. An example is a concept based solely on bagels. You want to ensure that it is a growing market and not limited to a shrinking audience. Be cautious of concepts that are based solely on technology, as technology is constantly changing and can have a limited life unless the franchisor is investing extensively into research and development. Examples of past franchises that were technology dependent include video rental stores or camera film development.

 

When investigating a franchise opportunity, be sure to review their disclosure document and legal agreements. Ask to see the table of contents of the operation manuals so that you can get a sense of their depth and thoroughness.

 

People that you will want to speak with regarding an opportunity include the franchisor’s key executive and support staff. These are the ones that you are entering into a long-term relationship with. You want to ensure that you are comfortable and will be able to work with them. You want to share their values and the long-term vision.

 

SPEAKING WITH EXISTING FRANCHISEES…

Talking to existing franchisees is one of the most reliable ways to get validation of the franchise system you are researching. Be sure to talk to at least three franchisees, or more, to ensure you are getting a broad picture. Recognize that negative feedback is normal, especially in a young franchise. Nothing is perfect. Don’t use this as a reason to say no to the opportunity.

 

Instead, it is a step of doing your due diligence. Determine if you can live with the pros and cons. Determine if the franchisor is actively addressing the challenges and evolving. You can then move forward with confidence knowing that you are making an informed decision. Talking to existing franchisees in the system gives you a different perspective of the organization and the business. It’s a perspective that is from the front lines, from the operators who are dealing with the business on a day-to-day basis. Existing franchisees for the most part are willing to share because they have been in the same place where you are currently. They have at one time looked at the franchise opportunity to determine if it was right for them and probably went through the same process, calling existing franchisees. They want to provide you with the information that they had sought when they were making their decision. They are also interested in the quality growth of the franchise. They have an interest in ensuring that the system grows with quality franchisees that are fully informed. When calling a franchisee explain who you are and the purpose of the call. Ask the existing franchisee if he could schedule 30 minutes of his time to answer some of your questions. Because he is operating a business he may be busy when you originally call so you will want to schedule a time when it is convenient for the two of you.

Wayne Maillet is a franchise management consultant and founder of the consulting company Franchise Specialists. Respected within franchise circles, he brings a realistic, practical understanding of business and franchising. This article is based on excerpts from his book, Franchising Demystified. The book can be ordered through most book retailers or directly from the publisher at www.franchisingdemystified.com