FINDING THE PERFECT FRANCHISEE
FranchisingAuthor :
Edward (Ned) LevittEdward (Ned) Levitt is a senior partner of Gowling Lafleur Henderson LLP, Toronto, Canada, and co-chair of its franchise law national practice group. He served as General Counsel to the Canadian Franchise Association from 2000 to 2007 and, as a member of the Ontario Franchise Sector Working Team, was instrumental in the creation of Ontario’s franchise legislation. Among his many publications is Canadian Franchise Legislation published by Butterworths/LexisNexis. Mr. Levitt can be reached at 416-862-3628 or ned.levitt@gowlings.com
The pursuit of perfection in anything is a journey, not a destination. While the search for perfect franchisees is an admirable pursuit, the truth is too many franchisors settle for less perfection and much more mediocrity than is healthy for their franchise system. Why is this?
There are many causes. Often it is time pressures – brought about by the fact that a good location will be lost unless a franchisee is found quickly or because a store opening goal must be achieved or the franchisor urgently needs more cash flow – that results in the franchisor “settling” for a less than perfect franchisee.
At other times, it is poor franchisee selection processes, testing and evaluation which lead to bad judgement calls. The use of outside brokers can result in less than perfect decisions about franchisees, when the broker, who is more focused on commissions than on long-term relationships, is left with too much influence in the final selection of candidates.
Even so, choosing the “perfect” franchisee is not really the goal. To be successful, franchisors need to be populating their systems with franchisees who are most appropriate for the type of business, the nature of the franchise system and the business style of the company. For example, if the business is very simple to operate, it may not challenge some franchisees enough to keep them focused. Other franchisees may not be able to take the pressure of a make it or break it 12:00 to 2:00 food court franchise.
What then are some of the most universal factors in choosing the most appropriate franchisee?
FINANCIALLY SOUND
It may be trite to say, but many a franchise failure resulted from the fact that the franchisee could not afford to carry the debt of a franchise purchase and run the business successfully through slow times. Franchisees need to have back up resources just in case.
WILLINGNESS TO FOLLOW
Franchisees have to follow the system or there will be chaos. The need to innovate will only frustrate a franchisee and lead to problems for the franchisor. Innovation is the franchisor’s job.
A FEEL FOR THE BUSINESS
It is amazing how many franchisees initially shop for a franchise purchase alone, when they should be looking for a business that would be satisfying for them and which also offers franchises. Franchisors, to be fair to themselves and the franchisee candidate, should be certain that the candidate clearly understands the nature of the business and how it operates and has some feel for it, before a deal is concluded.
PEOPLE SKILLS
Dealing with customers, suppliers, employees and head office personnel requires some reasonable level of interpersonal skills. While not impossible, it is rare that these skills are developed after the franchisee starts operating. The franchisor does everyone a disservice when they turn a blind eye to personality deficits of the franchise candidate.
WORK ETHIC
Operating a franchise does not require any more effort than running a similar business that is not franchised. All businesses, especially at the beginning, require considerable effort from the owners to be successful. While this is one of the most difficult qualities to assess in a franchise candidate, it can be the most critical. Past work history and good reference checking can go a long way to accurately assessing this important factor.
THE FAMILY
The support of the family can be critical in the life of any business owner who is striving for success. If that support is not forthcoming for a franchisee, the franchisor can expect to have an underperforming franchisee. As a result, whether or not family members will be working in the business, it is important for the franchisor to meet with them and assess their commitment to the success of the business and their willingness to provide the necessary support to the franchisee.
No one said it would be easy and it is not. Success comes from many sources and results from many factors. It would be impossible to list them all for all circumstances. It is much easier to assess what would likely result in failure in a given situation.
So it is with the selection of the "perfect” franchisee. It is not so much a search for someone with the best qualities as it is a process of eliminating those candidates who most likely will fail.
There are many causes. Often it is time pressures – brought about by the fact that a good location will be lost unless a franchisee is found quickly or because a store opening goal must be achieved or the franchisor urgently needs more cash flow – that results in the franchisor “settling” for a less than perfect franchisee.
At other times, it is poor franchisee selection processes, testing and evaluation which lead to bad judgement calls. The use of outside brokers can result in less than perfect decisions about franchisees, when the broker, who is more focused on commissions than on long-term relationships, is left with too much influence in the final selection of candidates.
Even so, choosing the “perfect” franchisee is not really the goal. To be successful, franchisors need to be populating their systems with franchisees who are most appropriate for the type of business, the nature of the franchise system and the business style of the company. For example, if the business is very simple to operate, it may not challenge some franchisees enough to keep them focused. Other franchisees may not be able to take the pressure of a make it or break it 12:00 to 2:00 food court franchise.
What then are some of the most universal factors in choosing the most appropriate franchisee?
FINANCIALLY SOUND
It may be trite to say, but many a franchise failure resulted from the fact that the franchisee could not afford to carry the debt of a franchise purchase and run the business successfully through slow times. Franchisees need to have back up resources just in case.
WILLINGNESS TO FOLLOW
Franchisees have to follow the system or there will be chaos. The need to innovate will only frustrate a franchisee and lead to problems for the franchisor. Innovation is the franchisor’s job.
A FEEL FOR THE BUSINESS
It is amazing how many franchisees initially shop for a franchise purchase alone, when they should be looking for a business that would be satisfying for them and which also offers franchises. Franchisors, to be fair to themselves and the franchisee candidate, should be certain that the candidate clearly understands the nature of the business and how it operates and has some feel for it, before a deal is concluded.
PEOPLE SKILLS
Dealing with customers, suppliers, employees and head office personnel requires some reasonable level of interpersonal skills. While not impossible, it is rare that these skills are developed after the franchisee starts operating. The franchisor does everyone a disservice when they turn a blind eye to personality deficits of the franchise candidate.
WORK ETHIC
Operating a franchise does not require any more effort than running a similar business that is not franchised. All businesses, especially at the beginning, require considerable effort from the owners to be successful. While this is one of the most difficult qualities to assess in a franchise candidate, it can be the most critical. Past work history and good reference checking can go a long way to accurately assessing this important factor.
THE FAMILY
The support of the family can be critical in the life of any business owner who is striving for success. If that support is not forthcoming for a franchisee, the franchisor can expect to have an underperforming franchisee. As a result, whether or not family members will be working in the business, it is important for the franchisor to meet with them and assess their commitment to the success of the business and their willingness to provide the necessary support to the franchisee.
No one said it would be easy and it is not. Success comes from many sources and results from many factors. It would be impossible to list them all for all circumstances. It is much easier to assess what would likely result in failure in a given situation.
So it is with the selection of the "perfect” franchisee. It is not so much a search for someone with the best qualities as it is a process of eliminating those candidates who most likely will fail.