Recently, one of my friends in franchise sales needed to vent about losing a great prospect at the end of the validation process. Apparently, the contacted a franchisee at the sales persons’ urging to complete the validation process. This owner had always been helpful with candidates, but this time, the message was less than stellar, it killed the deal.
What happened to the other 10 owners the candidate spoke with who were happy and successful? What did this one owner say that was so powerful that months of working together suddenly disappeared and the candidate quit returning calls or emails?
If you search, “franchising” on the the Internet every blog, book and article on buying a franchise advises candidates to contact existing and former franchisees. It amazes me that many franchisors do not know what their own franchisees feel and are saying about them to their candidates. This is a time where what you don’t know can definitely hurt you.
Good validation begins with investigation. You cannot fix what you do not know is broken. But, if you know what triggers your owners’ negative comments, then you can take steps to correct the issues and have happy, engaged and validating owners. What steps do you take uncover your franchisees’ thoughts and feelings? Fortunately, measuring validation can be simple and inexpensive.
One tool that should always be in the franchisor’s assessment repertoire should be mystery shopping. Shop all of your owners if possible, but if not, you should know what the majority of your owners are experiencing, feeling, and saying.
You may also wish to also employ one of the online franchise survey tools. These tools may identify areas for concern and will afford your franchisees with an opportunity to provide feedback in the process.
Regardless of the method, it is imperative that the franchisor understands what your franchisees think about the system before choosing a strategy for improving your validation.
Even successful franchisees who typically are pleased with the system, does not mean that they will always validate positively. When a franchisee is speaking with a candidate, they may take their self-interest into account when speaking with your candidates. So from a salesperson’s perspective, it is important to make sure your franchisees understand the benefits to them in growing the system. Although we do not want to urge franchisees to say anything that is not true, we do want to be sure that they understand that we are interdependent.
As you know, some, if not most, franchisees come have left the corporate environment in which it is constantly “us versus them”. A good franchisor indoctrinates new owners in the culture of the system, which hopefully is one of teamwork and cooperation and continually educates all franchisees on the advantages of scale and growth.
So what are the benefits to your franchises:
Adding new franchisees will directly increase their advertising budgets
More units in the marketplace will increase local brand recognition - making it more difficult for a new competitor to enter..
More franchisees also generates more royalties and although some who are not able to shake the “us-versus-them” mentality may have a difficult time seeing this also benefits the franchisee. When the royalty base grows, so does the franchisor’s capacity to improve support to its franchisees. Some areas which will benefit from increased royalties include:
o more field representatives
o the ability to upgrade support in areas such as advertising, research and development, product design, new services, information technology, training, learning management systems, convention planning, and other support functions that may be particular to a specific franchisor.
o more franchisees will equate to increased buying power.
o Perhaps the most important advantage to the franchise owner, but the least discussed is increased business value. Being part of a well-known brand, the franchisee can expect to sell their individual franchise unit more quickly and at a higher sales price than for a single unit, mom and pop business with similar profits. Nevin Sanli and Barry Kurtz conducted a study and the results were published by the Franchise Law Journal by indicated that the 77 franchised restaurants included in their research garnered a 59 percent average EBIT multiple premium when compared to 356 non-franchised restaurants sold in the same period. This study indicates that franchised businesses may increase the value of franchisees business significantly over non-franchised businesses.
o Franchisees who refuse to validate well or even speak with a candidate because the candidate is looking in a nearby territory actually end up hurting their own business because the longer the territory remains open the more likely another brand will enter the market and continue to sell franchises in the same area including the one the current franchisee holds.
o Franchises can be helpful in validating candidates. They will have a more casual initial impression of the candidate but by asking the candidate questions, they have a role to play in the evaluation and now have a vested interest in the validation process. We know from the Greek system that the more difficult something is to attain, the more highly it is valued. Just look at the loyalty that Fraternities and Sororities enjoy. Having franchisees evaluate and be part of the approval team makes the franchise more desireable to the candidate and the owner part of a team decision making team. In a sense, the current franchisees receive value from their role as candidate interviewer.
Franchisees are stakeholders in the system. Most franchisees who validate want to know if the candidates they talk with purchase a franchise. Keep your owners involved and engaged by requesting their opinions on the candidates with whom they speak and your validation will improve. Keeping your franchisees involved in the process and educated on what’s in it for them will improve the quality of the validation for the brand.