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What Franchisers Look For in Franchisees

Written by: Bob Richman

Article Overview: Most franchisors talk of "awarding" franchises, rather than selling them. Learn how franchisers think and how they decide which prospects they will and won't sell a franchise to.

What Franchisers Look For in Franchisees

The franchise sales process is kind of a paradox: both sides want the other to like them, to show that they are perfect for each other. At the same time, both the franchiser and the prospect want to make it clear that they're looking for the perfect match.

In other words, franchise prospects want to put their best foot forward but make it clear that this is only one of several possible choices and the franchiser wants to impress the candidate, but make it clear that they are very selective in whom they choose to allow into their system.

So what is it that franchisers look for in candidates? Most franchisers talk of "awarding" franchises, rather than selling them. The difference is that they won't sell to just any Tom, Dick, or Harry. You must be a Tom, Dick, or Harry who values the same things and is financially qualified. The franchiser is taking a risk by letting you into their system - here are some of the things they look for, either through explicit questions or by watching your non-verbal "answers" to situations.

Are you financially qualified?

You don't have to have a six-figure bank account but you do need to a) show some resources of your own and b) show that you understand how to obtain money to cover franchise fees, start-up costs, and operating capital. You can do this through loans, friends, and partnerships. The last thing a franchiser wants to do is put someone in who doesn't have enough capital to get over the initial customer ramp-up period. You make the cut if you show you understand how to obtain capital.

Are you self-motivated?

This seems obvious, and most candidates would say that they are successful people who have always been self-motivated. Your house is on the line, after all, so of course you're motivated to succeed. But this goes more to what happens when things are hectic or there are challenges unique to your area. Franchisors want to know that you're motivated to seek help within the system (franchisees, business consultants, and other resources) - that you recognize this is your business. The franchisor has many tools and resources for you to use. But it's up to you to ask for them and to implement them.

Do you have a passion for the product or brand?

Passion overcomes many obstacles. Franchisers want to know that you can be an evangelist of their brand, to promote the products and uphold the trade dress in your market. A passion for the brand indicates a franchisees willingness to overcome challenges, while still keeping the brand's best interests in mind. Passionate franchisees are generally more successful than others who just "want to be their own boss."

Do you just want to be your own boss?

Very often, candidates will sit in interviews and expound on how they would do things or offer tips as to how to make the system better. These tips are appreciated when they come from existing franchise owners, but most often are red flags during the interview process. A franchise system is just that - a system. Franchisers need to know that you are willing to work within the system and that you're not just buying a franchise because you can get open faster and then do whatever you want (it's your business right? You can sell magazines and tourist items in your sandwich shop if you want to right?).

Good matches are like good marriages and take just about as much work. If you do your research, and are honest during the application and interview processes, your new relationship will have a firm foundation.

If you're out to impress the franchiser and you oversell yourself, there's a good chance neither of you will be happy with the partnership. Find what you love to do, then do it with passion.

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Article Tags: best foot, business consultants, challenges, choices, explicit questions, franchise fees, franchise sales, franchisees, franchiser, franchisers, franchises, initial customer, paradox, partnerships, perfect match, prospects, ramp, six figure, taking a risk, tom dick



Related Forum Posts
Re: What Franchisors Want From Franchisees - Kevin - Here's a rough summary of your questions. Your credit score - below 600's and you're considered high risk. Best if you are in the high 600's and above... if you're in 700's you're golden. Franchisers want to see people who can relate to other people. If you are very shy or you dislike working with the public, then this can count against you. Even if you can fake it... why would you bother? Great customer service is a benchmark any business owner should strive for... Financing arrangements will vary - if you can show that you have 20% above all of your start-up costs, this would help. The more assets you own the better. Motivation can be expressed in HOW you plan the start-up. It's all in the details. Are you taking the opportunity seriously? Are you learning and studying business attributes like marketing, salesmanship, and customer service? Demonstrate that you are motivated. Subscribing to their system would be about following their rules. If you have a maverick mentality... then consider starting your own business where you make the rules... not a franchise. Franchisers have different ways in how they evaluate their prospects. Your professional background or history can play an important role in the final evaluation. This is really about common sense...
Franchisers approach for Negotiations - One thing to consider when preparing for negotiations with a franchiser is that some items are required to be disclosed in the UFOC, the franchise fee, for example. If you want the franchiser to reduce the franchise fee by $10,000 so you can afford the franchise, the franchiser will be obligated to disclose that his franchise fee is $X, except for the franchisee in Virginia who only paid $X-$10,000. Franchisers will never agree to such a modification for one franchisee because all future potential franchisees will know about it and ask for the same reduction. A reasonable approach is necessary to negotiating with a franchiser
Franchise Success Factors - Evan, I know it's been a while but maybe this will help: A great piece of information (academic research) that is important to all franchisors and franchisees is that of Scott Shane and Chester Spell who demonstrate that ¾ of all franchise systems fail within the first 12 years, and less than 1 in 4 survives until the end of the contract. Originally published in the Sloane Management review in 1998 the article is one of the more common sense pieces of writing covering the franchise industry. They identified a number of important franchise success factors that should be used to assess the likely success of a franchise system. They are: •Rapid growth (or planned rapid growth) of the franchise means that they can begin to reach a level to compete with existing players in the marketplace. •Local management support of the franchise aids rapid growth •Demonstrable trustworthiness and high quality systems They studied 157 companies in 27 industries and identified that one third of systems stop franchising in their first four years. They say “The high death rate of new systems suggests that franchising is not an easy business”. They developed a model called NewFran which points to the contributing factors of success: •A recognised successful history before franchising. This resulted in a recognised ‘brand name’ that could not be easily copied. Systems, marketing, premises e.t.c could be easily copied by competitors – a brand could not •Economies of scale i.e cheaper costs because they are larger, in marketing. This was achieved through being a bigger brand. •Rapid growth of the franchise allowed the brand name to develop quickly and stop competitors from copying or replicating the business idea. •Using local franchisees to use their local knowledge to determine local business decisions and operate with fewer ‘local field operations’. This means the franchise resources can be concentrated on branding, marketing and growth. The entrepreneurial ‘drive’ of the franchise owner is concentrated on building the business. The opposite of this is by keeping close control on local franchisees by appointing Master Franchisees. This was shown to develop ‘passive ownership’ which undermines the entrepreneurial incentives of outlet ownership. The said “therefore growing quickly, through master franchising, increases the probability of system failure” The article recommends some things off the back of this that seem to go against some of the ‘industry norms’ of franchising: •Franchisees should seek franchisors that are expanding rapidly. •Franchisees should not seek a franchise that promises a lot of field support •A lean operation at headquarters is a success predictor •Franchisees should seek franchisors with strong brands or at least a plan as to how they will develop a strong brand •Franchisees should be a member of a regulatory body •Franchisees should be wary of franchises that offer master franchising. Whilst this speeds growth it also increases the likelihood of failure. I would agree with all of the points raised and would like to just clarify that they suggest that in depth field support is bad – not in depth sales and marketing support. cheers


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