Franchising – The principles of selecting good franchisees
Why franchise? The reason that most businesses choose to franchise basically revolves around 3 issues – time, people and money!
- TIME – Because for a relatively small business expansion by franchising can be faster. Franchisees will do a lot of the work to set up a local operation they’re going to own, saving you time that you may not have if you’d decide to build your own network.
- PEOPLE – There are huge benefits to be gained by having the local branches of your business run by motivated owners. Franchisees will go the ‘extra mile’ to deliver first class service and, depending on their drive and ambition, will keep focused on building their business. It’s no surprise that 9 times out of 10 a franchised operation will out-perform a company-owned operation in terms of sales growth, revenue per customer and customer service ratings.
- MONEY – When you franchise you effectively use other peoples’ money to expand. You’ll need capital to initially fund the development and launch of the franchise model – consultancy fees, legal fees, recruitment marketing – but this will often be fully recovered from the fees secured from the first couple of franchise sales. Then, expansion should be cost neutral – the on-going cost of recruiting and setting franchises up will be covered by franchise fee income. The franchisee pays for premises, equipment, staff, local marketing, not you!
There’s one common denominator that’s central to each of the above issues – franchisee selection. Getting it right will help create a tremendously dynamic and exciting business, get it wrong and franchising will be laboured, damaging and costly. So, having a robust and disciplined process for choosing capable franchisees is one of the most vital ingredients of a successful franchise. Here are some of the principles
- Have a precise profile of the ideal candidate. Know exactly the type of person who you want to represent your business – the ‘must have’ attributes. What experience, character, qualifications, skills, personal circumstances are required? Psychometric testing is worth considering. Once set, always measure candidates against the profile, with minimal compromise!
- Include spouses/partners. Always include a candidates’ spouse/partner in the interview process. After all, the decision to buy will be a joint one and it’s a fact that having family support available is important to the task of building a successful business.
- Require candidates to qualify. The recruitment process should involve a series of steps, each demanding that the candidate demonstrates the resources, ability and determination to qualify to run your franchise. You should expect that candidates will devote time to research and due diligence, and to being open in sharing information with you. If they don’t follow that process then they’re hardly likely to conform to your system.
- Granting not selling. If your model depends on selling franchises to be viable, then STOP! Sound franchises operate by generating profit from on-going management service fee income, not up-front franchise fees. Most importantly, it’s your business, so you must grant the right to operate a replica of it, using all of the know-how and experience you’re able to offer.
- Set a sensible target. You obviously need to have a franchise sales target but don’t set the bar too high. Recognise that its better to allow yourself the time to find good franchisees rather than become a hostage to an over-ambitious target – you’ll end up appointing inadequate franchisees.
- Honesty. You really must be honest with candidates. Ethical franchising demands the sharing of verifiable information about the business, particularly about the sales and earning potential. If the unembellished facts about the business aren’t sufficiently compelling then franchising may be too early, or possibly unwise.
In an ideal world franchisors would build their networks by cloning the best performing franchisees. The inevitable reality is that all franchise networks comprise business owners with varying levels of success but good franchisee selection should mean that the gap between the top and bottom of the ‘franchisee performance league’ is a narrow one.
Connect with Clive Smith
Franchise Intelligence Senior Franchising Consultant
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