When I first started in franchise development in my 20s, I always assumed every new franchisee would be one forever. Well, maybe not forever. But the point is, I rarely talked to candidates about life after being a franchisee because I thought it seemed negative and created doubt during the sales process. I didn’t want to plant the idea of them having to eventually sell their business, thinking it implied that it might not work out.
As I got older and more experienced, I started to understand that this is an investment. Franchise candidates are investing in the brand, the system and a future for themselves. A franchisee will likely come in, build up their business, and, when the time is right, sell it for a very good multiple. So, I started talking with candidates about developing an eventual exit strategy. We were beginning with the end in mind, and it helped candidates set a goal and build their five-year plan backwards. But sometimes, what looks good on paper doesn’t always come to fruition.
As a franchise development professional, resales are a part of what you do. When you are working to sell a successful, profitable franchise, resales are easy. But when you have a franchisee that is struggling just to break even—or even losing money—it’s much harder. You are now managing three interested parties as opposed to just you and the candidate.
You start by conveying the reasons why it’s not working for this franchisee: maybe they weren’t following the system; they stepped away from the business and put their 21-year-old kid in charge; or this just might not have been the right business for them. The candidate is going to see the low numbers and the poor operation, and they are going to be speaking with a franchisee who, in most cases, probably isn’t accurately validating the system. You need to make sure the candidate understands why the business isn’t performing consistently with the rest of the system. And you need to let them know that your system has the answers to those problems. Use your Item 19 to support that this is more of an anomaly than the norm. Be sure to get them on the phone with as many franchisees as possible. This gives them the chance to hear positive, profitable experiences.
If you have a low performing franchisee who has listed for sale, your company will likely do whatever it takes to avoid that location closing. Navigating a resale takes more time, but you’re ultimately judged on how many new locations you sign as opposed to how many resales you sign—this means that resales are typically a priority until they aren’t. Once they are sold, everyone will forget how much of a priority they were when you don’t hit your number for new deals—that’s just something you have manage and deal with.
This was probably the biggest challenge I had as a franchise development professional. Sitting on the phone with someone whose dream didn’t work out isn’t easy. In most cases, they are looking to blame everything and everyone else for the results—except themselves. Odds are, they are going to be wanting a heck of a lot more money for the business than it is actually worth. You’re going to have to tell them their baby is ugly, because they probably don’t realize or want to admit the reality of their situation. These are not easy conversations, and you need to approach them with just as much compassion and understanding as you do tough love. I recommend finding a company that can do an independent business valuation—that way, you’re backed by independent opinions. Whatever you do, remember how emotional of time this will be for the selling franchisee.
This is not the fun and exciting part of franchise development. But it is a reality for some franchisees (and franchise development professionals). It’s an emotional time for them, and being sensitive to that is a matter of decency. Telling someone their baby is ugly is never easy, but sometimes it’s necessary for them to help make tough decisions that will eventually lead them to a better place.