Tell-tale Signs Your Franchisee is Closing Up Shop (and How to Stop it): Part 2

This is the second part of a two-part column. You can read the first part here.

Knowing the warning signs is only half the battle. Once you recognize the red flags, it’s time to do something about it.

Here are some of the top tips I have learned over the years that can help you prevent a nasty situation before it even begins.

Don’t sell a franchise to anyone with a heartbeat and a check
Selling a franchise and adding a new member to your system is exciting. For newer franchises, the additional cash can be a huge help in funding operations. But it’s critical that you are picky when deciding who to reward a franchise to. I mean really picky. If they have bad credit (under 650 credit score) and insufficient capital to help pay their bills for 12 to 18 months after opening, than stop the sales process.

You also need to make sure they are a good fit for the business and you are a good fit for their skill set We recently switched from using personality tests to Zoracle Profiles. Zoracle uses a meta-analysis approach to determine franchisee compatibility and predict performance. While personality will tell you a bit about the person, it does not predict business success. In fact, according to Michigan State University and Eli Broad College of Business Professor Dr. Frederick Morgeson, there is less than 1 percent correlation between personality and performance.

The final thing is attitude. I rarely see successful negative people. We have a different type of development process. Instead of having prospects come to our home office for a dog and pony show, we have prospects go into the field and spend time with our franchisees. We also have our operations staff meet them when possible. This gives them a better idea of what it’s like to work the business, but we also get great feedback about whether the prospect will fit our culture.

Build relationships
Do you ever call your zee just to talk about non-work related stuff? Do you know about their kids graduating high school and going to college? Do you care that their mom is in the hospital dying of cancer? Many franchisors tend to bring in lower level (meaning cheap) operations people. Field ops is the hardest job in franchising. They wear a huge number of hats. You need someone who can train, motivate, be a confidante, psychologist, police officer and lawyer. We look for big time promoters and connectors, per the Zoracle SpotOn! asessment for our ops staff. This is someone who can build relationships, engage the franchisee and champion our various initiatives.

We are a small company, but we have hired experienced and well-paid director level ops people who know what they are doing. Our philosophy is to bring in fewer high-level people who can wear a number of hats and keep them for the long term. Each of our ops staff members has been with us for over six years, which is critical. Zees get attached to your ops people and when you have turnover, it has a bigger effect than your realize. Knock yourself out if you want to pay some 20-something $35K per year, but you get what you pay for. Some of my best friends are franchisees and this is part of what I love about the industry. Get to know them better and build bonds in working together.

Communicate, communicate, communicate
In every franchise system that I have worked, they invariably do a poor job of communicating to the field. Much of the drama that can happen is due to misperceptions, negative grapevine spin and not communicating effectively and consistently. We have monthly town hall conference calls with our entire management team and all franchisees, which have been a big help. These are "open kimono" calls, where we share everything and anyone who has an issue, concern, gripe, etc. can bring it into the open. The calls were tough at first, but they were a big help in dealing with misperceptions, training, program roll-outs and more.

While this helps, nothing replaces face to face interaction. We have an annual conference along with a region meeting in the summers. Our field ops do field visits once a year, as well. We blog several times a week and have a closed Showhomes Facebook community page that gets huge interaction on a daily basis. The old saying that there’s no such thing as too much communication is spot on.

Help them work it out
Many times a zee will be ducking you because he or she is embarrassed about where their business has gone and they don't know what to do. They’re out of cash and you can be seen as a bill collector. You need to connect with them and make them aware that you are there to help.

The longer they go without making royalty payments to you, the more underwater they are going to get. Remind them of why they started the business and look at long-term objectives. Go through their financials with them and figure out where the money is going. Put together a payment plan with reasonable requirements that include specific goals and objectives. Have your ops staff put a plan together and have a weekly call to review their action items. I have seen this work a number of times and this extra time and attention can often save a zee.

Get a Single
The old line that "Sales cure all ills" is more true than you realize. Many zees get emotionally down after the constant rejections that are part of the sales game. Simply getting a few "singles" (in baseball parlance) can do wonders. When zees are down, your ops group needs to hold their hands and work with them on focusing on a single deal to get some revenue coming in. It's amazing how this can help build confidence and restart the sales momentum for them.

Back to Basics
Entrepreneurial people will join a franchise and immediately start thinking of ways of doing things "better." Soon they will have the perception that they are smarter than the franchisor.

"Your systems are antiquated and make no sense. I've developed an entire new system that will revolutionize this franchise!” Cut to six months later and they end up closing their door. There is a reason a zee buys into a proven system. When a zee veers from the system and moves away from what made the franchise a success, they fail nearly 100 percent of the time. A big part of a zors job is to keep zees focused and following the system.

Focus on financials
Most zees don't like to spend time on analyzing data. Sales and marketing are more fun, but you need to have a firm financial foundation as part of your culture. We share sales results for every franchise in a monthly report that the zees get very competitive about.

But that only tells part of the story. We have an Annual Financial Benchmarking Survey that we have made a core part of our operations program. Knowing what your key profit indicators (KPIs) are is critical. We have a dashboard on our intranet system that allows zees to monitor their KPIs and run their own customizable report 24/7.

At our annual company conference, we have awards for top KPIs and make our benchmarks a criteria in winning any award. Financials are your zees’ road map and you need to make them part of your culture.

Get fresh perspective
For seven years we have participated in the Franchise Business Review survey program. This is a third-party survey for our franchisees asking them direct questions about their overall satisfaction. The survey results provide us feedback to improve franchisee satisfaction and validation. Last year Franchise Business Review and Zoracle Profiles teamed up on a first-ever cross-vertical franchisee performance research project.

More than 500 top-performing franchisees participated. Research also included 1,500 randomly selected zees assessed on behalf of 72 franchise companies. Research showed strong statistical correlations between the values, core competencies, emotional intelligence, performance and satisfaction of franchisees.

What I found particularly interesting were the predictable patterns of franchisee demands, validation and performance when overlaid with psychometrics. If we can better understand these correlations and trends, we can prepare ourselves for the crises, challenges and opportunities of each stage of franchise growth.

Peter Drucker said it well: “You can’t manage what you don’t measure.” I would suggest we must measure and understand what’s most important – the human element of franchising.

Sell, sell, sell
Every new franchisee should go in with an exit strategy in place. There are times when being a franchisee is just a bad fit. It also could be time to move onto a new career path. When this happens, you need to have an aggressive re-sale structure in place. We have a franchise re-sale kit that we share with every franchise. We have several re-sale partners who work with zees to help them sell their franchises. Sunbelt has done a great job for us and they are our primary partner. Invariably bringing in a new zee who is energized and ready to hit the ground running becomes a win-win for everyone involved.

I have seen a zee in a certain market tell me "This concept just won't work in my market - people are different here." Then the new owner becomes Franchisee of the Year in the same market. Get aggressive and make re-sales a major part of your franchise sales process.

Operations is a difficult job, but it can be satisfying when you help save someone from closing and turn them into a superstar. For a system to survive and thrive, you need to be able to keep franchises up and running as long as possible.