To Avoid Unhappy Franchisees, Stop Selling and Start Recruiting

For a franchise brand focused on growth — and how many franchise brands aren’t? — development can often boil down to a numbers game. Getting your brand in front of the largest number of investors, the thinking goes, will bring in the largest number of applicants and, after some vetting and culling, the largest number of franchisees. But that thinking is not only inefficient — that vetting and culling process can be costly and time-consuming — it may also be damaging to the health of your system. One unsuccessful and unhappy franchisee is not only a squandered investment, it will put an unseemly dent in your failure rate, which is a crucial validation point for investors, and multiple unhappy franchisees can spell the end of the entire business. It’s essential, then, that franchisors focus on bringing on only the right franchisees; franchisees who understand the system and who are poised to thrive.

Franchisors should think of their development teams as recruitment tools, rather than sales tools, says Michael Mudd, a partner at BrandONE Franchise Development.

“I’d like to see more franchisors being a bit more selective with their franchisee awarding process,” he said. “That means approving franchisees who exhibit high potential for success rather than just anyone who can write a check. Successful franchise development is about finding franchisees who are the right fit; it’s not about making as many sales as possible.”

To attract the right franchisees, franchisors must first have a rock-solid understanding of who their system is built for, says Sean Fitzgerald, Chief Brand Strategist for 1851 Franchise.

“The first thing franchisors need to understand is exactly who their ideal candidate is,” Fitzgerald said. “Looking into a franchisee’s background only works if you know what you are looking for. Franchisors always say, ‘we need people who can run a business,’ but that can mean a million different things.”

This is one area where established franchises have an edge over emerging ones. The best way to know what personality types and skill sets complement your operations is to look at your existing owners and identify the patterns of your most successful owners.

“It’s not always going to be the people with the most industry experience or the ones with the business degrees,” Fitzgerald said. “Some franchises may need leaders who are outgoing and dynamic, some may need leaders who are extremely detail-oriented. It’s not always going to be clear what personality types are going to be the best fit just by looking over the FDD, sometimes you need to see it in action.”

Beyond the day-to-day operations, a franchise’s “culture has to appeal to the franchisee on a personal level,” says Greg Vojnovic, Chief Development Officer at Arby’s. And “they have to be able to see themselves playing a meaningful part in that culture.”

That means introducing every candidate to every corner of your franchise. Too many franchisors focus only on the good, Vojnovic says. “[It is] frustrating to hear about franchisees being sold something that they don’t truly understand.”

Nick Powills, 1851 Franchise’s publisher, says that transparency is particularly important when it comes to financial expectations.

“The most important thing a candidate needs to understand is the true investment cost and their break-even projection,” Powills said. “The total investment listed in the FDD reflects the initial investment plus three months of working capital — essentially, the cost to open a unit and keep it open for three months. But that doesn’t give you the full picture. If you are a franchise where every owner is profitable from day one, then you’re all set. But that isn’t the case for most businesses. Service brands and non-restaurant brands typically have upward-slope revenue growth. The break-even period could be six or eight months or longer. If a franchisee doesn’t understand that going in, they could fall short. Even if they can afford the additional investment, they may feel misled, which can lead to resentment toward the brand and an unhappy franchisee.”

While successful franchisees are lucrative in their own right, they can also serve as an effective recruitment tool, meaning a selective development strategy can quickly snowball into greater growth prospects than a shotgun approach will draw.

“Strong referrals and validation from existing franchisees are essential,” said Todd Peterson, Vice President of Franchise Development for Twin Peaks. “It’s no secret that franchisee referrals are the best lead source. This has a lot to do with the fact that you’re getting a prospect from someone who has already seen success in our system. Franchisee validation carries a lot of weight because it’s a meaningful conversation with someone living and breathing the business daily. Anytime you can get someone to speak about your brand positively from an insider’s perspective, that’s ultimately better than any print advertisement can buy.”

Careful franchisee recruitment is not only essential to the health of a brand, Vojnovic says the reputation of the entire industry is at stake.

“Franchising isn’t about making deals to try and boost numbers. It’s about growing a strong business and strong relationships. It’s important that our entire industry understands that,” he said. “Franchising professionals should always be careful to make sure that the partnership is going to be lucrative for both the franchisor and the franchisee. It’s important to make sure that the interests of both parties are aligned.”