I've been in the franchise industry for almost 25 years. I was a franchisee for two different franchises. The first one I found with the guidance of a franchise consultant, and it was a huge success. The second one I discovered on my own and failed miserably. The lessons I learned from the failure are what made me a franchise expert. For the past 17 years, I have been educating and matching people with franchise opportunities based on skills, personality, and goals. Sort of like the e-Harmony of business.
For the most part, I have found that franchise companies that spend a lot of time and tons of money participating in a franchise expo come in two types: 1. They are a very new franchisor, and they are eager to sell a franchise to someone. 2. They are an older system, desperate to sell a franchise to anyone. Getting involved in either scenario is not the best situation for a new business owner. These two types of companies may not have all their systems in place, or they may be outdated. Here are a few questions to ask that will help define what type of company you are talking with:
- How long have you been franchising your concept?
This is an excellent first question to understand their experience in the franchise industry.
- How many units do you currently have in your system?
My professional advice is to look for companies with no fewer than 25 franchised units open and successfully operating for more than a year. (There are exceptions to this that I note below.)
- Does the franchise work with a Franchise Sales Organization (FSO) or incubator program?
This question is the exception from point number 2 above. In some cases, a young franchisor may opt to join forces with a Franchise Sales Organization or a similar type of franchise coaching or incubator firm. This is the equivalent of the new franchise company's founder admitting that they don't know enough about running a great franchise and need help. They get help in coaching from the FSO or a similar structure. This is great. In addition, the company may be new however the leaders of the organization have run franchises in the past.
- How many company stores do you have?
A company may have dozens of company-owned stores, which is okay. However, if they don't have many franchised units, how do you know if they are good at franchise owner support. The support is what you’re paying for. Be sure it’s there.
- How many units did you have operating before you started selling franchises?
This question will give you insight into whether they tried to work out the kinks of running units. You don't want them to use you and your money as practice.
- What is the ratio between corporate locations and franchised outlets?
My rule is that the entire system should not be more than 10 percent corporately owned units. Suppose the franchisor is actively running units via managers. In that case, it may hurt your chances of gaining access to the best real estate or territories. The corporate folks may keep the best for themselves.
- Have any franchise owners exited the system?
Ten percent of any franchise system is typically in flux. If more than 10 percent of the system is for sale, that could spell trouble, and you need to understand why.
- What is the ratio between new franchise owners and owners leaving the system?
Like the question above, however, what you are looking for with this question is to be sure other people are interested in the concept and are actively joining the system. It's okay if some people are leaving; that is natural. Still, if no one is coming in, that could indicate an issue with the company.
- Does the CEO, President, or any company principals have corporate franchise experience?
Being a CEO of a franchise is different than a corporate business. In a franchise, men and women invest time and their own money to make it work. People are paid to show up and trade their time for money in any other business. In a franchise, the corporate team needs to know how to deliver nationally to their customers – the franchise owners. In my opinion, having been a franchisee of a concept in the past is not good enough. You want franchise corporate experience at the helm.
- Does anyone at corporate possess a Certified Franchise Executive (CFE) designation?
A Certified Franchise Executive is a person who goes through two or more years of intense franchise training. The CFE candidate learns every aspect of the franchise industry. It is usually voluntary (some companies, such as Dunkin Brands, mandate and pay for their staff to attend). Enrollment costs tens of thousands of dollars, and usually, the individual pays for the program personally. The CFE program is administered by the International Franchise Association in Washington D.C. www.Franchise.org. It is the only recognized certification in the franchise industry. It could show the wisdom, experience, and sincerity of the person regarding franchising.
- Do you sell franchises nationally or by region only?
Usually, a new franchise company awards its first few franchises locally. That’s natural. The first franchise owners are usually customers of the original company store or a family or friend. If the corporate office is selling franchises anywhere they can find someone willing to buy, that could be a potential issue for you.
For example, my first franchise was a smoothie concept based in Denver. We used a proprietary smoothie mix produced in Utah, and it was shipped frozen. I lived on Long Island, New York. I was the first franchisee on the east coast. To make the logistics affordable, I had to contract with a frozen food warehouse and buy the mix by the palette. It worked out for me, but it was probably not the ideal situation for me or the franchisor in hindsight.
- Do you have a digital marketing system for the individual franchise units to acquire customers? Because of the internet, social media, and marketing data available to everyone, there has never been a better or easier time to be in business. Before the internet, the only ads you could run were mass media advertising. It was largely inefficient. Now, any business can narrowcast instead of broadcasting their message.
Suppose you owned a dog grooming company. In the past, you may have sent direct mail pieces to an entire neighborhood whether the household had a dog or not. Now, you can send direct digital messages to only people who own dogs. Marketing and advertising, the lifeblood of every business, is now very effective, efficient, and cost a lot less than in years past.
With today's technology, would you go to a bar to meet someone new to have a relationship with? Would you instead use a modern technological approach like eHarmony? Suppose you were the President of a franchise company. Would you prefer to have your staff spend lots of time at expos all over the country trying to attract new franchise owners? Would it make more sense to have seasoned franchise consultants bring qualified candidates to your door? Or would you even explore using digital ads to find new franchise owners? If you're talking with a company at a franchise expo, perhaps they are old hack and not innovative enough to use technology to attract new franchisees. How will they help you with cutting-edge marketing for your new franchise unit if that is the case? If the franchise company requests that you watch their presentation on a CD-ROM and fax in your application, run!
