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Run, don't walk away.


As almost every experienced franchisor will tell you, the single biggest mistake made by novice franchisors is awarding franchises to marginally-qualified candidates.

The temptation is easy to understand. When the new franchisor begins to market franchises, it will likely experience lower close rates and longer sales cycles than it has ever encountered. And after weeks of futile effort, an enthusiastic but marginally-qualified candidate presents himself.

Importance of Walking Away

Before cashing that check, the new franchisor would be well advised to remember that he is in the business of franchising for the long run. And nothing is more important to the success of a franchise business than the success of its franchisees.

Bear in mind that marginal franchisees require much more support than their stronger counterparts. This means that the franchisor will need to devote more resources (and incur more costs) supporting these franchisees. Yet, these underperformers will generate lower revenues and therefore pay less in royalties if they pay them at all. Failed franchisees, of course, don't pay royalties, and are much more likely to bring litigation against the franchisor.

This is just the start of it. For franchisors having a financial performance representation, this poor performance will drag down the system's averages, making disclosure less compelling. A system that combines with poor franchisee validation, failed franchisees, and a long list of franchisee litigation will be harder, if not impossible, to sell.

While there are a number of reasons why a franchisee might fail--concept strength, competitive environment, franchisee training, and franchisee support to name a few--most industry veterans will tell you that nothing will influence success at the unit level more than the franchisees who are asked to execute the system.

Setting Standards

Before a franchisor spends a dime on franchise marketing, it is important to determine the nature of the franchise candidate for whom the system is looking. Going into the franchise sales process without this knowledge invariably leads to the acceptance of marginal candidates.

Generally, the easiest--and often most important--criterion, is capitalization.

Under-capitalization is the single biggest reason for franchisee failure. Adequate capital allows the franchisee slack in the line to learn on the job and recover from missteps, and thus every franchisor should take a conservative approach to franchisee acceptance in this area. Generally, the criteria will be based on liquid-net worth, net worth, and the candidate's credit score. Many franchisors will look for single-unit operators with at least 30 percent of the planned investment in liquid-net worth, 100 percent to 125 percent of the planned investment in total-net worth, and a FICO credit score of at least 700. In setting these criteria, the franchisor needs to also take into consideration the franchisee's ability to service debt based on the cash flow of the business, and establish standards to ensure that franchisees are not taking on more debt than they can handle during this critical start-up period.


Unfortunately, it is often impossible to create definitive criteria. A franchisee with a working spouse may need less working capital. A prospect that has been the victim of credit card fraud may have FICO problems. But the savvy franchisor will start by establishing objective standards that can later be subjectively modified based on further examination of a specific situation.

Beyond capital requirements, franchisors should look at the "hard skills" needed for success in a particular endeavor. These skills will be determined based on the role that the franchisee will play in the operation more than by the ultimate product or service deliverable. A franchisor selling handyman services for example, would look for one set of skills if the franchisee will ultimately deliver the service (trade skills, mechanical adeptness) and an entirely different set of skills if the franchisee's role will be to sell services and supervise a workforce.

Other criteria, unfortunately, are more subjective by nature. While franchisors will often try to simplify business operations for ease of execution, even the simplest business model requires a certain level of intelligence to run.

The problem here is largely one of the franchisor's own creation. By promoting a highly-selective "mutual-qualification" process in which the franchisee must qualify for the award of a franchise, franchisors, in effect, encourage prospective franchisees to be on their best behavior. So, like hiring, the ready trap franchisors can fall into is that they select the person who interviews best rather than the one that may be best for the job.

If asked, of course, most people will say, and probably believe, that they are intelligent. Thus it is incumbent on the franchisor to try to establish objective means of gauging a prospect's intellect. Short of intelligence tests (which are of questionable value in any event), a franchisor will want to look at a candidate's work history, academic achievements, vocabulary and general presence in the interview to unearth these answers. A series of standard interview questions will help add a small degree of objectivity when measuring candidates over time.

Most businesses require hard work in addition to being an intelligent owner. And similar to intelligence, virtually every prospect will talk about the strength of his work ethic. Rather than asking these questions directly, examine how the prospect lives. Ask about their "average day," their hobbies, and their achievements. If prospects are "nine-to-fivers," be sure to let them know what they are in for, and don't hold anything back. If they brag about their two-stroke handicap, perhaps they are spending a bit too much time on the golf course and if that is their plan going forward, they may not be a good fit. Franchisees expecting an easy go of things may wash out early, so it is clearly to an organization's mutual self interest to be sure that they fully understand the required depth of the franchise commitment.

Of course, be sure to actively measure desirable personality traits as well. Honesty, integrity and compatibility are all important parts of the selection process as the company may be living with this franchisee and her personality for the next 20 years. If someone is confrontational in the interview process, constantly questions the established systems, or otherwise provides indications that he may not be a long-term fit, listen to that inner voice and walk away.

Perhaps the most debated question in franchising is whether or not a franchisee should be "entrepreneurial." True entrepreneurs are rule breakers, in fact, the short definition of an entrepreneur could be "someone who never saw a rule he did not want to break." While a franchisor will want to avoid these hardcore entrepreneurs, a good franchisee will exhibit at least some entrepreneurial characteristics. Without some level of entrepreneurial ability, a franchisee is unlikely to contribute to the franchise system to the extent that will benefit the franchisor.

The key to gauging whether a candidate's entrepreneurial tendencies will adversely impact the system is primarily a function of whether or not the candidate will follow the system. So while the franchisor may not want to ban entrepreneurs outright, those that are more blatantly entrepreneurial should be fully vetted for their willingness to play by the rules.

Sorting the Wheat from the Chaff

In the process of making all of these assessments, it always helps to have several people involved in the vetting process. Construct the Discovery Day in a way that the company is able to solicit input from as many sources as possible, even those that might not be a part of the senior management team. In fact, consider talking to the franchisees who the candidate interviewed during the due diligence process before making a final decision.

As a franchise company gets a larger pool of franchises in its system, look for commonalities among top performers. Increasingly, some franchisors are utilizing more formal assessment tools to benchmark top franchisees and screen for potential problem areas.

Ultimately, it is important to remember that the role of assessing and turning down candidates that are ill-suited to the business is perhaps the most important job of every franchisor. But ironically, it is often the franchisor who is willing to walk away from the wrong sale who will, by building a strong foundation, sell the most franchises.

RELATED ARTICLE: Tips for candidate assessment.

By Theresa Huszka

Walking away from a candidate in the sales pipeline can be very difficult for a franchise sales professional. But, with the right systems in place, one can identify "red flags" early in the discovery process and minimize the time both the franchise system and the candidate invest.

Here are some tips for developing a strong system that can help with a company's sales efforts:

[1.] Know the unique type of candidate being sought. Do franchisees need strong sales skills? Do they need to have notable characteristics such as to love pets or children? If so, communicate that to the candidates early in the discussions.

[2.] Understand a candidate's motivation for making a change and what she is passionate about. Do these fit with the system and culture?

[3.] Determine candidates' financial qualifications early on. If they are not fully prepared with answers to financial questions, now is the time for the candidates to determine the investment level that's right for them.

[4.] Provide candidates with a defined sales process and clearly communicate expectations regarding timelines for completing each stage of the process.

[5.] At the end of each communication with a candidate (e-mail, phone or face-to-face), provide him with the next task the franchise company needs him to complete, date it is expected to be completed, and a scheduled time to review the results together. If he does not complete the tasks on time during the sales process, expect the same behavior from him as a franchisee.

[6.] Have the candidate spend a day shadowing a franchisee. Franchisees will be frank. If the candidate embraced the culture and "fits in" or if she seemed uncomfortable with the day-to-day routine, the franchisor will hear the unvarnished truth from the franchisee.

Mark Siebert is the CEO of the iFranchise Group. He can be reached at 708-9572300 or at

Theresa Huszka, CFE, is director of franchise sales development for TSS Photography. She can be reached at 678-740-0861 or
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Author:Siebert, Mark; Huszka, Theresa
Publication:Franchising World
Geographic Code:1USA
Date:Jul 1, 2008
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