Definition: The Best New Franchisee?

Probably because we participated in Franchising, successfully, for several different groups, and actually served as a Franchisee for several years, and because today’s economy is currently conducive—in the minds of many– to starting up your own business, we’ve been asked—continually, it seems– to look at today’s economy and comment on what types of attributes contribute to “The Perfect Franchisee.”

So let’s give it a go.

First, to be a successful Franchisee, you must understand entrepreneurship.  Notice I didn’t say that you needed to be an entrepreneur, because possessing specific entrepreneurial talents in too great a quantity that are generally attributed to entrepreneurs may actually serve as a detriment to your Franchise ambitions.

I did say, however, that you need to understand entrepreneurship.  Let me be more explanatory in my answer.

We believe that knowledge of entrepreneurship encompasses much of the various knowledge related to owning and managing a business successfully—everything from how to develop effective advertising and a realistic and applicable marketing and business plan– to understanding how to possibly create a name and definitely a brand that will be memorable, definitive, and meaningful to potential clients and customers to how to train and empower employees and managers, and critical today–how to manage cash flow successfully.

When we say the Franchisee needs a realistic and applicable marketing and business plan, that’s really what we mean, too.  In the past we’ve seen Franchisees buy “off the shelf” business and marketing plan software, fill in the blanks or answer the questions, print the result out, put it in a big book that they put on the shelf and never look at again— until we visit to consult the next time.   If a business or marketing plan isn’t put into use, it really isn’t worth the paper it’s printed on.  We have first-hand knowledge of Franchisees who believe that they “don’t need no stupid business plan”—they know exactly what needs to be done to be successful in the venture. Often, they are better at operating the Franchise than the Franchisor—just ask them, they’ll share it with you.  Attitude adjustments are generally in order when this type of approach is noted by the Franchisor.  Also, it generally seems this attitude is seen when we make consulting visits where we are attempting to assist them to maximize their profit—or, in some cases, make any profit at all.

Here’s a tip-off, too.   The Franchise may know exactly what comprises each segment of his or her business plan, but wouldn’t know how to write it, address specific location needs, or specific opportunities that he or she might require for their individual Franchise.   Not if you paid them a Million Dollars.

We generally share a quick anecdotal story, tongue in cheek, about the business owner who posts an advertising teaser seeking to find someone to help him/her write his or her Business Plan.  Although the owner can’t write one themselves—and it’s their business they are discussing here—they can specifically tell you what should go in each section.  Section 1:  Executive Summary, Section 2:  An Overview of the Business, et.al.  Congratulations, software seller.  You just may have created a Franchise Failure, because every Business Plan and/or Marketing Plan developed should have a purpose in life.

The “model” Business Plan isn’t that at all…it’s a time honored outline to help you address the various types of information which can be helpful, but it’s certainly not going to turn the heads of any finance types out there who might pick it up to read or study it.  They can tell you the type of model you’re following for your plan.  Better to not think this is a be-all and end-all type of model that can be used with every written plan.

Why?

The type of plan to be developed to seek out additional funding or equity participation in the business is not the same type of plan that will be required to address operations and marketing concerns.

Let us share why a full-on, 100% entrepreneur may not be a long-term and successful franchisee, however.

Entrepreneurs, by their very nature, tend to move from one project to another with impunity, and lack the “stick-to-it-ive-ness” to stay with one project for the long term.  A Franchisee must be willing to do so.  When you sign your Franchise Agreement with the Franchisor, you’re creating a relationship that can last 5, 10, even 20 years, through multiple economic cycles, and can actually provide nicely for a family for the length of time specified in the Agreement.   Franchisors seek potential operators who will create that business model using principally their own capital, and will work to build the business over a longer time window.   You– as the potential Franchisee– are purchasing, basically, a system against which to build your dreams.

When we were selling Franchises, we defined the pre-sell meeting as a time to “paint the picture of what the Franchisee might expect.”  In other words, we were selling a dream…augmented by an Operations Manual, a Training Manual, and a proven concept—for you to basically re-prove in a location you chose—or at least you approved.  Yes, that’s right.  The concept had been proven previously, but you can still find ways to create roadblocks to your own success.

There is no guarantee of success—even with a Franchise.

Repeating that:  There is no guarantee of success—even with a Franchise.

Your chances of success are enhanced when you purchase a proven business system, like a Franchise business, but they certainly aren’t guaranteed.  You may do less or more in sales than any examples the Franchisor may furnish you.  When you address the required due diligence, and call other Franchisees, you may get correct sales numbers or you may not.  After all, what Franchisee wants other Franchisees to believe that a “newbie” is going to be more successful than an established Franchise operator??   Your costs may be higher or lower than those reported—but will probably be higher, since the Franchisor developed the concept and theoretically has operating tenure with the concept, having successfully completed his/her learning curve long ago.

For these specific reasons, we have always said that a Franchisee should be a 70% entrepreneur.

Secondly, you need to be able to follow instructions as they are offered, very well.  I’m often questioned about this comment, but let’s look at it in an objectively.

The Franchisor has developed a system.  The Franchisor has written a book (the Operations Manual) which explains how they found their success in operating the Franchise.  They have written a book (the Training Manual, which may or may not be integrated into the Operations Manual) that explains, in a step-by-step manner, the specifics of how you should train those employees that you select to hire and insert into your business operations, and what specific elements you should train them to be competent in the business.  They have written a Marketing Manual (which may or may not be integrated into the Operations Manual) that explains the concept of marketing, how it has been successfully applied and how it should be able to be successfully applied in your business.   Additionally, the Franchisor has probably developed an extensive forms library to be used for your business reporting, and during the training process, will generally train you how to use these forms to successfully track finances, and to operate the business.  All of this will be available to you, and you won’t have to re-invent the wheel.

But even all that doesn’t mean that you will do what the Franchisor suggests you do.  Oh no, not at all.  It’s your money at risk, after all, and you may want to make many of the decisions about your money at risk.  Even if you honestly don’t have the experience to do so.

Note:  You’ve just entered the “thin ice zone” in your Franchise tenure.

As a matter of fact, it’s a common thread running through many different Franchise groups that the Franchisee—somewhere between Month 23 and Month 36 of operating his/her Franchise will decide that he or she knows an immense amount more than the Franchisor ever knew, and wants to operate the Franchise in his or her own way.  This new-found independence may take the form of adding new products or services to the Franchise, or it may take the form of attempts to renegotiate fees or service costs, or “improving upon” whatever marketing and advertising is suggested or furnished by the Franchisor.

What equates to these “terrible twos” of independence relate to this period where a Franchisee must “spread his/her wings” to see how diligently the Franchisor will enforce the documentation.   If you have a good Franchisor, expect to get whacked.  See, even though it’s your money at risk, it’s the Franchisor’s good name that you represent, and no Franchisor wants an “out of control” Franchisee dictating terms and conditions under which he or she will run a Franchise operation.

More lawsuits seem to be initiated between Months 23 and Months 36 of owning and operating a Franchise than at any other time, other than a Franchise renewal.  It’s principally caused by the learning curve of the Franchisee, and the independence that he or she wishes to exert over the operation.

Finally, how do Franchisors determine whether or not to accept you as a Franchisee?

Financial considerations are important.  You must be ready to step up and create the financial strength needed to develop your concept.  Past work history is important. A good credit history is important.  Their assessment of the ability to work with you as a Franchisee is important.  The professionalism with which your Counsel and Accountant address your development plan is important.  Whether or not you are willing to accept their advice and counsel, as well as their leadership to underwrite your success is important.

So, if you’re looking to develop a Franchise, how do you measure up?

Alan Guinn is co-Author with Dr. Chris Gibson, of So…You Want to Buy a Franchise?

3 Responses to “Definition: The Best New Franchisee?”

  1. Jack Smitts says:

    Good way of puttin it..

  2. Mike Gemmer says:

    With having so much content, do you ever run into any problems of plagiarism or copyright infringement? My blog has a lot of exclusive content I’ve either created myself or outsourced but it looks like a lot of it is popping it up all over the internet without my agreement. Do you know any ways to help reduce content from being stolen? I’d truly appreciate it.|

  3. alan says:

    Hi Mike,

    No, the content that I create pops up all over the Internet, too. You can use Google’s resources, however, to key in basic phrases of your writing and allow Google to find where your information has been copied without your knowledge. Although you still have to deal with the user, you at least are able to find where your material has been compromised. Good luck to you!

Leave a Reply