Systematically Evaluating Franchise Companies

There are thousands of companies spread across many sectors. How would you know which company is right for you?

Related: Taking Up A Franchise - What It Is Not About

Selection

Franchise Mind™ recommends that you select no more than two sectors and a maximum of 3-4 companies in each sector for evaluation. This will provide you with enough choice without getting overwhelmed.

In making a selection, do not restrict your choices because of your opinions or opinions of others that are in your head without any basis of fact such as:

  • ‘I know nothing about’
  • ‘That is a hard business’
  • ‘Employees are difficult to find in that business’
  • ‘There is no money to be made in that business’
  • ‘Many long hours’

Further, do not restrict your selection because the concept is either a local franchise company or a Master Licensee of a foreign company. Both types of companies have their pluses and minuses and you cannot pre-judge either. At this stage, be brave and explore.

Evaluation

Many people begin the process of evaluating franchise companies without knowing how and what to evaluate. At stake and at risk, for many, are their entire life savings being used to finance their new business. While evaluating a franchise may not be a science– in that all criteria for evaluating cannot be objective– you have a lot at stake, including the investment of both time and money. A systematic approach is required that helps you evaluate every franchise company consistently. To help you do this, Franchise Mind™ introduces an 8-step evaluation process. While you should begin the evaluation of all selected companies simultaneously, it is highly likely that you may never complete all eight steps for most companies as you will likely discover that some don’t match your profile in the preliminary stages of evaluation.

Step 1: Self Research
Step 2: Franchiser Knowledge
Step 3: Self Experience
Step 4: Experience of Others
Step 5: Match to Profile
Step 6: Review of Responsibilities and Obligations
Step 7: Review Franchise Foundation
Step 8: Check FEAR

Step 1: Self Research

Today, the internet allows anyone to gather information quickly. We recommend you begin your research of each company online, looking at the company website. Become familiar with the business concept, get some baseline information and a chance to process it before you begin receiving information from the company.

Beyond the official company website, we suggest you look for information on blogs and articles on the web to gain third party perspectives.

Step 2: Franchise Knowledge

In your first conversation with the franchiser’s representative, keep an open mind, listen and gather the following information:

  • An education on the industry and the special role this franchise company plays in the industry.
  • An understanding of the concept.
  • An understanding of what you have to do to succeed in the business.
  • A good feel for the culture of the organization.
  • An understanding of the values of the organization.
  • Competitive environment and the value proposition of the franchise company.
  • Support and training available for the franchisee.

While you are listening, evaluate:

  • Does the franchiser have good knowledge of the industry?
  • Is the franchiser able to clearly articulate their competitive advantage in the market place?
  • Can the franchiser spell out for you what you need to do as a franchisee in order to succeed in the business?
  • Is the representative that you are speaking with passionate and excited about the company and the business?

Step 3: Self Experience

If you have franchise locations in visiting distance, take advantage and visit a few locations as a customer. Experience the environment, service and products. Make notes of things you liked and things you didn’t, as they will become important to review as you get closer to decision time.

Step 4: Experience Of Others

Most franchisers would prefer that you speak to their franchisees at a pre-arranged time or with proper introductions, and most likely, only after you have been pre-qualified for the franchise. Respect their process as that will allow you to access a more cooperative franchisee.

We recommend that you speak with:

  • 2-4 successful franchisees to understand their experience and more importantly, what makes them successful.
  • 1-2 struggling franchisees to understand what they are not doing, keeping in mind that they may not admit that they are not following the system prescribed by the franchisor.

Step 5: Match To Profile

Now is time to match the business that you are short listing to the profile you have created. While no company is likely to be a 100% match to your profile, it is important that you have at least 70% match with the company and that you are not compromising in the areas that are extremely important to you.

Step 6: Review Of Responsibilities And Obligations

Once you determine at least a 70% match to your profile, it is time to review the franchise agreement and any disclosure documents (as required in your country) provided to you by the franchisor. Even if the company has provided these to your earlier in the process, we strongly suggest that your review does not begin until this point.

The objective of this review is to understand clearly your responsibilities and obligations under the agreement. You are about to enter into a long-term relationship and you need to enter this relationship not only with your eyes open but also being totally comfortable with your responsibilities and obligations under the franchise agreement.

Do not be afraid to ask questions and seek clarification from the franchisor. At the same time, do not be afraid to seek advice from legal professionals who have a good understanding of franchising.

Step 7: Review Franchise Foundation

Any franchise company must have six key elements. Ensure they exist in the companies you are evaluating as they provide you with a strong foundation enabling you to have the greatest chance of success.

  1. A good business and financial plan for you to enter the business and succeed. While no one can predict how well you will do, a well thought-out plan is a good start.
  2. Protected trademarks and legal documents. Since you acquire the rights to use the trademarks during your term as a franchisee, make sure that the trademarks are legally protected. Generally, legal documents consist of a franchise agreement and other disclosure documents as required by law. A franchise agreement that is common for all franchisees should give you comfort that no ‘special favors’ are being meted out to franchisees.
  3. An operations manual that outlines all the processes, procedures, policies and programs essential to your running of the business is a requirement. Without it, you will not have the ability to systematically operate the business.
  4. Franchise training program that is formal and systematic.
  5. Franchise development system, so you know that the brand you are joining will continue to grow.
  6. Franchisee support program consisting of three areas of support:
    • Support when you have a problem and need immediate help
    • Support to help you stay focused on achieving your business goals and objectives.
    • Support necessary to help you grow your business and help you become more profitable.
    • Strong infrastructure, technology and supply chain to help you run your franchise efficiently, effectively and profitably.

Conclusion

Throughout the evaluation process, it is likely that your emotions are going to be on a roller coaster divided between excitement and anxiety for a new venture. While emotions are natural, excessive emotions can lead to F.E.A.R., or False Evidence Appearing Real. This is when you magnify minor weaknesses and downplay your strengths. Unfortunately, many times this leads to paralysis and a lack of action in moving forward with starting your own business.

Aside from FEAR’s, watch out for well meaning advice and opinions of friends, family and advisers who have not spent time, like you, going through this 8-step process.

At the end, don’t let FEAR stop you from going into business. Go back to reminding yourself why you made the decision to go into business in the first place.


harish-babla

Harish Babla, Managing Director of Franchise Mind Corporation based in San Diego, USA.

Harish is a successful entrepreneur, a business visionary, an inspiring franchise leader, a mentor to many companies and a growth strategist who has honed his franchise skills in various capacities since 1983. Harish is passionate about growing franchise companies and helping others achieve their dreams of building successful global franchise companies by ensuring the highest standards of franchise excellence with a strong focus on growth and operating results.

Harish is a Certified Franchise Executive as designated by the International Franchise Association and conducts learning events and mentoring for numerous companies all over the world.

Harish can be reached at harish@franchisemind.com.


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