Article from September/October 2009 "Franchising" magazine
By Paul Kean
“I know this business like the back of my hand…” was the response I received recently when I was talking to my client, Richard. Richard was buying a franchise for a business in which he had worked as a store manager for 5 years. “I know all of the head office staff and I have met most of the franchisees at conferences” he said. “What is the point in specifically discussing the franchise purchase with other franchisee owners?”
A reasonable enough response but business owners have a fundamentally different viewpoint to even their most senior employees.
The single most important exercise to really understand what owning a franchise is like is to talk to other franchise owners. But a word of caution, franchisee experiences vary greatly for a whole range of reasons including demographics, competition and the effectiveness of the owner and staff. Franchisees with more than one store often find significant differences in the performance of one store against the other.
Feedback from franchise owners is also a refection of the extent to which the reality of owning a business meets the expectations they had before they bought. Whilst it is useful to ask about turnover, profitability, working hours and quality of life, it is important to recognise that franchise owners will respond to these questions against a background of the expectations they had before they bought the business. What one franchisee considers hard work or a reasonable profit may be very different to the view of another franchisee.
This month I contacted 20 clients I had worked with on the purchase of their franchise business and interviewed them about their experiences as a franchise owner.
Generally, those with prior business experience had fewer expectations of the franchisor. Some of the comments from first time business owners included:
- “I would advise to look at the reality and to take off the rose coloured glasses. You are working for yourself and all that you want for the future, BUT you are the one that now has to deal with staffing issues as well as legal and tax matters and worrying over cash flow.” – premises based service franchise - 100K cap ex.
- “Support is great. We have an area director who is in constant contact, emails, phone calls, webinars, visits. The founder visits at least twice a year for support and new ideas”. – premises based health/recreation franchise - 200K cap ex.
- “The business has been an interesting, refreshing change. It is not exactly what I expected. A lot more to it than I originally thought.” – mobile tradesman franchise – 80K cap ex.
- “The franchise has been very successful and professional right from the first day. All promises have largely been fulfilled from training to support through marketing and merchandising as well as growing the product and brand.” – retail franchise – 500K cap ex.
In response to my questions about pre-purchase enquiries; what was useful and what with hindsight they would do differently, the message was very clear:
- “Speaking with other franchisees is invaluable. Most give frank advice and opinions. With smaller franchise systems it is more difficult to get a broad viewpoint. Speak to customers. Stand outside the business and speak to customers. Do your homework and research, speak to other franchisees and very importanlyt check out the credentials of the management team and what other businesses they have managed and set up.” – retail franchise – 250K cap ex.
- “I did speak to all of the other franchise owners and to accountants etc. But I did not take a step back and really think about the reality of taking on my own business.” – premises based service franchise – 100K cap ex.
Interestingly a number of franchisees in smaller/start up franchise systems reported difficulties, some quite serious, stemming from incomplete operations manuals and systems. They said that whilst they recognised the business model worked well, it had not been documented and tested to a sufficient extent to be readily duplicated in a franchised business. They reported that there were differences between the franchisor’s pilot or model business and the franchised business that were not adequately accommodated in the operating systems. By necessity, they worked with the franchisor to further develop and document the business systems. Whilst this gave them an opportunity to help shape the overall franchise system and a deeper understanding of the business, they were disappointed the incomplete systems added to the risk and pressure for their start up businesses.
When speaking to franchise owners, there is sometimes an element of “my success is the result of my hard work” with only limited acknowledgement of being franchisor’s brand and business system, or the landlord’s traffic generation. And conversely, if things are not going quite right, a franchise owner might find it easier to blame others rather than look at what he could do better. He might for example, play down the franchisor’s support and leadership.
Franchise owners will follow the business system to a greater or lesser extent depending upon whether they are comfortable with it. For example, many franchisees will conduct out-of-territory marketing because they are more comfortable with this, or they see opportunities outside of their territory. They may miss opportunities in their territory and fail to appreciate the benefits of focusing their efforts. Some franchise systems include up-selling as a key component of the system. Some franchise owners are not comfortable with this and will not adequately train staff in up-selling methods. Whilst there are many examples of spectacular franchisee led innovations and healthy franchise systems encourage franchisee ideas the reality is that many franchisees do some things their own way, rather than the way their franchisor asks them to do it. Whether these things add to or detract from the franchisees success in the business is something worth looking at on a case by case basis.
Head office support can also vary dramatically from one franchise owner to another in the same system. Leadership and support for a franchisee with enormous enthusiasm, but limited skills, is very different to the leadership and support required for a franchisee with a few years’ experience and some business ups and downs to deal with. At the same time, field representatives might naturally, want to spend their time with franchisees who are motivated and positive and will give them more attention. It is unreasonable to expect field representatives to be perfect leaders and managers. They are no different to you and I and will gravitate to the people they like spending time with.
The franchisor is also running a business, often with a team of people. The franchisor’s business will have its ups and downs, people will come and go and personnel will be drawn to different roles and demands of the franchisor business from time to time. A field representative who is also responsible for sales as well as franchisee support is likely to put his energy into sales and marketing when sales are down. But, of course, this is exactly the time when franchisees are looking for more franchisor support. From the franchise owner’s point of view, head office support might be inadequate in a difficult time but in fact head office has appropriately re-allocated resources to sales, where the system as a whole most needs them.
There is no doubt that talking with current and even past franchisees is an essential part of researching a franchise opportunity, but it is also important to be aware of some of the things that might be going on in the background.
The disclosure document contains contact details of all current franchisees and details of past franchisees. It may not include all past franchisees because past franchisees are entitled to “opt out” of publication of their details.
Most franchise owners are open to contact from prospective franchisees and good franchisors encourage and facilitate this. But for the exercise to be useful, it is important to put some planning into it and to respect the position of both head office and the franchise owners. When contacting past and current franchisees consider the following suggestions:
- Let head office know which franchisees you will be talking to. Let them make the introduction (probably by email or phone). Head office may have protocols for this part of the process and if they are not followed, franchise owners may not be as candid and helpful as they otherwise might be. Permission of the franchisor is not a requirement but it is appropriate to respect the confidential and sensitive nature of the business relationship between head office and the franchise owners.
- Make sure you are talking to the business owner. Senior employees and managers have a different perspective to the owner whose money is on the line.
- Research the particular franchise business before you call. Work out how long the business has been running and how long the current owner has been involved. Look at the environment the business is trading in. The feedback will be much more meaningful if you have some understanding beforehand. Have pre-prepared questions.
- Make an appointment for a telephone or personal conference. Don’t expect the business owner to open up to you unless it is at a time convenient to him.
You may be left with questions or concerns following a franchisee conversation. Be prepared to discuss these with the franchisor. And here is the challenge; this conversation might be better had with the field representatives rather than the person who is taking you through the recruitment process.
For more information contact Paul Kean at pkean@mcwlaw.com.au. |
