Franchisor Selection

I am in China at the moment, travelled to my ancestral hometown in Zhao’an in the province of Fujian two days ago. I get to see my late grandfather’s cousins and a lot of other relatives I never knew. I am the sixth generation of the overseas Chinese. My ancestor moved from China to South East Asia more than one and a half centuries ago to seek for a better future. Some of the family members who stayed back in China are very successful today while some are just mediocre. Others in South East Asia are equally successful while some are mediocre as well. My great grandfather made his choice and started a branch of family here.

The point I am trying to make here is, people have choices in life and choices also exist in franchise. You can choose who you want to partner with but once you have made your choice, you will have to live with it. Therefore, before deciding on whom you want to go with, and in this case which franchise or franchisor, you have to make careful evaluations.

Of course the first thing to do is to decide on whether you want to go into a business through franchise or just starting your own business from scratch. This is will not be discussed here as you can refer to my writing in the previous issue on the benefits of franchising. I will also not touch on most of the technical aspect of franchisor selection, as there are a lot of articles and guidelines out there in the market that discuss this. What I am touching here is something on the qualitative or “spiritual” part of the selection. Something that is at times very hard to quantify unlike things such as total investment, potential return, market size, etc.

Let us start. First and foremost when looking at which franchise to take up is to look at your own interest. See if there is any franchise business that is related to your interest. You will need a lot of passion to keep you going especially when times are bad. This is a reminder that like any other business, franchise business is not a guaranteed smooth sailing ride. If your passion is just about making money, then it is very easy. All you need to look at is the franchise with good potential profit. However, some people have passion in food, some with children, some on retailing, cars, electronics, etc. Try to shortlist a couple of industries or businesses that are related to your interest before you start your franchise shopping. Do consider also businesses that can complement your existing business if you are already in business.

Next, you will need to see whether the business has any potential growth or not. Remember, nursery or early childhood education was not very popular here in the 70s and 80s. However, due to the growing numbers of working parents, it has become kind of a “necessity” starting in the 90s. Do take note also that some businesses might seems to have a lot of demand with customers queue up to buy their product but it could be that the products are very much in line with the current trend. If this is the case, it is quite dangerous especially when the franchisor has no record of innovations. This is because when the trend goes outdated, your business will definitely see the sunset if no new products or services are introduced.

Brand is also an important factor in your consideration for selecting a franchisor. A long-established company does not mean that the brand is well known. A well-known brand will give you an advantage as a franchisee to close more sales. But make sure that the brand is well known for a good reason. On the other hand, a lesser known brand does not mean that it should be totally out of your list. Check if the franchisor has a good brand promotion plan or not. Some new brands can shoot up very fast if the brand owners have a good brand positioning roadmap. This usually comes with strong unique selling proposition to differentiate it from its competitors. As a tip, a good brand is also usually short, simple and sweet so that it is easier to promote. That is why if you notice, most of the car model names do not exceed three syllables.

System is another important factor. The reasons many people select a franchise besides the brand is also due to the system that the franchisor employed. In fact, in an established business, the brand takes care of the top line while the system takes care of the bottom line. The system is meant to ensure efficiency of the business so that resources are optimised. Systems evolved over time and will always change for improvement to keep up with the changing business environment. Make sure you have at least visited the franchisor’s office or outlet and had seen how the business operates. Franchise agreements are never meant to be signed like how an insurance policy is signed… if you know what I mean. You don’t sign an insurance policy after you are dead!

Ask. Asking is very important. Seek clarifications from the franchisor if there is anything that you have doubts on or do not understand, as the saying goes, “Ask and it will be given to you, seek and you will find”. When the answers are given, don’t just listen, but see and feel them as well. Feel if the answers given are honest and truthful or the franchisor is simply trying to “sell something” to you. If you have any suggestions, voice it out politely but remember that this is not an avenue for you to push through your ideas. See how the franchisor responds to your suggestions. Does the franchisor just brush them off? Does the franchisor have a strong reason why you suggestions were not implemented? Does the franchisor already have that in their pipeline for implementation? Or, does the franchisor thank you for the new ideas and will study and look into it? Remember that no one is perfect and honest communication is the key to a successful franchise relationship. And communication is always a two-way traffic.

Look at the franchisor’s vision and mission both written and unwritten, spoken and unspoken. Are they consistent with your beliefs and principals? If they are different, can you accept them and adapt to them? Can you live with them? Look and feel the franchisor’s working environment. Understand their working culture. Try to imaging that you are working there. Do you feel comfortable in such a working environment? You should feel comfortable with your potential franchisor before you sign anything with them.

An important note when evaluating a franchise or a franchisor is always look at things from a bigger perspective. A lot of franchisors will have terms and conditions or impose rules that do not seem to be favourable to franchisees. However, bear in mind that franchising is about consistency and this is what the market expect from a franchise outlet. Therefore, someone will have to do the policing job and in this case it is definitely the franchisor. You might feel restrictive as a franchisee but imaging all franchisees have the ultimate freedom of doing what they want. If only one franchisee spoils the reputation of the brand whether intentionally or unintentionally, it will affect all other franchisees directly or indirectly as well. And that includes you when you are in the franchise system.

So much for the franchisees. As for the franchisors, in the next issue, I will be touching on franchisees selection.

This article was first published in Business for Sale Magazine Issue No. 24 Jan/Feb 2012

Download Here