This month's article is provided by David McCulloch of The Franchise Coach.

Franchisee Selection - the most critical decision for a franchisor to make, be it for a Country Master, Regional Master, Territory Master, or a Single Unit Franchisee.

Franchising has now been around for over 50 years, but in the last 15 years we have witnessed its progression for a second-class business structure to the preferred business model. Franchising is now a highly regarded and professional business model.  

Franchisee Recruitment procedures have greatly evolved from the early days of taking the first person through the door with breath and the money to a exacting process that will make or break your franchise.  However I will not forget what a very successful Franchisor said to me when I was setting up my first franchisee, " I try to talk them out of it. Not into it".  That thought has stayed with me over the last 23 years in franchising.

The pool of prospective franchisees is never constant; it changes with the economy and emotional times of the country. Let me explain emotional as being the level of risk-taking that exits in your country at any one time.   In times of full employment, personnel are offered incentives to stay at their current job, and life is pretty rosy for every one. This causes people to be risk averse. Often to the contrary in times of large unemployment, workers have uncertainty in the longevity of their jobs, so they take what could be seen as the risky decision to leave their job and go into business for themselves.

This pool is reaching a new high, with the growth of the baby-boomers now looking to "do their own thing" before it's too late. As well as venturing into franchising, the "baby-boomers" are creating new franchisee opportunities in health, retirement and leisure.

Is Franchisee selection the same as staff recruitment?  No, it is not, and although the procedure and methodology of both cross over in some areas, do not be fooled into thinking they are the same.

While it is well documented and accepted that the cost of hiring the wrong person can be two to 10 times the cost of that person's salary, the costs of selecting the wrong franchisee are not as well documented. Take a moment and think to yourself the cost of your mistakes when you have recruited the wrong franchisee. You will find the cost is dollars and time is enormous.  The failed franchisee, or the next franchisee, may pay something towards the dollar cost, but do you fully recover the cost of:

• Advertising,
• Interviewing,
• Profiling,
• Travel,
• Training (yes you charge, but do you charge the real cost?)
• Your time and
• The time of your staff.?

On top of this is the fact that you have a failed franchisee. An outcome that all Franchisors never wish to have happen.  

Employers take extreme caution when employing staff and use all the means and tools that are available to them, but I question if Franchisors take the matter so professionally when selecting Franchisee.  A Franchisor must take this approach and have:

• A documented recruitment manual,
• Staff dedicated to recruitment,
• A marketing budget to attract the best prospects and
• Use every proven tool available.

And if that is not enough to convince you that franchisee selection is the most crucial role of a franchisor, the biggest downside of selecting the wrong franchisee is the effect rapidly changing franchisees can have on the individual business, and on other franchisees.  In any business that has rapid ownership change, both staff and customers can experience apprehension. Although we in franchising know that the strength of our brands can "pull" the customer, repeat business is reliant on the customer service at point of purchase.

With more and more countries introducing franchising law, it may get harder to remove an underperforming franchisee than it is to replace underperforming staff.  It is definitely harder to get out of Franchise Agreement than it is to get out of a Marriage!  Sad, but true.

I titled this article Franchisee Selection for Profit of Loss because the franchisor is the one who makes the decision to choose profit or loss. Twenty-three years ago when I was given the tip about franchisee selection, franchising was a novel business concept. However, today, franchising is a preferred business structure, and it has become a recognised business format with very sophisticated methodology.

To get you thinking, and the mental juices flowing on how you can better assess a prospective franchise owner, I have a couple of ideas.  Using the FranchiZe Profile is a must, and by using it early on in the process, even before the first interview, the cost of many hours of unnecessary interviewing can be avoided. That's not just a sponsor's comment, it's a fact worldwide.

To finish here are some other concepts outside of the norm to think about.  

• For the final interview use a panel that may include a current franchisee and another person from your industry/sector.
• The prospective franchisee must spend time in the business to remove the rose tinted glasses.
• If you are interviewing a couple who are looking at working in a business together, make sure only one of them is going to be the Manager. Interview that person separately, and then talk with the other person. This will tell you how they work under a management structure.  There can only be one person that is ultimately responsible for the decisions relating to the business, or who reports to the franchisor etc.
• If a prospect is very close to signing a franchise agreement and you have regional or national conferences ask them to attend all or some of the sessions.

David McCulloch has experience in franchising from all sides. He started the Arano Juice franchise in New Zealand in 1983 which today is the largest juice franchise in the country, he has been a country master franchisee for an American franchise and now Senior Consultant and Partner in The Franchise Coach franchise consultancy company. David was the inaugural Chairman of the Franchise Association of New Zealand and leading person in the development of franchising in New Zealand.

David McCulloch
Devore Group Ltd (The Franchise Coach)
Box 25 020, St Heliers Bay, Auckland, New Zealand
Phone: +[64] 9 575 3800
Email: david@devore.co.nz
Copyright © 2005 Devore Group Ltd