When we're harried and under pressure to sell a franchise to meet budget it's easy to fall into the trap of using the "mirror test". In other words, is the candidate breathing and can they get financing? This leads to selling as many franchises as possible. After all, the more franchises you sell, the better the chance for riding out this recession, right? In reality, what happens is your staff ends up wasting time dealing with a lot of poor performing franchisees... and that ends up costing you money.

Or, in the case of employees do you simply need a "warm body"? Someone that can help take some of the load off your employees? At times like that, it's so easy to have a quick glance at the application form and make a decision almost before the interview. Of course you still want to meet the applicant to make sure they're presentable. If they seem to be OK and appear to have a possibility of doing the job, they're hired!

If you make a decision this early, 99% of the time you'll regret it for years to come.

One step up from the "mirror" or "warm body" method is replacing it with an informal and unstructured interview. You know the kind I mean. One where you ask the candidate what they thought of (insert your favorite sport/movie here). It's really a "get-to-know-you" session.

After all, if you're going to be working with the person and welcoming them into your business, you need to have some idea whether or not you're going to get along with each other. That's great, but whether or not you "get along" has no bearing on eventual performance.

Unfortunately, unstructured interviews are not very reliable at predicting performance. Whenever we meet and speak to someone new, each of us makes a different judgment of the same person.

This judgment is colored, often unconsciously, by factors like whether the personalities of the interviewer and candidate are similar (for instance, entrepreneurs relate well other entrepreneurs), both have similar ethnic backgrounds, whether the candidate is perceived by the interviewer as attractive, etc..

The Direct Costs of Hiring
Have you ever considered exactly how expensive it is to choose the wrong candidate for a franchise or job?

BTW - I know there's a huge difference between hiring someone and choosing the right franchisee for your opportunity. But the selection process itself stays the same.

Here's the cold, hard facts about how important it is to make your franchisee or employee selection process as effective as possible.

First, as an example, let's consider the direct costs of hiring the wrong hourly worker in a restaurant environment.

If you're paying your employees an average of $8.00/Hr., the average turnover cost works out to be $9,444.47 per employee. If you could reduce turnover by only 2 employees per year, you'd end up with an extra $19,000 in your pocket. Source - http://www.sashacorp.com/turnframe.html
       
 Based on an average number of restaurant employees (15), and "Nation's Restaurant News" which says:

• Average annual hourly turnover is more than 107 percent - In Quick Service Restaurants, the number could be as high as 138%
• Average annual management turnover is close to 29 percent - In Quick Service Restaurants, the number could be as high as 39%

The amounts you can save are truly staggering. Of course you'll never be able to totally eliminate turnover, but how much effort you put into improving your selection directly affects how much money you'll save every year.

To make matters even worse, we haven't even considered the hidden costs associated with employee turnover yet!

Should I Stay or Should I Go?
 It's difficult to quantify the hidden costs associated with an employee leaving whether it's voluntary or not. Some of the issues you and your staff will face include:

• other employees contemplating whether or not they should leave too, decide to leave as well.
• higher levels of stress-related absence.
• interruptions to workflow and missed deadlines.
• a reduction in productivity or levels of customer service.
• a drop in staff morale, particularly if the ex-employee was popular and good at their job, and definitely if you need the remaining staff to take on the ex-employee's work.

Low staff morale has a double impact. First, it affects how your employees deal with your customers. Happy employees lead to happy customers. Dissatisfied employees relate to customers on a totally different level. As a result, unless you sell something that your customers can't find anywhere else, you'll notice a drop in customer retention. They'll simply go somewhere where they feel more comfortable.

Employee turnover often develops into a 'vicious circle'. Suddenly you're thrust into the situation where you need to hire someone, anyone! Because you don't have the time to pay as much attention to the selection process as you should, you end up hiring the proverbial "warm body". Which puts more stress on your employees because you have to pull someone off their regular duties to focus on training the new hire. That's demoralizing as well because the person doing the training knows it's a waste of time because the chances are very good that the new hire won't be along for long. So why bother welcoming them into the team and giving them as much guidance as they need?

It's not unusual for employees in a high turnover environment to shun the new hires until they've proven that they'll stick around. Only then will your more permanent staff start voluntarily pointing out "tips of the trade" and including them in the social aspect of working in your business.

What Does Franchisee Turnover Cost You?
Calculating the cost of a franchisee failure is a little more difficult. However, studies have shown that it costs an average of $100,000 in legal fees alone to dis-enfranchise each unsuited franchisee. Never mind:

• the lost revenue of an underperforming franchisee,
• the aggravation of dealing with someone you're forced to eliminate from your system,
• the company's good name and reputation and how it affects the prospects of selling more franchises,
• the risk that the franchisee will sue you for their own failure.
• the high costs of attracting the next candidate.

Yes, you can recoup some of the expense of finding and accepting a replacement franchisee through the franchise fee, but with the current lack of financing available to franchise candidates, you've lost out on the royalty stream of the replaced franchisee. The royalty stream is reduced with underperforming franchisees, but at least it's something.

With these kinds of costs, does it make sense to rely on an unstructured interview? I don't believe so because looked at in a strictly logical light it's easy to see how selecting just one unsuited candidate a year can put a system in serious jeopardy. Especially for newer systems.

The Pros and Cons
Here's the Pros and Cons of using unstructured interviews.

Pros

• Inexpensive.
• Easy to implement.

Cons

• Not legally defensible.
• Interview Bias.
• Lack of consistent criteria to rate applicant's.
• Rarely predicts performance.
• No standard questions and scoring ratings.
• Interviewer hearing only what they want to hear.
• Includes recall of the interviewer.
•  Judgments Get Clouded - Entrepreneurs Like Entrepreneurs.

With so many counts against it and so little going for it, I think it's wise to simply take unstructured interviews completely out of the selection equation.

Marriage and the Selection Process
To help demonstrate how the selection process gets more accurate as you approach it from the log term perspective, let's compare the a small part of the selection process to a non-work related process - finding a life partner.

The life of a married couple includes things such as:

• Long stretches of  complacency with the occasional exciting time thrown in.
• Relating well to one someone living in extremely close proximity for a very long time. Maybe 50 years or more.
• Dealing effectively as a partnership in the common challenges of life like handling finances, legal issues such as when buying buying a house or deciding what happens to joint property for a will.
• Jointly working out who's going to care care of which tasks at home.
• Overcoming adversities as a team.
• Raising children, etc.

Would you like to decide whether or not to spent the balance of your life with someone based solely on the results of the 1st date - equivalent to the unstructured interview? What do you think the chances for having a successful marriage be?

What about if you've been dating the person, without cohabitation, for a few months. Consider this the "Structured Interview".

Looking at dating from an interviewing perspective, you could consider dating to be characterized by:

• Pre-defined activities designed to be fun and happy.
• Strong cultural, familial, and peer pressure that specifies standards and traditions.
• Low sample size compared to how long the marriage commitment is (dating for a few months and while intending to be married for 50 or more years).
• No co-mingling of funds.
• Not having to deal with legal issues such as buying a house or working out a will together.
• No real day-to-day experience in how partner will raise children or their views on child raising..

You'll be able to make a better decision than by using a single date alone, but when the decision to become a life partner with someone is looked at in this light, it's no wonder that we have a 50% divorce rate. Obviously there must be better ways of predicting performance.

Future Issues
In the next post, we'll start exploring how to improve the predictability of your selection system. The first step is to look at the only personality characteristic proven to have any relation to performance in a wide variety of jobs.

Questions? E-mail me at Fred@DynamicPerformanceSystems.com or call me at 800-719-9993 (+1-416-201-0202)