Originally published in Franchise Times magazine
First Serial Rights
October 2012

Lab Test:  Better Franchising Through Chemistry is Goal for Savvy Operators

When it comes to franchising, there is a lot to be said for chemistry.

Chemistry, at its heart, is the study of chemical reactions that are generally the result of mixing different compounds under different conditions. And in franchising, while the natures of the compounds in question are certainly different, the outcomes that result in certain combinations are in many instances equally predictable.

A franchise salesperson is courting a prospective franchisee who, while financially qualified, seems out of place in the franchisor’s culture. While the franchisor prides itself on its fun-filled culture, the prospect would make a prison guard seem funny. After months of courtship, the prospect suddenly goes dark.

One part fun-filled franchisor + one part strait-laced prospect = no sale.

Another franchisor pursues a prospect who brags about having started four different entrepreneurial ventures. During the sales process, the prospect constantly touts his credentials, questions the choices made by the franchisor, and argues on behalf of different choices. A year after signing, they “suddenly” know more than the franchisor and insist on doing things their own way until the ultimate and inevitable dispute. One part entrepreneur + one part franchise system = trouble.

The fact of the matter is that, both in the sales process and in the post-sale implementation, the chemistry between the franchisor and the franchisee can be equal parts “important” and “overlooked.”

Centuries ago, alchemists claimed that base metals such as mercury or lead could be transmuted into gold through chemical reactions. Today, of course, it is easy to laugh at these claims. Still, in franchising, there are those who persist with their alchemy.

Savvy franchisors, of course, understand they cannot create gold from the wrong raw materials. An unintelligent prospect will not suddenly become a Rhodes Scholar when they read their operations manual. A lazy prospect will not suddenly become industrious when the contract is signed. And the undercapitalized are highly unlikely to inherit wealth just because they need it.

While most franchisors today have the sense not to sell franchises to those who are destined to fail, oftentimes they stop short of understanding what it takes to truly make the franchisee successful.

Start with the basics

Let’s start with the basics. The single biggest variable that will affect the success of a franchised business is the quality of the franchisee. There are those, of course, who would argue that the franchisor’s system should be foolproof. But let’s not kid ourselves. Fools are just too damn ingenious for most systems. If there is a way to blow it, they will find it.

Moreover, successful franchisees are the key to success as a franchisor. Underperforming franchisees require much more support (and so they cost more), generate lower revenue, pay less in royalties (if they pay at all), and are much more likely to bring litigation. And if that is not enough, these will be the same franchisees who will play a vital role in future validation efforts that can make or break your growth efforts.

Aside from improved franchisee performance and operational quality, a better understanding of your franchisee and their motives will also provide the franchisor with substantial advantages in the franchise sales process. The narrower the franchise prospect profile, the easier it is to target them. And a deep knowledge of their motives will help the franchisor position the opportunity in the market from the standpoint of the message that is sent.

The right elements

So how does the savvy franchisor go about developing a better profile of their franchisee?

For the established franchisor, it starts by identifying your best franchisees—their backgrounds, their motives and their strengths. Franchisors with sizable systems would benefit from a systematic survey of these franchisees. What do they have in common? What was their buying process? Where were they looking and why did they decide on you?

These traits can then be compared to those of poor performers to determine if there are any clear-cut differences. Are they looking for different things in a franchise? Do they come from different backgrounds or have different levels of experience?

Among the many franchisors who have taken this approach, one of the most common errors when developing the profile is a fallacy of composition. For example, if you historically have done all of your marketing on the Internet with a very specific message, the results of your research will likely indicate that you should use that exact same message and present it in the exact same media.

In order to avoid this error, the savvy franchisor will broaden the scope of their franchisee research to include non-franchisee prospects that they would like to have in their system. These might include franchisees of other systems, prospects they pursued who chose not to purchase the franchise, and other prospects who may fit a particular target profile.

As always, survey design and implementation are critical to unbiased results. And when looking at these numbers, it is important to understand their statistical significance, if one is to avoid drawing the wrong conclusion. Unless you are dealing with a very large sample size, the conclusions you draw should be used to provide you with a sense of direction—and not treated as dogma.

Ultimately, the hardest job in franchising is to turn down the eager prospect who hands you a check for $25,000. But the savvy franchisor knows it is also their most important job. If they take that check and the experiment goes awry, they may do more than simply harm the system. They might just blow up the lab.