Franchisees as Sales People
Franchisors historically have used franchisees to demonstrate the beauty of their systems. And, in pre-disclosure days, those ‘best performers’ were handsomely rewarded for their testimonies. The practice certainly continued into modern franchise times (late 1970’s onward), but even in the ‘modern era’ many a franchisor and franchisee have teamed up for fantastic stories. Using franchisees as sales people (meaning that they participated in the sales process) will always be part of the sales equation, but the question is, how much weight should a franchise buyer lend to information from these sources?
First, a ‘quality franchisor’ today will publish a meaningful performance overview in its disclosure documents. If some form of financial performance back-up and background on a concept can’t be found, then ask yourself and ask the seller ‘why not?’ Note that a new franchisor may not have enough operating history on franchisees to supply financials, but if that’s the reason, why haven’t they presented documentation on their own start-up unit? That is a legal means of providing some crunchable numbers. So, even if the new franchisor can’t use franchisees as sales people, they have their own history. Here’s a great explanation of franchise financial performance.
Now, franchisees can be a great source of quality information. Especially if you build a rapport and know what questions to ask and and how to ask them. But beware! If a franchisor or its representatives are pushing you to a particular franchisee or group of franchisees, ask why? Make your own selection of who to engage.
Franchisors have to sell more than a dream – eventually
Even though detailed franchise due diligence is not high on the agenda of most franchise buyers, it’s becoming more popular. And those buyers who employ will expose poor franchises sooner than those who don’t. Just remember, franchisees can be used in the sales process whether a concept is sound or not sound. Use your head and your heart. Using franchisees as sales people when the concept is not viable is an ‘old school’ practice that surely can still be in play, but it’s now more difficult to execute. If for no other reason, it’s just too easy to Google any franchise and see positive or negative comments. Franchisors who want to be around for any length of time have to work toward a structurally sound offering. Then again, it’s not impossible to find franchisors that blame its franchisees for failure. Watch out if that’s an epidemic. Franchisors often use franchisees as examples of ‘how not to do well with my system.’
Here’s the bottom line. When a franchisor makes good on a promise to care for the entire system versus focusing its new sales efforts on a ‘few good operators’ then quality due diligence will be the watch word and buyers will actually be encouraged to shop openly. Protect yourself when buying a franchise. The entire point being ‘buyer beware’. Franchise buyers must perform adequate due diligence by doing their homework.