The Fundamental Steps to Successful Franchise Development

The following is an excerpt from Franchising Strategies: The Entrepreneur’s Guide to Success, by Ed Teixeira and Richard Chan, to be published by Taylor Francis on July 1st and available from Amazon, Barnes and Noble  and other book sellers.

Franchise Development which includes recruiting, selecting, processing and qualifying franchisee candidates is arguably the important activity franchisors engage in. The failure of developing successful franchisees can lead to the diminishing financial success of franchisee performance, and shortfalls in franchisor royalty revenues. Effective franchise development enables franchisors to finance and grow their franchise organization, build franchise brand recognition and add value to the franchise brand and franchisees. Whether a franchisor uses in-house development staff, franchise brokers or a combination of both the process remains basically the same.

1. Target Franchise Territories

The first step in the franchise development process is identifying the specific franchise territories that would provide the highest demand for the franchise products or services. Targeting franchise territories is a process based upon careful research instead of intuitive speculation. Key considerations should provide the franchisee a route to profitability by identifying the territory demographics that pertain to the number of potential franchise consumers.

2. Create the Franchisee Profile

After identifying the territories available for franchisees, the franchisor needs to create an ideal franchisee profile, which help to identify the most qualified individuals to be recruited as franchisees. A franchisee profile is a set of attributes and qualifications that the ideal franchisee candidate for a specific franchise should possess. In the past, franchise candidates were often evaluated based upon their financial qualifications without considering other factors.

3. Recruiting Franchise Candidates

Recruiting franchise candidates refers to the process of franchisors utilizing various marketing and advertising techniques to encourage qualified individuals to reach out and apply to be franchise candidates. It is also commonly referred to as franchise lead generation. The franchisee profile will play an important role in determining how and where to recruit franchise candidates.

4. Processing and Qualifying Franchisee Leads

After generating franchise leads, the next step in the franchise development process is processing and qualifying franchisee leads and inquiries from potential franchise candidates. This step refers to the methods and procedures franchisors utilize to identify the most capable and best qualified franchisees for their franchise system. Once a completed franchise application is received, the next step is for the franchisor to evaluate the application to determine the individuals’ franchise qualifications. Qualifying the franchise prospect is the process franchisors use for fully approving an individual’s qualifications to be granted a franchise.

Qualifying franchise candidates is an important component of the franchise development process since nothing can be more disruptive and difficult for a franchisor to deal with than a poorly qualified franchisee who can’t properly operate their franchise.

5. Engaging with the Franchise Candidate

Engaging the franchise candidate represents the process whereby a member of the franchise development team can present the franchise candidate important aspects of the franchise opportunity and acquire more information regarding the candidates. Once prospective franchisees have been qualified and had an opportunity to review the FDD they will be contacted by the V.P. Franchise Development or other staff member who can guide the candidate through the franchising process. In larger franchise organizations, the person contacting the candidate is usually a franchise development or salesperson. This will be an opportunity to answer any questions the candidate may have after their initial review of the FDD.

The engagement process is a key part of the franchise development since it will allow the franchisor representative to gain insight regarding any concerns a candidate may have regarding the franchise. This can also provide new information regarding a candidate’s qualifications, which may not have been observed from the franchise application. It is essential to assign a specific franchise staff to be work with a franchise candidate. This could better ensure a smooth communication flow between the franchisor and franchisees and prevent a candidate from receiving mixed responses. Ultimately, this arrangement can create a good relationship between the franchisor representative and franchise candidate.

6. The Franchise Discovery Day

The sixth step in the franchise development process is Discovery Day, which is the meeting between the franchise candidate and the franchisor at corporate headquarters. Discovery Day can be the first face to face meeting between the franchise candidate and franchisor management. It is important because franchisor staff can meet the franchise candidate, review their qualifications, and make a final informed decision regarding the candidate becoming a franchisee. This is also the last opportunity for the franchisor to confirm that the candidate is well qualified. Thus, it is not surprising that every franchisor requires prospective franchisees to visit their corporate headquarters as the last requirement before finalizing the franchise transaction.

The objective of Discovery Day is for franchisor staff to meet the franchise candidate after the candidate has spoken to franchisees, reviewed the FDD and has gained an understanding of the franchise program.  It is also an opportunity for the franchisee candidate to meet franchisor executives, observe the franchisor’s corporate culture, obtain answers to any remaining questions, and negotiate any open items pertaining to the franchise agreement.

7. Finalize the Franchise Transaction

The final step in concluding the franchise transaction is preparing the franchise documents and scheduling a closing date. It is important that all the documents are carefully reviewed by the franchisor before the closing. This should be done to avoid any mistakes like excluding ancillary agreements including the personal guaranty, non-compete and non-disclosure agreements.