In 2012, William Shatner created a show, titled “Shatner’s World: We Just Live In It”. In it, Shatner delivers a larger than life performance complete with humor, storytelling, and musical selections. Through a variety of songs, jokes, and even some serious moments, you experience Shatner’s life journey. Wildly popular, this performance is still in production and dates are selling out around the country. Perhaps most remarkably, though, it is a one-man show! Or is it? When you peek behind the curtain, you soon realize that this “one-man” show has a producer, lighting technician, sound technician, makeup artist, and countless others that all help in their own way to make the entire production work. To the marketers and outside world, this may be a one-man show, but in reality it is anything but that.
So what does this have to do with franchising? Quite a bit, actually. Let me explain.
When you buy a franchise, federal law mandates that the franchisor provide you with a Franchise Disclosure Document (FDD). This long, confusing, boring, yet highly important legal document tells you a lot about the franchise system you are considering buying.
Item #2 of the FDD provides a buyer with background information on the business experience of the key personnel involved with the franchise. In any type of business, leadership is everything. And as a prospective franchisee, it’s critical that you know who the leaders are and where they’ve been. You’re essentially going to invest in the processes, systems and track-record created by the franchise executives and directors. If they’re not successful, you won’t be successful either. And their past can say a lot about their potential.
When reviewing Item #2, be careful to note how many of the executives are new to the franchise, or new to franchising altogether. If you’re looking at a board full of rookies, then you may not be buying the type of leadership that can guide you to success. They’ve still got a learning curve, and you don’t want to get caught in the middle of it. In addition, if any of the executives have a history that includes other franchises, look into those. There’s a reason they left those other franchise businesses. Be sure it isn’t because their past franchises headed south, went bankrupt, closed for business, or had other legal trouble.
As you review the board and executives, also take into consideration the model of the franchise and how much franchisor involvement there will be. If the franchise system is simple then it may not require a big executive staff, so don’t expect more than what’s reasonable. On the flip-side of that coin, if the franchise concept is more complicated, or if the units are numerous and widespread, then the franchise should have sufficient staff to handle it all. In other words, make sure that the number of hands in the kitchen coincides with the size and complexity of the franchise model.
Don’t be like most people and skim over this section in a haste to get to the “really important” sections on fees, territories, litigation, etc. These sections are important, no doubt, but so too is the background and experiences of the people who have built and continue to manage the franchise that you may invest your life savings in.
In other words, It is important to know that your franchise is not a “one-man” show.
The sad truth is that many are just that, a one-man show. Despite the growth. Despite the success. The entrepreneur turned franchisor never built a supporting team to help carry the load. So what does this mean for you, the possible buyer?
Well, in part, it means you have to be very careful and dig deep before you make up your mind to purchase.
I wish I could say that by the time all businesses become franchises they have gone through the growing pains and have figured out the holy grail of business for their sector. In most cases, though, this is simply not the case. Marketing systems change and evolve. Operations and efficiencies change with time. And management is usually in flux.
You should never be sold before you understand what you are buying. To understand what you are buying, you must dive deep into the business.
Item #2 will provide you with background on the key players, but it won’t tell you how things are really run or who is really running them.
It is incredibly important that you have a crystal clear understanding of your franchisor’s management structure, BEFORE you buy.
Below are 5 questions to ask the franchisor to help get clear on this:
The answers to these five questions, will tell you a good deal about the “system” you are buying. For instance, if “Larry” is the answer to 1, 3, 4, & 5 then you know that resources are somewhat limited and “Larry” is probably being stretched thin, juggling a lot of balls at one time. If at Discovery Day, you get the feeling that the franchisor is disorganized and things are not systematized with specific procedures set forth and in place to help franchisees, you need to find out why. After you purchase, the honeymoon period will come and go quickly. You need to know that you have the support you are paying for before you pay for it.
Most buyers don’t pay attention to these types of things. Don’t make that mistake. If you are going to part ways with your retirement money, you need to make damn sure that you have good reason to do it. Don’t let the excitement of the opportunity blind you to how the franchise is really run. Believe me, there are many franchise brands that have many units and are still mostly “one-man” shows. Make sure that like Shatner, your “one-man” show has a producer, sound & lighting technician, makeup artist and countless others behind the scenes forming the foundation of a good business model with proper support when you need it.
When it comes to franchising, Murphy’s Law comes into play more often than desired. In many cases, a new franchise takes off slower than anticipated.
Before a prospective franchisee invests they must review the information disclosed in the Franchise Disclosure Documents.
The most immediate consideration is usually how much is the franchise fee and other ongoing payments like royalty and advertising fees.
In the franchise industry, franchisors can view comparisons and relationships between consumer satisfaction for the products or services a franchise offers.
A good consumer experience is not a reason to invest in a franchise. It skews the decision-making process of a prospective franchisee from start to finish.