The Importance of Proper Franchisee Selection

Granting a franchise is not the same as offering a business opportunity.


The Importance of Proper Franchisee Selection

Whereas a business opportunity revolves around the product or service in question, a franchise is a blueprint to business success. Much depends on the correct implementation of this blueprint and this is what makes franchisee selection so important. This article examines the underlying considerations and explains how the selection process is usually carried out.

  • Introduction

Professional franchisors know that below-par performance by just one franchisee will damage the brand. This is in addition to the franchisee suffering severe financial losses. For these reasons, responsible franchisors are extremely selective. Expect them to ask lots of questions and investigate your background, abilities, likes and dislikes thoroughly before they award you a franchise.

Some prospective franchisees interpret this as arrogance, even take offence. Their thinking is that if they put up the money to establish a franchise, the franchisor has no business putting them through a selection process but this is short-sighted.

  • Why is a selection process necessary?

A successful franchisee needs to perform a balancing act between operating his/her own business while adhering to the franchisor’s rules. Not everyone is comfortable with that. Indeed, experience has shown that truly entrepreneurial individuals who want to do everything their way do not make good franchisees.

There is yet another issue to consider. It happens time and again that individuals are attracted to a brand for the wrong reasons. They only see what they want to see then happily sign the franchise agreement and make the necessary investment.

It is only after they have taken possession of their franchise and are exposed to the realities of the daily grind that they realise their lack of passion for the business. If at that point they want to get out of the deal, they have only two options. They can:

  1. Attempt to sell the business. Because the business has just been established and doesn’t have a track record, this is almost certain to result in a substantial financial loss.
  2. Stay put. Because the passion is lacking, the franchisee will be miserable at least most of the time. It will not take long for customers and staff to notice the owner’s lack of passion for the business, and the business won’t develop as expected. This, too, could result in hefty financial losses.
  • The profile of the “ideal franchisee”

Drawing on experience garnered during piloting and by observing existing franchisees, responsible franchisors will have developed a profile of the “ideal franchisee”. Prospects are assessed against this profile and only those who match it closely will be accepted.

Should a prospect qualify overall but display specific shortcomings, these can be addressed. For example, the prospect can receive additional training in certain areas of business management, or may be encouraged to either take on a business partner or employ an individual with complementary skills.

Although a rejected prospect may not see it this way at first, the franchisor is actually doing him/her a favour – it prevents forcing a square peg into a round hole.

  • How is the selection process carried out?

The profile of the ideal franchisee is not a standard document but has been developed to match the needs of the specific franchise. Depending on the nature of the business, it may incorporate some or all of the following processes.

  1. One-on-one interviews conducted by several experienced members of the franchisor’s team.
  2. Thorough background check, including verification of the prospect’s professional and financial capabilities.
  3. A panel interview. The panel consists of experienced franchisor representatives; some brands include a franchisee representative as well.
  4. Psychometric testing. This is done by professionals with experience in franchisee selection and the results are evaluated by a qualified industrial psychologist. The test results are surprisingly accurate.
  5. The acid test – observation of the prospect in action. The franchisor invites a pre-qualified prospect to work for a few days at one of the brand’s outlets, usually a company-owned unit.
  6. By working in the different departments of the brand’s business, the prospect enjoys a unique opportunity to get a feel for what his/her daily life will be like. Any romantic notions the prospect may have harboured about the business will dissolve.
  7. At the same time, the franchisor has an opportunity to observe the prospect in action. It will become clear whether he/she has the right attitude and aptitude for the role of franchisee of this particular brand. This is an important step because it allows both sides ample opportunity to establish whether a good fit is likely to develop over time.
  • What role does finance play?

As a rule, franchisees own their franchised outlets outright and are expected to come up with the necessary finance. However, for reasons explained above, this should never override other criteria. It would be unwise to accept an unsuitable candidate into a franchise merely because he/she can support the necessary investment. By the same token, an outstanding candidate who is unable to come up with the full investment amount may be offered alternative forms of funding. This could be done by matching him/her with an investor or through a joint venture arrangement with the franchisor.

In the next article, we’ll examine how a professional franchisor should make its money. Should you wish to find out more about franchise finance in the interim, contact the Business Manager at the Nedbank Franchising Area Office in your area. For contact details visit www.nedbank.co.za or your nearest Nedbank branch.

Written by Mark Rose of Nedbank and Eric Parker of Franchising Plus.
Copyright rests with the authors
Mark Rose
About the Author
Mark Rose is the Head of New Business Development at Nedbank Business Banking. He holds a Masters in Business Administration (MBA) from the Oxford Brooks University, as well as various business qualifications from the Gordon Institute of Business Science (GIBS), the University of Stellenbosch Graduate School of Business, and the University of South Africa Graduate School of Business. Nedbank’s New Business Development unit develops customised industry specialised offerings to the medium sized business market, including Franchising, Agriculture, Professional – including Financial and Legal Practices, and the Medical Fraternity. This unit has also developed a unique Enterprise Development proposition. For specialist advice and more information on the Nedbank Franchising proposition visit the website or send an email to franchising@nedbank.co.za

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