DOING YOUR DUE DILIGENCE ON FRANCHISE OPPORTUNITIES
By Steve Murphy, president of Franchising at Winmark Corporation
For many people, choosing to invest in a franchise is as much an emotional decision as it is a financial decision. It may be spurred on by their current employment status or lack of, it may be driven by job dissatisfaction, or it may be driven by their desire to be their own boss and control more of their future. But be careful that you don’t let those emotional situations override the common sense financial approach you should bring to the table as part of your evaluation and assessment of the franchise opportunity.
At Winmark, we find that most of our franchise candidates come to Discovery Day with a keen interest in one of our brands because they loved their experience as a customer. They walk in the door ‘pre-sold’ on licensing a franchise from Winmark. These candidates are often the ones we have to slow down in the process of awarding a franchise. We require that they finish their due diligence as part of the franchise application process, ensuring that they take a rational approach to the franchise investment.
There are three important things a candidate should investigate before deciding on any franchise.
1. Is The Concept Right For You?
First, be sure the concept is the right fit for you. It is easy to be persuaded by the view of a franchise opportunity as a customer, but it can be an entirely different story on the ownership side of that perspective. As a customer, you may see parking lots full of people, customers packing a store, and a lot of money being exchanged over the counter and think, “This is the perfect business for me.” And from the customer perspective that seems like a plausible viewpoint – observations of success and profitability are always key drivers in our decision to invest and start a business. However, be sure the business concept is one you can see yourself doing for the next five to ten years. Be certain you are passionate about the product or service, that you believe in the concept and value it will bring to your community, and that the daily work is something you will love doing. The old saying goes “Do what you love, and you’ll love what you do.” Ask current franchisees what it’s like running the day to day operation of the franchise, and ask yourself, “Is this something I would love to do for the next decade?
2. Scrutinize the Franchisor
Second, carefully scrutinize the level of support you get from the franchisor. Is it enough? Or is it too much and too heavy-handed? Or is it just the right balance between appropriate support and freedom to make this business your own? Some franchise candidates want a process or procedure for everything. They like having a formulated plan that structures their entire day and all they have to worry about is execution. Others like very few rules and lots of autonomy. And then there’s the rest of the group that make up the majority of franchisees. They want some guidelines and best practices, but want the independence and freedom to put their own mark on their franchise and community. It is important to ensure that you match your needs with the right franchise choice.
In addition, assess the people you meet on Discovery Day who will be supporting you from the corporate office. Do you like them? Do they seem competent? How many years of experience do they have with the franchise? These people will be your business partners for the life of your franchise, and it is important that you can see yourself working with them in a successful partnership. Ask existing franchisees what their relationship is like with the corporate office? If they see value in that relationship, and you enjoy their company on Discovery Day and can see a mutually beneficial relationship formulating, it is probably the right choice for you.
Finally, do your own self-assessment after learning what it takes to be a successful franchisee in the system. Look at the attributes of those in the top 10 or 20 percent of the franchise system. Do you share those attributes? Can you lead, manage and execute as well as you see the top performers? If you see similarities in your personality and character traits, you will see your path to successful franchise ownership.
Most importantly, realize it is critical to have all three areas covered in order to be successful. You must believe and be passionate about the concept, you must welcome and embrace the level of support and people who will support you, and you must be comfortable that you have the traits of the most successful franchisees. If you check yes in all three boxes, you have chosen the right franchise for you!