Franchise validation
During the process of investigating a franchise opportunity, a prospective buyer (prospect) will interview current franchise owners (franchisees). This step is often referred to as "validation." During the validation process, the prospect will call on as many franchisees as possible and conduct extensive interviews to gather information about the franchise opportunity. Interviewing franchisees is a valuable source of information for the prospect since it is a way to get unfiltered opinions about the franchise system.
A complete list of current franchisees will be listed in a franchise's Franchise Disclosure Document (FDD). In addition, some franchisors will provide a list of current franchise owners to contact. Contacting franchisees can be a time-consuming and frustrating experience for the prospect, and for that reason many drop out of the investigation process at this stage. Franchisees are typically busy people; once contacted, many will openly and honestly share the lessons they've learned.
While happy franchisees are generally a strong sign of a healthy franchise system, a prospect should expect some negative feedback. In fact, a prospect should seek out unhappy franchisees as diligently as happy ones, since their perspectives can help prospects identify potential pitfalls and set appropriate expectations.There are firms that independently survey franchsiees and offer this validation service. Be certain to review the methodology used by the research company before using the data for making decisions.
Validation Topics
When talking to franchisees, a prospect should ask a wide range of questions. Some of the topic to cover include:
1. Training Programs and Opening Support - Determine how well the initial training programs and support through getting the first unit opened prepared the franchisees for opening and running their business.
2. Ongoing Training and Support - How effective is the ongoing support services of the franchisor in terms of helping franchisees deal with problems that come up in the running of their business.
3. Advertising, Marketing and Promotional Programs - Most franchisors collect marketing dollars from every franchisee into a pool that is spent to promote the brand. Determine whether the franchisees are happy and supportive of the way this process is handled. Note: This is typically the area you will find the most complaining about in any franchise you look at.
4. Quality of Products/Services – Determine if the franchisees are happy with the quality of the services and/or products offered through the franchisor.
5. Franchisor/Franchisee Relations - Determine how the franchisees feel about the franchisor in general. Is the franchisor supportive, knowledgeable, responsive, accessible, organized, and trustworthy?
6. Financial Health – Some franchisees will be guarded about revealing financial details of their operation but others will be open. Is the franchisee meeting his financial expectations? How much is his total investment in the business and over what time period? How long before they reached break-even?
Validation Services
It can be difficult to get a hold of enough franchisees to gather enough information for a proper validation process. Many systems recognize this and hire 3rd party validation services to assist their prospects through this stage. These services survey existing franchisees about their satisfaction on a wide variety of topics and publish the results. Typically the information provided by the service answers many questions for the prospect who can then focus energies finding answers to more specific questions, saving time and effort with all parties involved.
External links
- Franchise Business Review's Franchise Buying Advice
- Franchise Talk Radio Show Topic: Choosing a Franchise