The two main ideas in this chapter work hand in hand: (1) defining the profile of your ideal franchisee, and (2) finding the ideal franchisee who is looking for your type of opportunity. It’s obviously more cost-effective to define who you are looking for first, before you spend money trying to generate leads.
Whom are You Looking For?
Defining the profile of the ideal franchisee is one of the most important tasks for a franchisor to perform. It is important that the people you want also want you. Make sure that your ideal prospect aligns with what such a prospect would be seeking in terms of financial rewards, quality-of-life returns, and the day-to-day responsibilities. For example, we want a franchisee to be actively engaged, competitive and driven to build a business, and have the heart and personal experience to also be in the business for the right reasons. We therefore seek and attract those who want to build a scalable business, want to make a difference, and are willing to work a lot of hours early on to establish and grow the business.
The kind of people you want and who want an opportunity like yours directly impacts the lead-generation strategies you will implement, but it also should influence the design of your sales process. Effective lead generation is about attracting high-quality prospects that match what you are seeking in a franchisee. Some prospects want more information—such as understanding a day in the life of a franchisee, client and caregiver stories, and key performance indicators (data) of the business—and some want only the key bullet points and choose to drill into areas important to them. Throughout this chapter you will learn more about ensuring that your sales team factors candidate profiles into their sales process.
As important as it is to identify promising prospects, you still have to be selective regarding which prospects—even apparently ideal ones—to “sell.” For example, although there are always exceptions, I recommend against selling franchises to friends or family or to the children of friends. I am similarly cautious about parents buying their child a business, because an owner-operator needs skin in the game. BrightStar supports parent-child franchisees on an exception basis where the parent commits to being actively involved day-to-day in developing her adult child’s management skills and overseeing and leading the business.
I recommend that your senior leadership team spend time to develop the profile of your ideal franchisee. The profile should include such details as the ideal gender, age or age range, whether he needs management or industry experience, if he needs certain educational or experience levels, and what level of capitalization and liquidity he needs. If you are having difficulty in the very beginning in defining the profile of a franchisee, start by recruiting franchisees who are similar to the founder.
It may be difficult to determine the exact traits for an ideal profile before you have franchisees, but giving it some thought early on better prepares you for your search. As you grow your base of franchisees, commit to reviewing their profiles annually to evaluate if there are common traits among your top performers, such as education, experience level, background (sales or operations), energy level, positive attitude, etc., and begin using this information to refine your profile. At BrightStar, we see that over 80 percent of our franchisees have a college education and over 10 years of employment experience and that our top performers generally managed large teams of employees and had profit-and-loss accountability. I am a big believer in using technology-based profiling tools to help gather information on all prospects who will join our system. You may not be able to establish patterns until you have 20 or 25 franchisees in your system. You can still draft a profile in the interim, consistent with the roles and responsibilities of the franchisees in the business as a starting point and with character qualities consistent with the culture.
We have used three profiling companies, and there are many more to choose from. We initially selected a tool that was inexpensive and easy to execute but found no correlation between what the test predicted and the actual results. We moved to a second tool that was much more predictive of success in terms of revenue performance, but it did not help us ensure that owners were a culture fit.
The profiling company we chose in 2010 has provided us with a competitive advantage in the selection of franchisees. Most profile tools merely assess personality or work style, but our new vendor, Proven Match, actually includes seven assessments in one comprehensive test that measures values and motives, emotional and social intelligence, core competencies, work style, stage of growth, focus preference, and leadership. Because work style (what is generally the only component measured by other profile tools) is only 10 percent of the overall measure of compatibility and performance, Proven Match puts a much greater emphasis on values and motives, emotional and social intelligence, and core competencies.
In addition to using the profiles to identify who we are seeking, we have also identified certain components that are common to poor performers and missing from top performers. The earlier we spot them, the better it is for the suspect and for us, because we don’t spend weeks of each other’s time before rejecting the prospect as a franchisee. As an example, we have determined that franchisees whose profiles show low levels of self-awareness of their weaknesses will generally perform poorly in our system. Their lack of self-awareness makes them less willing to receive feedback, actively seek learning and experience to overcome weaknesses, or hire to mitigate these limitations. Likewise, a profile that indicates that a prospect will be unlikely to lead through directing (but instead makes most decisions by group consensus) will likely struggle, because her employees and referral sources won’t trust her to have a vision of the business and be capable of driving it.
I recommend that you work with a profiling company that charges per test (usually negotiable to between $20 and $30 per test) so that you don’t have to commit to large fixed amounts too early before you determine the quality of the information and the correlation of the profile to performance.
BRIGHT IDEA:
Ask your chosen profiling company to build a “top performer” model by surveying your top-performing franchisees to find consistent traits, so that you can begin selecting franchisees more likely to become top performers.
Every two years (ideally this will become annually) I survey the franchise system, or as many franchisees as will respond, to clearly understand the profile of the ideal franchisee—the top performers. This is important for systems that have rapid growth, high levels of system change, and/or large investments in innovation that require franchisee adoption (and an ability to effectively manage change) because the ideal profile will change during these phases of franchisor transformation. Along with establishing what you will look for in new franchisees, this system-wide approach also helps you understand the makeup of your system and the patterns of beliefs, preferences, values, etc., among all levels of performers. Even though it’s difficult to determine whether middle performers will become high performers if you can ignite more passion in them, it is worth the investment to work with them to improve their performance. On the other hand, bottom performers can mean the death of a good franchise system because they drain resources and will emotionally wear out your support team.
I like to augment my review of these profile assessments by looking at a correlation between a few internal metrics and profile types. The metrics may vary by system, but spending the time to evaluate multiple internal factors to grade a franchisee’s fit—in correlation with his profile type—is a valuable exercise. Using this approach would have helped us greatly had we identified the distinctions earlier in our history. The review process includes the following steps:
- Based on revenue performance from opening to current date compared to the system goal for her first unit only, categorize each franchisee according to her first unit performance: Tfor top performers (top 25 percent), Mfor average performers (middle 50 percent), or Bfor bottom performers (bottom 25 percent). This will assess her performance as a single-unit owner-operator.
- Based on revenue performance from opening to current date compared to the system goal for the aggregate of all units, categorize each franchisee according to her total business performance. (Use the T, M, or B categories described in item 1.) This will assess her performance as a multi-unit operator. Some franchisees will show that they underperform as a multi-unit operator because they lack leadership skills and/or have a tendency to micromanage, but they may be solid single-unit performers. Addressing the need to develop new skills or to sell off a territory can be a win-win way to improve the franchisee’s ROI.
- Identify franchisees who are costly to support and/or do not value the franchise relationship.
- Identify the role the franchisee started in (operations or sales); what role she is in now (operations or sales); if she changed roles, and if so, how long it took; and, if she had to do it again knowing what she knows now, what role she would have started in. The roles may be different for your system, but usually there is a core role or two that a franchisee can choose. It’s also possible that a given franchisee began as an investor (which we do not allow in our system) without involvement and then became an owner-operator or, conversely, began as an owner-operator and then moved out of the day-to-day to an investor role.
Your operations department should be able to complete items 1, 2, and 3. Item 4 will require involving your franchisees to help gather the information. Use these data in evaluating the ideal franchisee profile. It will also be valuable when we get to chapter 8 and look at how franchisors make their money.
In addition to learning that a multi-unit operator had a different profile from a single-unit operator, we learned that we had to update our ideal franchisee profile for changes in how he accessed capital and when our model required new skills.
In mid-2009 we changed our model from one in which the franchisee had to perform the outside sales function to one in which our franchisee could perform the operations role and hire an outside salesperson. We actually saw improved performance when our franchisees were in the operations role, and we saw that the transition from single-unit to multi-unit leadership was easier when the franchisee had started in the operations role. We had adapted the model so much that we were probably looking for an operations and leadership generalist instead of a salesperson. It took us between 12 and 18 months to identify that our profile needed to change to reflect this, and we needed to resurvey our franchisees to gather the information necessary to establish a new ideal franchisee profile.
AVOID THIS PITFALL:
By evaluating franchisees annually to see if the ideal (top performer) profile in a prior year is still relevant today, you mitigate your risk of not maximizing a solid tool.
Refer to the profile of your ideal franchisee to assist you in evaluating where this type of individual will listen, watch, or read to learn about (franchise) opportunities. You will use this valuable information as you negotiate with lead-generation sources to ensure that where (i.e., portals, print, radio, cable, etc.) you spend money to advertise targets the demographic profile of your ideal franchisee. The profile will also assist you in developing messages for the various marketing initiatives.
Customary Lead Sources
Now that you have a solid sales process and know the profile of the ideal franchisee that you are looking for, it is time to understand the various sources of leads. You will be in control of your visibility through your own website and through your public relations (PR) strategy. In addition, there are sources dedicated to cultivating franchise leads for you through portals and print advertising. You pay for these services without knowing if they will be successful or not. Broker networks are also available to assist you in identifying prospects that may be good franchisee candidates. You pay brokers when and if you award their prospect a franchise.
Franchise Website
I am always amazed when I hear about the huge sums franchisors spend generating leads and then look at their website and find it unappealing or difficult to navigate. Why spend money to get a suspect to your website and then create a poor experience, making them “bounce” off the site and not provide any contact information for your franchise salesperson to follow up on?
Here are a couple of thoughts about designing an effective franchise website based on my own experience: (1) Separate your customer website from your franchise website; (2) pick a web designer knowledgeable about franchising; (3) design your website to direct the prospect through a specific process to learn about your concept; and (4) select a web designer who understands search engine optimization so that your website is not just pretty but also attracts leads. I would also recommend a place on the homepage where the content is regularly changed and updated (i.e., company news, message from the CEO, etc.).
Customers are seeking different information from what a franchise prospect is looking for, and you want the primary function of your customer site to build brand awareness and influence a purchase to increase the revenues for your franchisees. You want to lead prospects directly to your franchise site so you can watch the analytics to see where leads are coming from. Being in home care and taking seriously the part we play in families’ lives, BrightStar didn’t want to send the wrong message, that we can care for your parent or child and also sell you a franchise. For a while, then, we didn’t even have a way to get to our franchise site from our customer site. But eventually we added a link as a secondary component in our customer page design. For any other industry, I would display it more prominently because we’ve come to realize that the number one source of leads on our franchise site comes from our customer site. Think of your franchise site as the executive summary of a business plan and the new“gatekeeper” of what the business is and isn’t.
Market Awareness
I am a big believer in public relations regardless of the size of your system. We generate at least one or two sales per year with prospects who found us because of an article or a TV appearance. Those two sales alone give us a positive return on our annual PR investment. I also believe there is much more indirect benefit from PR because customers and prospects become aware of the brand and then visit the website.
It may be best to delay a PR effort until you have between five and 10 franchisees, so that you have something to pitch. Prior to that point, you may not have a solid return on those precious funds.
Advertising
Advertising is another method to generate awareness and visibility, and ultimately prospects. As a place to start, you will want to look into the various venues where your competitors or similar investment-range concepts are advertising. The number of advertising choices you make will largely be determined by your lead-generation budget. Once you begin advertising, use the metrics discussed in chapter 6 to determine which lead sources produce the best results.
Internet Portals
An Internet portal is a website that spends money on search engine marketing (SEM) and search engine optimization (SEO) to attract potential franchisees to the site to look at various franchise concepts in exchange for completing a short profile with an e-mail address. The site, or “portal,” then sends these profiles to various franchisors that have paid to advertise and paid to receive leads. There is a vast number of portal choices to advertise on. Many franchisors are willing to share information about which portals are working well for them, if you ask. You just need to make sure the portals are appropriate for your organization.
AVOID THIS PITFALL:
One of the biggest mistakes I made early on was assuming that all portals that other franchisors were using successfully would work for me too.
I collected portal references from sales gurus I respected, and after signing year-long contracts, discovered that the portal that worked for them didn’t work so well for us. I spent a fortune generating only a handful of qualified leads before it dawned on me that I require an owner-operator, and most often the sales gurus I consulted with sold mostly investor-model franchise concepts that appeal to executives who want to keep their jobs.
I share this painful discovery because it is critical to gather information based on matching a few key parameters: (1) owner-operator or investor model; (2) investment range—under $50K, $50K–$100K, $100K–$250K, and above $250K; (3) sector (food, retail, or service); and (4) home-based or not. The quality of leads varies by sites: Some are just awful for all concepts, some are good for some concepts but not others, and a few sites are good overall. But how can you judge if a portal is good? I spend time on evaluating lead quality on portals because it is more important to have a reasonable cost per completion (closed deal) than it is to have a low cost per suspect. For instance, if the suspects answer my e-mail or take my call and then enough of them buy so that my cost per completion is less than $9,000, I judge those leads to be quality leads. Certain sites do not generate much quantity for my company, but the lead quality is high.
In selecting portals to start with, I recommend the following steps to improve your odds of success and positive ROI:
- See what comes up on a Google search of “franchise opportunity” and make a list of all franchise portal advertisements. The higher the ranking in the Google list, the better the portal’s SEO and likely the better the lead flow through the site. Click on the link to each site, find the information for advertisers, and note who you will need to contact.
- Contact each portal and ask for information on monthly traffic statistics and a breakdown of people looking for opportunities on the site by industry and by investment range (and any other demographic information the site may have in terms of gender, age, or net worth, to compare to your ideal franchisee profile). Those that have the highest traffic of the types of candidates that match your ideal franchisee profile, your industry, and your investment range should be prioritized.
- It is then time to negotiate (yes, all portals negotiate). Although I prefer shorter contract terms, I also concede that it takes a good three to four months before you can make a determination, because the real test of a good site is that one of the leads results in a sale or progresses far enough in the sales process to suggest that a future sale will result. Therefore, my preference is to agree to a three-month contract term whereby I get four months of leads for the price of three months if it is a fixed monthly rate.
- I prefer sites that charge me per lead generated and that allow me to pay more to apply filters for higher-quality leads based on investment range and/or net worth criteria. Most, if not all, will also let you apply filters to exclude states in which you are not interested in franchising so that you get (and pay for) only those leads you can use.
- Sites are beginning to pop up that let you receive an unlimited number of leads free of charge until one of the leads purchases a franchise, at which time you pay a success fee of $6,000 to $12,000. (This appears to be the way the portal market is heading—or at least it should be.) The fee varies according to when you join the portal and how difficult your concept is to find leads for (remember, there are fewer leads for higher investment levels, and fewer for non-home-based). This model is a no-risk proposition, and the risk-reward proposition is akin to the broker model, in which you pay only for success. If these new portals invest in solid prequalifying, so the leads are of high quality, I think they could sign up the majority of franchisors.
I recommend trying anywhere between two and five portals for four months (paying for three) as an initial start. Once you select a few portals to try, be sure to put as much effort as is feasible into developing your website content. You will only have a few seconds to grab a prospect’s attention, so hit the highlights and use bullet points!
Some franchisors have good success with print advertising. For instance, I see newspaper advertisements for Volvo Rents and Aaron’s all the time, so it must work for them. We have not been successful with print advertising, and it is expensive. We have only closed a handful of sales with prospects who found us through a print ad, and the costs for the completions were much higher than $9,000.
We had better success advertising in Entrepreneur magazine, once we had been ranked in the January edition that features the Franchise 500 (which took until we had five years of history). When we tried it before then, it didn’t yield a sale for us. I think print ads probably deliver many indirect leads, just as PR does, because prospects see the advertisement and then visit the website.
Since print requires such a large investment, I recommend working with the company that designed your website to set up a unique landing page (a copy of your website but with a unique URL) and use this in the print ad so you can track the specific number of leads that found you through the print advertisement. I do not see print as a cost-effective option for most franchisors in the first few years of franchising, although Entrepreneur’s Franchise 500 issue can be viable once you are to a stage where you feel you will make the list.
Lesser-Known Lead Sources
Though they aren’t as “sexy” as portals, franchisee satisfaction survey tools and their websites nevertheless do generate leads. I believe in using these tools first and foremostto assure us thatwe are focusing on the right activities and investments to always be improving franchisee satisfaction, our model, and our franchisees’ results (this topic is covered in more detail in chapter 10). Also, being able to share how the franchisees rate the franchisor with a prospect is a powerful tool to improve completion ratios. In addition, both Franchise Business Review (FBR) and FranSurvey generate leads. We value both tools and feel that the strengths of each, though different, yield feedback that is worth its weight in gold. With a brilliant marketer at its helm, FBR generates more leads. FranSurvey “certifies” a much smaller number of franchisors because of the stringent criteria and the anonymity of the survey. (Its founder is a former franchisee who prioritizes the process and science above any marketing consideration.) We pay to use both services, alternating between them so that we are surveying every six months.
Brokers
I am a big fan of brokers (or “consultants,” depending on their preferred vernacular). One of our first five franchisees came through a broker, and he is an absolutely wonderful, high-performing franchisee. It is unusual to have a broker network represent you before you have at least 10 open units, and even then you might go through a rigorous process to be accepted into what they call “inventory.”
Now it’s time for a story that shows how persistence can pay off when it comes to brokers. I began calling on all of the big broker networks, including the highly respected FranNet, in mid-2005. I kept on contacting them and sending information and got a few of them to consider signing a contract just in case (after convincing them that there was no downside to them because most likely they would not be sending me leads).
Then one day I got a call from a broker with FranNet about a prospect of his who was a former hospital administrator and was interested in becoming a franchisee with a medical concept. I could tell that the broker was calling reluctantly. Fortunately he had all of my contact information from my repeated calls, e-mails, and overnight mailings to him. The FranNet broker said there was nothing else in the FranNet inventory that offered medicalhome care, and even though he tried to warn his prospect that we were new and therefore a huge risk, the prospect wanted to talk to us anyway. This was a huge break for us. Not only was it an opening to do business with a broker group with an amazing reputation, it was also a great opportunity to attract a high-quality franchisee. (I will refer to him as “John” to protect his privacy.)
We began talking with John over the next couple of months, and he flew into Chicago for our Join-the-Team Day (it was “Discovery Day” at that time). We connected right away, sharing the same values and a passion for high-quality care. This was a big decision for John, though, as we were a new franchisor and unproven. John asked me if, as a last step, I would meet a friend of his who lived in Chicago. He wanted this person he respected to provide feedback on whether joining us was a good decision. Of course, I would do anything (as long as it complied with franchise sales laws and regulations) I could to help John make the decision to join us. Then John told me his friend happened to be the managing partner for one of the “big four” CPA firms. I was nervous. For a CPA who began in public accounting, a meeting with a managing partner was a big deal.
I arrived for our lunch meeting a bit early and was shown to “his table.”
Yes, he had a table, and his picture hung on the wall above it. I suddenly felt nauseated, and I couldn’t bring myself to eat much during lunch. Our conversation started off a bit dicey when I asked what he thought about John joining our franchise and he said, “Like I have told John, I think he is smart enough to start this without you.” From that point on, there was only one way to go—up!
I began discussing our model and the money that we had invested in the branding, securing trademarks, our technology, etc., and I compared that to the franchise fee and future royalties from a risk-reward standpoint. He asked a lot of questions and I answered every one. At the end, I asked whether he would tell John he should join us or to do it without us. (I had never been in sales, but J.D. says, “Always ask for the sale,” so I did.) He smiled and said he would tell John he should move forward with us and he would also like to set up another meeting for his brother to meet me because he would also advise his brother to consider becoming a franchisee. (His brother did join, and he is still a franchisee performing well.)
This was such a pivotal point for us. First, FranNet took us into inventory after we closed that first sale, and they continue to be a major contributor to our growth. Second, we got John as a franchisee. John has been a great franchisee and a great friend from the beginning. He’s a top performer and, more important, he’s invested in making the brand better. We began the chapter talking about selecting the right franchisees, but this story seems like the right place to thank FranNet for finding us one of our best. I was so proud and delighted to announce John’s selection as Franchisee of the Year in 2010 that I cried a bit as I presented it—and got my hug.
We have also had great success with FranChoice, The Entrepreneur Source, and MatchPoint in terms of the number of franchisees that have joined us. As long as a broker network has a good reputation in terms of franchise compliance and understands that the franchise sales rules apply to them (including the rules regarding financial performance representations), then we are happy to work with multiple networks and the independent brokers too.
Generally the quality of our franchisees is higher through the brokers, which is why we are such huge advocates of using them. While we are increasing our online investment to bring our balance of new franchisees to more of a 50/50 (broker/non-broker) percent split, we expect to still see a large portion of our continued growth result from broker leads.
Once you have approximately 10 franchisees and you are interested in looking at the broker networks, you should begin contacting the networks to find out how to submit your information to be considered. Each will have its own process. Be persistent. As cautioned in the section related to outsourcing franchise sales, be careful about the terms you agree to. I have been unwilling—and always will be—to accept terms in which I have to pay a portion of my royalties for a period of time or in perpetuity.
Referrals
Certainly we were lucky to get a referral early on by having John’s friend and advisor refer his brother to us. Recognizing that referrals are the lowest cost of acquiring a new franchisee, I set out to craft an internal referral program.
BRIGHT IDEA:
I strongly recommend being more intentional about this activity by planning, disclosing, and communicating a referral program.
We added a referral program to our franchise disclosure document so that we are able to pay a modest amount to any individual who directly refers a prospect to us who winds up becoming a franchisee. You need to ensure that your process for selecting franchisees doesn’t change and that the prospect is just as rigorously screened as any other prospect; an existing franchisee should never be able to influence the decision—and become a franchise seller’sagent—as part of the referral program. You should also discuss this program with your attorney to ensure that the amount offered is not material in any manner that could cause a franchisee to do more than merely refer a candidate as part of the process.
Here are a couple of things you should do in addition to establishing your own referral program. First, make sure your franchisees know the rules regarding the referral program: To receive the financial reward, the referral must be direct to the franchisor and not to the broker who placed the referring franchisee. Otherwise, only the broker benefits and your referring franchisee will be disappointed when you explain that you can’t pay her and why. Second, understand that franchisees do not refer prospects solely for the money, so be sure you recognize the referring franchisee publicly as frequently and in as big a way as possible (newsletters, system calls, and at conferences).
Closing Thoughts
We all want to grow our systems by adding franchisees, particularly as we start up our business. In closing this section, I want to revisit a word of advice and share one of my great ideas that I will use with future franchise brand launches.
First, I want to reiterate and lend my two cents to the advice you get from everyone to not sell to family or friends; it is absolutely true. And, no, I didn’t listen to it either, but I wish I had. I also recommend against selling to parents wanting to buy their adult child a business or a sibling wanting to buy another sibling a business.
My great idea is to give away the first few franchises. You heard that right. Offer the first few for absolutely no initial franchise fee. You should run this idea by your franchise attorney, of course, to ensure that he advises you on how to do this legally and helps you understand the disclosure issues. BrightStar’s intent with our next foray into creating new brands is to offer the first few free of charge to gain even greater collaboration with a new brand.
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In the next section, we will focus on executing for sustainability. Several elements are necessary for the success of a franchise model. Franchisors need to understand how they really make their money. Franchisors also need to train franchisees well and have a relentless pursuit of continuously improving franchisee unit economics. The long-term ability to consistently improve requires all of the franchisees and employees working together to achieve a common goal. Consequently, I will continue to focus on building an intentional culture to enable this.
Moreover, many of the strategies, systems, and support services that we will discuss in the next section relate to a central theme—accelerating a franchisee’s time to breakeven. We focus on improving franchisee unit economics, but the reality is that if we can’t help a franchisee start fast and stay strong, she will run out of capital on the five-yard line. You will see that our emphasis on training, fast-start initiatives like BrightStart, early communication, and benchmarking are all centered around improving early outcomes. How a franchisee does early on is a strong predictor of likely success down the road. For those franchisees who do not get off to a strong start (which can occur when the franchisee selects the wrong initial role and then is unable or unwilling to perform the activities to be successful in that role) or when one gets a flat tire along the way, we will discuss specific strategies such as “boost” programs, financial exceptions, territory right-sizing, formal diagnostic reviews, and, when necessary, resale programs that we use to assist franchisees in correcting their course.
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