For many franchisors growth involves expansion of franchisee numbers with the appointment of new franchisees. To successfully recruit a large volume of franchisees, and ensure high performers are being consistently appointed, requires a well crafted franchisee selection process that uses the best tools of the trade.
Over the past few months I’ve had many discussions with franchisors that have significant plans to grow net franchisee numbers by 20 to 50 units over the next twelve months. When some of the larger networks include their natural attrition of existing franchisees they need to source, recruit and select over 100 franchise units in the next year. This is just within the Australian market, some have additional plans for off-shore expansion.
To put these numbers into perspective; it means that during each and every month of the coming year they will constantly have eight or more franchise candidates at some stage of the selection and induction process. That means either being tested, having background checks undertaken, being profiled, undertaking financial due-diligence, interviewing, participating in a discovery day, signing franchise agreements and going through induction training. And all this before the new franchisee completes their first customer sale.
To successfully recruit a large volume of franchisees, and ensure high performing franchisees are being consistently appointed, requires a well crafted franchisee selection process. With the emphasis being on the word “process”. Franchisors must have a clearly defined set of steps that are followed each time a new franchisee is recruited. Each step needs to have an objective, a set of actions, and a clear deliverable. Requirements of the franchise candidate should be documented, communicated to the candidate and objectively measured. You may choose to make allowances for particular candidates but you should always be consciously aware that you are making these allowances. This will avoid any nasty surprises when they start operating – as you will already be aware of their weaknesses and strengths.
We often find that in the rush for growth and the desire to reach planned franchisee unit numbers many franchisors will either not follow a selection process, will cut corners when it comes to testing or rely far too heavily on “gut feel” that cannot be objectively justified. The results are often disastrous. The appointment of an unsuitable franchisee is regularly underestimated in terms of its true cost. Ironically the first casualty of a poor recruitment decision is usually that years growth plans. Poor appointment decisions divert management attention to support and control activities, leaving less time for other recruitment activity. A bad appointment decision at the beginning of the year is likely to delay the rest of the years activities. So, besides the opportunity cost of lost sales in the territory, you must also consider the cost of lost management time and the distraction of management attention. How common are poor franchisee recruitment decisions? Almost every experienced franchisor we know will admit to making at least one poor franchisee appointment in their history of business.
But merely having and following a selection process isn’t sufficient to ensure the correct candidates are appointed. Franchisors must be certain they are doing the right checks and testing for the correct attitudes and beliefs that will predict if a candidate will be a high performing franchisee. So, what should you test for? And how should you test objectively?
In 1997 our strategic partner in Canada, Dynamic Performance Systems, undertook a large scale research project to develop The FranchiZe Profile™. The research involved hundreds of franchisees with the aim being to try and determine what attitudes and beliefs lead to success as a franchisee, and how we could measure these attitudes in a candidate. We found there are seven core values that a candidate must possess in order to succeed as a franchisee and perform in the top 25% of franchisees.
For now let’s just focus on the most important factor. The single most important factor in predicting the eventual success of a candidate is how a franchisee treats their employees. A candidate’s attitude towards their employees is something you must be testing for in your selection process. The research, which has now been applied across more than five countries, shows that franchisees who involve their employees consistently perform at much higher levels than those who distrust their employees and exclude them from decisions. Successful franchisees generally:
- really believe that employees are a valuable asset to the business rather than an expense
- prefer to manage using participative rather than autocratic decision making styles
- believe that employees are an integral part of the business
- believe that staff should be treated with respect
Whilst the research has consistently proven to be true in application we are often asked why this is the case, and how come this is the most important of the seven core attitudes. The answer is explained in a book titled “The Service Profit Chain” written by J. Heskett, E. Sasser, and L. Schlesinger, and published by Harvard Business School. This research included many US franchise chains, and they defined the link between treating employees well and growth as follows:
Treating employees well is linked to employee satisfaction which is linked to employee productivity which is linked to service value which is linked to customer loyalty which is finally linked to profit and growth.
In fact they state that “customer loyalty is a more important determinant of profit than market share… a 5% increase in customer loyalty could produce profit increases of from 25% to 85%”. They also provide a relevant example when they mention that several years ago “Taco Bell examined employee turnover records for individual restaurants. Management discovered that the 20% of stores with the lowest employee turnover rates enjoyed double the sales and 55% higher profits than the 20% of restaurants with the highest employee turnover rates”.
That’s a powerful finding for any franchisor concerned with appointing new franchisees.
So you must test a candidate’s attitude towards their future employees, but how do you test, and objectively measure, if a candidate will treat their employees well? Obviously you will ask questions about their attitudes to employees in your interviews with the candidate. Ensure your questions are open-ended and provide them with scenarios to solve. The caution with interview questions is that many people are accomplished performers in interviews, the old adage that you can “fake it until you make it” applies to franchise interviews as much as job interviews. That’s why we also recommend the use of a professionally developed profiling tool when testing candidates. Ensure the profiling tool you use has been developed specifically for predicting franchise success and is not a personality profile. Personality does not and cannot predict performance of franchisees, think of your own top 10 franchisees and how they differ in personality. Also ensure your profiling tool is rating the candidate on how their responses compare to those of successful franchisees. There is no point in measuring something unless you have a valid benchmark for comparison.
As franchisors set their growth plans for next year it’s crucial to ensure there is a robust selection process being applied consistently to every candidate. That you are testing for the correct attributes, the most important being how the candidate will treat their employees. That you use an objective measure for testing attitudes and beliefs such as a profiling tool. And finally that your profiling tool has been developed based on validated research in the franchise sector.
You are probably wondering what the other attitudes and beliefs are that make up the seven core values for franchisee success. In order of importance they are as follows:
- Attitude towards employees
- Positive attitude for success
- Sales orientation
- Responsiveness to customers
- Social orientation
More on those in the next edition!