Determining the Best International Partner Match
April 2009 Franchising World
By Charlie Weeks
Selecting the best international partner underpins the essence of franchising (and joint venturing for that matter). It establishes the foundation for launching a brand and for a sustainable, successful franchise business relationship in any given international market. Notice the emphasis on “relationship” here; more on this later.
It’s very important for franchisors to get this right when making the decision to join forces with a chosen franchisee.
The discretionary divide for the proposition of signing up a new franchisee, which in the majority of cases determines success or failure, fundamentally rests on management’s philosophy or strategic decision to either sell franchises or recruit qualified franchisees. The latter being the preferred alternative.
The distinction between “selling” and “recruiting” is critical for franchisors, who wish to avoid costly mistakes that may result in a foundering ongoing business, a competitive weakness in-market or an outright loss and retraction of your brand name from a given market. Moreover, we must realize that the damages and losses affect both sides of the relationship and can adversely affect your brand name and the ability to perform a restart for perhaps several years.
This differentiation in no way implies that selling, and promotion for that matter, are not logical components of the means for securing leads (or prospects). They are requisite, and their absence will negate a robust selection process, and will therefore limit the opportunity for finding the best match.
From the point when prospects are engaged in the initial conversations, the discussions are meant to estab lish expectations. This should be based on a fairly objective review of your brand attributes, your business culture and your rationale for entering the market of interest to be sure there is alignment with the franchise candidate’s objectives. There is always an element of bias, of course, and that we all refer to as “passion.”
Let’s face it. We are talking about best practices and in this particular instance we are focused on the longterm results as opposed to chalking up “deals” on an annual scoreboard. Even in the best of circumstances and with the utmost diligence in the franchisee selection process, we can still get it wrong. In any event, the lottery process of choosing your most important resource to attack an international market and activate a strong advocacy for the brand is an obvious absurdity. And, if there is prevailing headquarters office pressure and continuous questioning as to what has been brought in this week, or this month, in the way of new business, you may have a hint as to your company’s orientation toward this process. There’s always the opportunity to get it right. Your product is your name so protect it at all cost.
One last point on the subject of selling versus recruiting worth noting is the idea that the “development guy is only as good as the last deal signed.” This is only valid so long as the expectations are legitimately planned and reasonable. Being overly-ambitious on the international front can not only lead to problems, in many cases it can end in disaster. I have always believed that you can quite often take pride in the deal you decided not to do. A corollary to this is that you should concentrate on entering a new international market with an eye toward long-term growth and creating a new ongoing revenue stream and not “cash-flowing” upfront fees for the short term. Best matches will definitely result by acknowledging this focus.
Before tackling all the procedural qualifiers and the “best match process,” I will categorically state that a franchisor, new to international, who is looking for the 90-day first deal is in for disillusionment and a rough ride if accomplished. Usually an accomplishment of that nature emanates from the now famous “call from abroad” where an opportunistic event has dictated who will be the first franchisee, most generally in the absence of strategy and planning. To set the bar from my own experience in a brand-new international development start up, it is not unreasonable for the first franchise sign-up to take as much as one year. However, in the first six-to-nine months time frame it would be viable to expect a minimum of at least two and possibly three Discovery Days. Deal gestation for even the most highly-motivated franchisees may move from first conversations to a sign-up in six months at best. These examples will have some interesting twists in their origination, but again, in my experience, the expedited deals will come from long-time knowledge of the franchisor’s brand and an immediate real estate space to fill (from a restaurant point of view), and perhaps an immediate hole in the market to capitalize on for service and other franchises.
Best Matches Come From…
Target Market Prioritization: determining where you will go first to find them.
Looking close to home: where your U.S. market success comes from, start by evaluating your top franchisees and profiling their background and their experiences; especially if their ethnic origin matches up with the target country “hit list.”
Looking inwardly: For good clues exposing what competencies made you successful prior to franchising, and check on what competencies your franchisees possess that have helped them achieve their success.
The following discussion lays out an approach that, in my experience, has faithfully guided my efforts to ultimately settle in on the best match in a timely and efficient manner. The effectiveness of this process after all establishes an optimum return-on-effort which is in my opinion the best measure of results for the “development guy.”
Establishing a Best Match Will Rely Upon…
International candidates’ qualifying characteristics: Along with my own trial and error and consequent learning, while developing new international business for Outback International, I owe thanks to the mentoring of both Edwards Global Services and CKE Restaurants and to their highlyproven approach for qualifying franchise candidates.
• Identify if they possess previous industry experience and how much it applies to your business model,
• Look into their rationale for specifically choosing your franchise,
• Check into their belief in the concept of franchising and their perceived value of your business systems,
• Establish their willingness to dedicate an intensive full-time focus to your franchise business,
• Do they meet your funding requirements?
• Test their knowledge of the local market and if they are known,
• Determine if they have an ability to staff the business to assure a smooth transfer of your operating systems,
• Look for a proven competence in “business building,”
• Seek confirmation in the local market of their integrity and reputation for fair play (a background check is performed professionally at the appropriate time),
• Finally, and most importantly, assess their acceptance of the role of franchisee; this is the measure of their entrepreneurial spirit–difficult at best to ascertain, and each franchisor will have its own tolerance level.
There is then “the process,” and this is the track we use today leading to the award of a franchise. The steps are:
• Provide us with your completed Request for Consideration, CV/resume and company information (the details requested provide an estimate of the market development for a five-year period and complete financial disclosure in an online submission sent directly to the vice president of new business and held in complete confidence).
• Sign our Confidentiality Agreement (to be sent at the stage when serious discussions begin).
• Receive our opportunity summary, our brand introduction, our video and our brochure.
• Allow us to visit your offices and business installations in the interest of our gaining a thorough top-line knowledge of your current activities and infrastructure.
• Receive a draft Letter of Intent outlining specific country area development (franchise) terms to initiate our discussions along with any clarifications needed regarding certain specific terms and conditions.
• Attend Discovery Day meetings at our headquarters where you will learn the details of our business opportunity, meet our team, receive additional important information, including the International Franchise Disclosure Document, and tour our restaurants. You will in turn present information on your market and your business planning (a concise and pertinent index and “things to bring” explanatory brief are sent for their guidance).
• Sign a Letter of Intent and make a “holding fee” deposit to demonstrate your earnest intention to move forward toward securing the rights to our franchise and acquire the franchise.
• Complete the checklist accompanying the Letter of Intent with full disclosure of the entity, principals, and legal address among other important requisites.
• Note: Unmentioned in this track sent to franchise candidates is our own due-diligence background check by a dedicated service professional in this field which we are careful to disclose to them in writing prior to conducting the study to avoid any surprises and misunderstandings.
• Sign and execute the Area Development Agreement and pay the balance of the Area Development Fee.
• Congratulations, you are now the (brand name) franchisee for your country.
• You come to our headquarters for a two-day “Corrobory” (our term for a Franchisee Orientation Program––we corroborate all expectations and the timeline deliverables up to the opening).
• We now come to your country to assist in the set up of your business.
• We train your team in the United States four-to-six months depending on various factors.
• We come back to your country to assist in the start up of your first restaurant with our “Start-up Team.”
This is a process that typically takes from six-to-eight months to reach the point of signing an Area Development Agreement from a first contact, and the timing from signing the agreement to the first restaurant opening may take as much as eight months or more. It is quite a challenge and a worthy undertaking.
Charlie Weeks is vice president, new business development for Outback International. He can be reached at 404-425-5047 or email@example.com .