How to Spot the Ideal International Franchisee
Success in selecting international franchisee candidates means avoiding many common mistakes. Begin with these essential criteria but be sure to also take your time, be careful, follow your process and don’t cut corners.
By James Walker, CFE
Selecting the “right” franchisee has always been a challenge for franchisors in the United States. Domestically we interview, run credit and background checks, and conduct sometimes exhaustive due diligence before awarding the rights to franchise a brand.
When a franchise begins to look for the ideal international franchisee, this vetting process is even more critical, and the ramifications of a bad selection even more acute and potentially costly. Distance, culture, time zone, language barriers and local laws all add friction to the working relationship between franchisee and franchisor. While the list of important criteria in selecting the ideal international franchisee could be very long indeed, below are the top 10 criteria that contribute to success in the selection process.
Brand Champion: First and foremost, look for candidates that truly are passionate about the brand and its core elements. Launching a brand in a new international market is hard work, and requires dedication, passion and involvement from prospective franchisees. The greater their personal understanding of your brand’s core elements, and the more passionately they exude those elements, the better. While you would expect their decisions to ultimately be based on sound business metrics, don’t under-estimate the value of their passion and excitement for the brand itself as elements of their future success.
Communication: Time zones, language and cultural barriers can all make communication more difficult internationally. Timely, professional, yet informal, communications are vital as you work together to launch your brand in their market. While there is clearly a necessity for formal Skype or Tele-Presence meetings between the franchisor and franchisee teams, it is equally important that you can have quick informal communication with the franchisee’s principals. Make sure your franchisee is a good listener, and keeps his word. In the vetting process, ensuring that your candidate keeps agreed upon timelines and is easy to communicate with will be a good indication on how easy he’ll be to work with once you do award the franchise rights. Honesty and transparency on both sides is important from the very start of the relationship.
Corporate Cultures Align: Like people, corporations have personalities and a certain way they like to conduct business. Ensuring the franchisor and franchisee corporate cultures align and are a good match for one another is as critical as ensuring that the personalities of the executives and principals on both sides of the table are a good fit. It’s also important to weigh how a partner treats everyone within your organization, at all levels. If the partner treats the brand’s senior team differently than the field or support team players, this is a clear indication of problems that will manifest themselves once the brand is launched in
their market.
Financial Wherewithal: Ensuring that the candidate is fully aware of what the full financial commitment is likely to be and that he has clear access to those funds is even more important internationally, as it is less likely that you would be in a position to assist in securing additional capital, should the candidate’s available funding fall short of the need. While this is one of the critical components in the selection process, franchisors should note that this is just one element of the selection process. Far too often partners are selected on this metric exclusively.
Respect for Your Process: A candidate’s respect and adherence to the franchise’s internal processes, including your application process paperwork requirements, is a good indication as to how closely he will follow the brand’s systems and procedures once the agreements are signed and executed. If a candidate skirts a process, or asks for exceptions to be made, he might look for the franchise to make similar concessions in its operational systems, and brand standards.
Realistic Expectations: Spending time with your candidate to understand what his expectations are of the development team, the franchisor, as well as what type of performance expectations he has for the brand in his market, is very important. What resources is he expecting the franchise to commit and are you comfortable with those expectations? How comfortable will you be in going above and beyond those? What type of growth and financial performance is the candidate expecting from the brand, and how conservative or aggressive is he? The more likely you feel a franchisee’s business plan is being met, or better yet, exceeded, the better.
Access to Required In-Market Resources: Funding isn’t the only critical resource for most brands. Access to human capital, real estate and governmental approvals are just some of the considerations when looking at what a candidate has to offer. A well-funded franchisee that cannot secure a location or the required talent to run the brand won’t get very far, and chances are, your franchise won’t be well positioned to help in these areas. It’s best that your candidate possesses these required in-market resources.
Aligned Goals: When you review the candidate’s business plan and discuss elements such as brand positioning and strategy, determine if he is aligned with not only where your brand is going, but perhaps even more importantly, how you plan to get there? Before awarding the franchise, it is a great idea to discuss the “exit” from the brand, including how long the candidate is looking to operate, when and how the exit is planned, or sell his holdings, and how involved will you, the franchisor, be.
Local Market Expert: As the franchisor, you are the brand expert. Your international partners need to be experts in their markets. They need to understand the macro-economic trends, potential governmental changes and regulations, as well as trends within your given industry. It is this melding of their local knowledge along with the franchisor’s brand experience that ultimately will allow your new venture to thrive and be successful. Try and verify their information, and knowledge, using third party sources. It’s important that your partners’ market knowledge is fact, versus, opinion based.
Agreed Upon Strategy: There are often struggling U.S. brands established internationally where the problem can be traced back to misalignment in the strategy and positioning of the brand from the outset. Ensure that you have detailed conversations on any modifications to the brand’s domestic offerings that might be either necessary, or advantageous early in the process. Failure to gain this consensus can cause a brand’s launch to misfire or damage the brand’s reputation beyond that specific market. For example, in the restaurant segment, brands that suffer from off-brand messaging, like radical departures from the look and feel of the brand, its core elements, or menu proliferation, typically can be traced back to misaligned strategy from the start.
Some common mistakes to avoid, including solely looking at the size or financial viability of a candidate, are among many metrics to consider. Rushing the process, or failing to address any concerns you may have about the partner can become a much larger issue once an agreement is signed. The best advice is to take your time, be careful, follow your process and don’t cut corners.
James Walker, CFE, is chief development officerfor Johnny Rockets. Find him at fransocial.franchise.org.