Prospective franchisors often ask me about the most difficult aspect of franchising. “Is it franchise sales?” “Is it ensuring franchisee success?” “Is it quality control?”
And my answer never ceases to surprise them: “No, it’s turning down a cheque for R100 000.”
Perhaps the single biggest mistake made by novice franchisors is to sell franchises to candidates who are not truly qualified to run them.
It’s easy to understand why this mistake gets made. A new franchisor, who has spent perhaps R400 000 preparing to franchise, finally begins offering franchises. The low close rate typical of franchise sales, combined with the long sales cycle, makes it feel as if that first franchise sale will never take place. Doubt creeps in. “Will I ever sell a franchise?” Then, a prospect the franchisor knows is marginal indicates he wants to sign the franchise agreement and pay his initial fee.
So what do you do?
Choosing the Right Franchisee
Before you take that cheque, the first thing you need to remember is that you’re in this for the long run. You can’t be a successful franchisor unless your franchisees are also successful in their own businesses.
Underperforming franchisees require much more support than strong franchisees, so they cost you more. At the same time, they generate lower revenues and therefore pay less in royalties. And, of course, failed franchisees don’t pay royalties at all and are much more likely to bring litigation against the franchisor.
You should also remember that every one of your franchisees (and every one of your lawsuits, should you have any) is disclosed in your offering circular. A sharp franchise candidate will always speak with these franchisees as part of their due diligence process.
Suppose you accept a franchisee who is unqualified, undercapitalised and lazy. Do you really think he’s telling prospects, “Frankly, the reason I am failing is that I am unqualified, undercapitalised and lazy. This is a great franchise, and the franchisor is wonderful”? Not likely.
Regardless of whether you are to blame in actuality, imagine how the franchisee is portraying your franchise: “It costs a lot more to do this than you think. And it’s a lot harder than the franchisor lets on. I never get enough support. And now I’ve lost my life’s savings investing in this. My wife has left me. My kids are gone. And I may lose my house…”
Well, I can pretty much guarantee you that anyone who talks to that franchisee isn’t likely to sign a franchise agreement with you anytime soon.
So what’s the trade-off? Increased support costs, increased litigation, reduced royalties, and a reduced ability (or maybe no ability) to sell franchises on one hand, versus a cheque for R100 000 on the other. The bottom line:
Sometimes you have to walk away.
Sorting the Wheat from the Chaff
So how do you identify franchisees who will be successful? Some criteria are easily identified. For example, some specific skill sets may be necessary for success: mechanical expertise, food-service experience, etc.
These ‘hard skills’ questions are among the first the new franchisor should address. Are you better off with experienced prospects, or should you look to train your franchisees from scratch? To answer that question, you should first figure out the following:
- What resources do you have to train and support new franchisees?
- Do you have an adequate value proposition to sell people who already have experience in your industry?
- How important is prior experience in terms of the franchisee’s ability to become profitable in their first year?
A related question is whether you should allow for ‘passive investors’ as opposed to owner-operators who work onsite. The tradeoff here is fairly basic: Owner-operators, if properly selected, typically have better unit-level performance (both from a quality and a financial perspective) – they’re more attentive to details and more concerned with quality and customer satisfaction than most managers. On the other hand, opening the franchise opportunity to passive investors can mean faster growth and a larger pool of prospective franchisees from which to draw.
Perhaps the single biggest factor to consider when choosing a franchisee is capitalisation. Inadequate capitalisation is the most common reason for franchisee failure, so every new franchisor should closely examine liquid net worth, net worth and the candidate’s credit score.
Depending on the nature of the business, your franchisee may be able to finance a portion of the franchisee’s initial investment. The amount financed is a function of what’s being financed (equipment is easier to finance than working capital, for example) and the creditworthiness of the franchisee. That said, you should be sure to take a conservative approach to each franchisee’s ability to service debt – and should walk away from those who are going to be too highly leveraged.
Of course, none of this is carved in stone. Franchisees with a working spouse may need lower working capital requirements. Alternatively, franchisors with a longer start-up period or greater working capital requirements may want to take a more conservative approach.
As you continue the evaluation process, you should also assess criteria such as intelligence. While franchisees may be looking for a ‘no-brainer’ of a business, the truth is that most businesses do require intelligence to run. And you can’t coach ‘smart’. Since most people will tell you they’re smarter than average, it’s incumbent on you to determine whether they’re good judges of their own talent. Short of intelligence tests, measures such as a candidate’s work history, academic achievements, vocabulary and general presence help to provide clues.
Likewise, most businesses require hard work, and franchisees expecting an easy go of things may wash out early. So when measuring work ethic, look for the way a prospect conducts his life. Ask prospects about their ‘average day’ and their hobbies.
Soft skills can be equally important to a franchisee’s success. Depending on the franchise, sales and/or management skills may be a franchisee’s most important asset. Relationship factors, such as honesty, personality and compatibility, also play a part – after all, you’ll be living with this franchisee for perhaps the next 20 years.
One of the often-asked questions in the area of franchise qualification is whether a franchisee should be entrepreneurial. Generally speaking, we recommend that franchisors avoid highly entrepreneurial candidates.
Entrepreneurs tend to have several definable characteristics: They tend to have moved from job to job and have frequently already started at least one business of their own. They tend to drive fast cars, have lots of traffic tickets and are frequently divorced. True entrepreneurs tend to be rule breakers, and that’s the last thing a franchisor should want.
While you may not want to exclude entrepreneurs outright, franchisors are better served targeting straight-A students with long-tenure to their corporate jobs. They tend to drive the family car through the right lane of life.
In order to assess these soft criteria, franchisors are increasingly using more sophisticated assessment tools to ‘benchmark’ the ‘job’ of their franchisees. These tools are then used by franchisees to determine their compatibility for the role.
But regardless of whether you use these tools or not, assessing the job of the franchisee – and ultimately doing what you can to assure the franchisee’s success – is the most important and the most difficult job of every franchisor.
Spur’s Got A Taste For Success
With eight brands across five countries, the Spur Corp’s secret sauce to success has all the best ingredients — most importantly, its franchisees. Sacha du Plessis, Group Marketing Executive at Spur Corporation, explains the company’s 51-year journey in creating some of the most popular places to eat the world over.
What is the biggest contributor to Spur’s success?
Since the beginning, we’ve made an unwavering commitment to run restaurants that are operated by entrepreneurially-minded owners who put the customer first. Customer satisfaction is one of Spur Corporation’s most important value drivers, we partner with people who ensure we retain and grow a loyal customer base. We seek to work with franchisees who take pride in the training of their staff and prepare food with passion.
This mindset has been alive for over 50 years in our staff and franchisees.
Please share some of the challenges Spur encounters as a franchisor?
We have a sizable franchise network and a big priority is to ensure that we meet customers’ expectations in every single franchise they visit. Another challenge is finding the best franchisees to partner with, people who are aligned with our company values and customer orientation.
In terms of growth, it is sometimes challenging to find the correct locations per brand and to ensure the rental is at a level where it’s sustainable for the franchisee. The management of our marketing communication to ensure we remain relevant and distinctive in an ever changing landscape can also be a challenge.
Name a few of the qualities you look for when selecting franchisees?
Our business was built on a highly focused customer orientation and centred on a love for food. Our franchisees need to be focused on the customer: Pleasing the customer, meeting the customers’ needs and being willing to spend large amounts of time in growing a business that essentially is the hospitality industry and is really about people. Our franchisees are people who have an appreciation for, and love, food as well as serving their local community over and above their product.
Why is Spur a solid investment for entrepreneurs seeking to pursue franchising?
We’ve invested greatly in growing our brand over a long period of time. Spur was founded by our Executive Chairman Allen Ambor in the spirit of entrepreneurship. Over the past 51 years, we’ve built a track-record of comprehensive operational, finance, marketing, IT, training, procurement, distribution and development support. Our marketing approach grows sustainable brands in a considered and well researched manner.
Our customer scope is broad, so while our main brands are focused on the wider South African market, we also have niche brands. This track record reassures the franchisee and broader market about Spur Corporation’s credibility.
What kind of support can a franchisee expect when joining Spur?
Franchisees can tap into expertise that’s been built up over five decades. We provide franchisees with the most effective tools to help manage and sustain their businesses successfully. Our operational support is wide-reaching and includes access to procurement, development, logistical as well as IT support. Skills development is one of the most important ways in which Spur Corporation supports its franchisees to run successful businesses.
Marketing support enables franchisees to actively identify opportunities and get assistance in developing and implementing bespoke marketing plans for each restaurant. Most importantly, when a franchisee joins Spur Group he or she gets access to cutting-edge management know-how from an experienced team of people who are passionate about our business.
Why is it important for successful franchises such as yours to have a strong banking partner and how does it benefit the franchisee?
Buying into a brand is a substantial investment for a franchisee, so they need a banking partner that will help with financial planning and running the business. Nedbank has built relationships with franchisees while helping to open and maintain their businesses.
Muscle And Grill Is Your Daily Chef. We Provide Fresh, Nutritional Food At Affordable Prices
It isn’t always easy to stay in tune with both body and mind. We do all the prepping for you so that you can keep up your pursuit of greatness.
- Brand: Muscle and Grill
- Established: 2018
- Website: www.muscleandgrill.co.za
Muscle and Grill is a healthy fast food establishment based in South Africa. In the face of modern South Africa, lives spent on the go require a fuel to match their aspirations while maintaining a delicious, fast and fresh service.
As our lives swirl into life’s vast depths of opportunity, our bodies are often the product of poor health habits, while trying to keep on the move to achieve our goals. Muscle and Grill challenges this. We want to be able to support the South Africa of tomorrow by offering the food your body needs to keep reaching new heights – to keep pushing the boundaries of accomplishment with health food convenience.
At Muscle and Grill we’ve got you covered. We provide nutritional fast food that is fresh and affordable. We have your health at heart. You could start your day off with some free-range scrambled eggs or fresh oats – for lunch a mixed bowl of rice, protein and fresh vegetables – or to round off your day, replenish your mind and body with a hearty health-infused burger and all its wholesome goodness. We have not forgotten that home constitutes a hungry family who have all been active, so grab a lean beef pasta salad with some greens on the side to go.
Related: SA Fast Food Franchising On The Rise
It isn’t always easy to stay in tune with both body and mind. We do all the prepping for you so that you can keep up your pursuit of greatness.
It was once said that great ideas are born from ones’ frustrations. That is exactly how Muscle and Grill came about. Having no real on-the-go option to stay healthy, or having the time to prepare to be healthy, became a huge frustration for us. We struggled to find enough hours in the day to keep up with a busy lifestyle and still eat healthy while on the move. Our work came first and our lifestyles suffered.
The vision for Muscle and Grill is to make it possible to stay healthy on the go. We want healthy food to be easily accessible for all walks of life.
Our mission is to provide quality, healthy fast-food. The food we provide is delicious and will keep you coming back for more.
Muscle and Grill works on an almost self-service basis. The point of sale system is customer operated where you can select what meal you would like to have. Once payment has been processed electronically the kitchen staff will receive the order and prepare it to spec. Muscle and Grill will be a completely cashless business, making it super-efficient for consumers and business owners.
The concept of Muscle and Grill is partnered with Puré Frooty. Puré Frooty is a self-service smoothie bar which prepares smoothies for you at the touch of a button. You can have a store with or without a machine – the choice is yours. Both concepts look to promote the idea of healthy living on the go.
We’ve looked to compliment our values by looking after that which grounds us. Our packaging and utensils are all eco-friendly, as we believe ‘going-green’ is not just a choice of eating but of the environment too.
So, when you are ready to join the next revolution in the fast food industry contact Muscle and Grill at firstname.lastname@example.org or visit the website at www.muscleandgrill.co.za to inquire on our franchise options today. Achieve your goals, stay on the move and look after yourself through Muscle and Grill.
Nando’s Is Firing Up The East
Carlos Duarte has been part of the Nando’s brand since inception. When his brother Fernando co-founded the flamed grilled chicken brand in 1987, Carlos soon participated in its success and today owns four highly successful franchises in Johannesburg — three in the east and one in the south. Here’s how it all began.
- Player: Carlos Duarte
- Franchise: Nando’s
- Position: Franchisee
- Visit: www.nandos.co.za
What were you doing before becoming a franchisee?
I was in the audio visual technology field, as an employee. Then I joined Nando’s as an assistant manager in the Savoy and Rosettenville corporate stores. Franchising was my first experience of entrepreneurship.
Why did you decide to become a franchisee?
When my brother, Fernando Duarte, launched Nando’s in 1987, I noticed its quick growth and wanted in on the action. Being assistant store manager prepared me for when the opportunity to run my own store came along soon after.
What prompted you to partner with Nando’s?
I joined Nando’s in 1991 as a joint venture partner. At the time, Nando’s hadn’t yet franchised its operations, and the JV partnership meant the brand owned 51% of the business, while I owned 49%. My first franchise store was in Edenglen in 2001.
Describe some of the challenges of running not one, but four franchise locations
At the Edenglen store, we initially battled with sales and getting feet into the store. To be honest, I think the area was overtraded at the time, so it wasn’t the best location. Since acquiring the store in Lambton, Germiston, another in Greenstone and a third in Comaro, I’ve learnt to be cleverer in how I do things — and how I handle some of the same challenges — and learn every day from the brand itself.
Name some of the benefits you’ve experienced as a Nando’s franchisee
Nando’s is 31 years old this year. We’re in 30-odd countries worldwide with thousands of stores across the globe. As franchisees, we leverage off the dynamism of an operational business that’s known for its marketing — customers talk about our ads and they love our food.
What kind of support do you receive from Nando’s as a multi-unit franchisee?
Besides the popular marketing campaigns that attract customers, Nando’s has an extensive training manual along with a skills development training consultant who comes to the store for two days to help staff understand and implement it. The training is really effective — it has to be as this industry involves a very high turnover of staff and new skills need to be taught often.
Why is it important for a franchisee to have a good banking partner?
As a franchisee, your bank should understand your business — from operating costs, to overdraft needs and revamping expenses — so it has cash available for loans that can be approved quickly, with minimal hassle. On the technical side, a reliable mPOS device is imperative, especially for us, because 30% of our sales volumes are from home and office deliveries. It’s a fundamental method of payment every bank should provide its customers of a similar nature.
What advice do you have for budding franchisees on seeking out a good franchise brand and banking partner for their business?
- Do your research to ensure you’re partnering with a brand that is established, well-known and expect to pay a fair price for that franchise.
- Be aware of how the franchise brand is perceived in the market and what location opportunities are available to you as a franchisee.
- Choose a banking facility that always has the funds available to grow your business.
- Ensure the bank understands the brand’s business model and where you’re falling short.
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