Bradley spoke to franchisees the franchisor suggested and
found all were doing very well. However, when he randomly stopped
by another of the sandwich franchise's locations, he heard two
hours' worth of horror stories. Bradley figured this location
was the exception to the rule but now realizes he should've
investigated further. "Don't just talk to the people the
franchisor [provides]," advises Bradley. "Stop in at
other stores and talk to the owners."
Seid: There's an anonymity over the telephone. Call and
be very respectful. Say, "Hi, I'm looking to buy a
franchise. Is now a good time to talk?" Call those who have
left the system in the past year. Most of them are
unhappy--you'll find out why.
One major contention Bradley has with his franchise is
unrestrained growth. With no protected area, he found three stores
placed less than a mile away from his Worcester, Massachusetts,
location.
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Zarco: The franchisor reserves the right to place a competing
unit in a location regardless of the impact that will have on
existing franchisees' sales, profits and incomes. When you join
a franchise, you should have an expectation of reasonable impact.
Factor into your business plan how your business will be affected
by a first and then a second location near you, typically taking 10
percent and 5 percent of your sales, respectively.
Leo thought the business-coaching franchise he purchased
in Ohio would allow him to help others run successful businesses,
but he quickly became unhappy with his own. Leo felt the education
provided by the franchisor "became stagnant." "They
weren't creating new tools, providing new information or
research to help my business," says Leo.
Before sinking your money into a franchise, Leo suggests some
questions to ask franchisors: "How have you changed in the
last five years? What are you doing today that is different from
last month, especially with technology? What's the copyright
date and publication date of your procedural manuals? If it's
more than a year old, it's old."
Seid: [Also ask], "When was the last time you did
consumer research? Who did it? What were the results? What have you
done to improve your product?"
While Leo was well-qualified to offer business coaching, he was
dismayed to discover unqualified fellow franchisees. Make sure the
franchisor isn't accepting sub-par franchisees just because
they have the money, says Leo. "If you have to jump through a
lot of hoops and go through multiple interviews, then that
franchisor has ethics about who joins the team."
Seid: Check for psychological and personality testing,
serious questions about background and qualifications. And talk to
other franchisees--if they're not up to your standards, get
into a system where they are.
Samuel purchased an area development agreement for a
Mexican food franchise in Kansas City, Kansas, after the
franchise's CEO enticed him with stellar average unit volume
numbers, which he later found to be inflated. "We had
significant [verbal] misrepresentations," says Samuel, who
claims the numbers the CEO gave him differed from those in the
UFOC. Samuel also alleges the franchisor used aggressive sales
tactics, even ignoring the company's own financial requirements
so Samuel could qualify. A red flag? You bet.
Seid: Franchise salespeople are gifted. They play into your
ego, drive, future and beliefs. You need an advisor. I send people
to lawyers [I trust], because they'll dispassionately look at a
franchise and say, "This is crap."
Zarco: When a franchisor is looking to go public and increase
the value of its company, it [sometimes] engages in aggressive
sales tactics by mispresenting the average unit sales volumes in
order to seduce new franchisees. . . . [Sometimes, a franchisor]
will bend the rules when it finds someone ready to put money down
to open new units, even though that person may not be financially
qualified.
When Samuel asked about marketing strategy, he was told it
consisted of giving away free food at events. The franchisor did
not heavily advertise; instead, marketing funds were used for the
CEO to attend awards shows and to provide free salsa bars for
celebrities.
Seid: Ask the franchisor what results they're seeing in
their advertising. If they're not measuring results, get up and
run--they're amateurs. Ask them how much of the advertising
dollars are spent on nonmarketing functions. Most franchise
agreements allow the franchisor to spend [advertising] money on
administrative costs, which can include the salary of the marketing
person up to 18 percent. It can also pay for overhead.
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