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10 Smart, Effective and Frugal Ways to Recruit the Right Franchisees

Reducing franchise recruiting costs is an increasingly difficult issue facing most franchise systems. In Part II, we explored the pros and cons of traditional methods used to recruit franchisees such as the Internet, franchise brokers, trade shows and publication advertising. In Part III of this series, we explore alternative recruitment methods to find solid franchise candidates at relatively low cost.

Whether good times or bad, smart franchisors continually find novel ways to stand out from the pack to find the best franchise candidates. Not every one of these 10 strategies will apply to every system; however, incorporating 1-2 ideas into the recruitment process will put you far ahead of the competition.

Write About It - If you are looking to recruit people within your industry, write an article about your company’s novel operations in an industry trade publication. You can also submit op-ed pieces or articles and casually mention franchising. Be sure to obtain reprinting permission to give out articles to potential franchisees.

Become Active in Professional/Trade Associations – Take a leadership role in industry associations where potential franchisees are likely to roam. Not only will you meet prospective franchise candidates, you’ll make a difference and gain valuable credentials.

Speak - Speak at events where the type of franchise candidates you are trying to attract will be in attendance. You’ll be seen as an expert in your industry, which can subtly change the dynamics when meeting with potential franchisees.

Expose Yourself – Get PR - If you have a compelling story, someone within the media might be interested in hearing about it. I’ve had clients featured in industry publications and on TV, speaking about their franchise concept. The media is always looking for something new and different. Do you have an interesting story to tell?

Advertise at Non-Franchise Trade Shows - Advertise at prospective franchisee’s industry trade shows where the main purpose has nothing to do with the sale of franchises. You will likely have the place to yourself because few franchisors think this way. (They’d rather advertise at business opportunity shows with 400 other like-minded exhibitors).  

Sell To Employees/Managers – Franchise concepts that are labor and management intensive are perfect for this strategy. In these instances, the franchisor offers franchises to their corporate managers as an incentive to keep them in the fold and not lose them to another competitor or career opportunity.  Domino’s Pizza has employed this method effectively for years.

Market To Life Changers/Contracting Industries - Position your brand to employees in shrinking industries such as construction, airlines, financial services, autos, etc. Some of these qualified people are leaving industries with a pool of money and bleak future career prospects. Show them another way to put their experience and talents to work.

Along the same lines, it might be worthwhile to target outplacement agencies, college alumni offices and veterans.
 
Go After the Independents/The Rollup - Franchisors in fragmented industries with few regional or national competitors can recruit independent business owners to join the system (assuming these independent business owners would make good franchisees).

Market To Non-Competing Franchise Owners - Many franchisees of mature systems desiring to expand often can’t because of lack of available territories. Mary Tomzack, President of FranchiseHelp, works with her clients to target existing franchise owners in systems sharing similar attributes.

Get Pre-Approved - Some systems have joined SBA’s pre-approved vendor list. You have to jump through some hoops and it’s pricey, but given today’s credit crunch, it’s a smart idea.

Conclusion
In this highly competitive market, to effectively and efficiently find franchisees, you have to pursue alternative methods to get the results you desire.

 

Reducing franchise recruiting costs is an increasingly difficult issue facing most franchise systems. In Part I, we reviewed what management can do to tweak internal operations to make their system more attractive to prospective franchisees. In Part II, we turn our attention to the traditional methods most franchise systems use to recruit franchisees such as the Internet, franchise brokers, trade shows and publication advertising.

While each method has its advantages, each possesses challenges for franchise systems with finite resources and limited brand recognition.

Franchise Opportunity Portals
Nowadays, most franchise leads come from the Internet either through franchise opportunity portals or search engine ad-words.

Some franchise executives swear by franchise opportunity portals. I’ve even heard other franchise consultants swear that this is the only form of advertising worth conducting.

Like any method, they have limitations. The shear volume of competing franchise systems on many sites can create a “cast of thousands” problem where it is easy to get lost (especially if management didn’t work on creating a unique enough brand as pointed out in Part I). In addition, using multiple sites can quickly consume a limited advertising budget.

Search Engine Ad Words/Pay Per Click
Buying search engine ad words can be effective, unless well capitalized competitors are bidding for the same words. In these situations, the cost of acquiring popular key words can prove prohibitive. Lead quality is often inferior to other methods. Finally, recent research also suggests that some consumers are growing weary and suspicious of sponsored links.

Franchise Brokers
Many franchise systems use brokers to sell franchises, some exclusively. Just like any profession, there are some great brokers with impeccable reputations with a long term focus on partnering to bring long term success to the system.

Ideally, most brokers want to work with systems that have a business development team that can effectively close the hot prospects they send the franchisor’s way. Most brokers prefer systems they can easily sell in high volume (which begs the question, if they are easy to sell, then why hire them in the first place?). Fewer will have an interest in a system that would max out with 100 units nationwide.

Some limitations present themselves. Some of the largest broker firms are constantly inundated by emerging franchise systems looking for representation. Even if they do agree to take you on, unless you’re one of their “top 20 favorites”, you’ll end up in the “extras” pile with little to show for it.

Compensation brings two additional challenges. Brokers do extract their pound of flesh, typically taking the greater of 40% of the franchise fee or $12,000 on up.  Because many brokers are paid for a consummated deal, the less scrupulous brokers are sometimes swayed more by the deal than worrying about building the best long-term franchise candidates for a particular system.

Find the best brokers with a proven track record for long-term success and you’ll do fine.

Franchise Opportunity Publications
Franchise opportunity magazines share the same challenge as the Internet, with hundreds of opportunities vying for attention. Flip through some of these publications and you’ll see many tired franchise advertisers pitch get-rich-quick schemes that look like rejects from “That 70’s Show”. Many promote “top franchise systems” lists. A more appropriate name should be “the top advertisers” list.

If you have something real to offer, use these publications sparingly.

Newspaper Advertising
Franchise opportunity advertising in reputable national newspapers and their associated portals are a step up from franchise opportunity publications; however, they present two challenges. First, in order to gain positive results, you must advertise repeatedly, which can quickly overload ad budgets for smaller systems. Second, emerging franchise systems looking to grow in particular regions will generate leads that are unusable.

Business Opportunity Trade Shows
Most “business opportunity” shows are a waste of time for legitimate franchise systems. The only franchise opportunity shows worth considering are the three national Franchise Expo shows put on by MFV Expositions.

The Franchise Expo shows are best for systems looking to generate leads from potential international buyers or local buyers in the host city. These shows are less effective at finding candidates throughout the U.S.
There are a host of problems with even the best shows. Advertising in these shows is both expensive and time consuming. They often yield limited results for emerging franchise systems with limited brand differentiation as there are literally hundreds of other systems vying for attendees’ attention. For smaller systems, the timing may be premature to start talking to representatives from other countries.

Between the cost, long hours and untimely prospects, exercise caution with trade shows.

Conclusion
Traditional methods can work. Unfortunately, they get costly and are best suited for larger franchise systems. While each method has its advantages and disadvantages, collectively, they pose challenges for franchise systems with limited budgets, regional brand recognition or specific area expansion goals.

Next month, we’ll wrap up this series with a review of cost-effective, alternative methods for recruiting franchisees.

One common complaint a majority of franchising clients often site is the increasing cost and difficulty in finding suitable new franchisees. The reasons are many, but usually fall into one general idea: There are more franchise concepts all chasing the same pool of potential franchise buyers.

This three part series takes a look at how franchisors can reduce the cost of advertising, recruiting and selecting new franchisees. Part I discusses ways franchise companies can tweak their internal operations to increase their effectiveness in recruiting and granting franchisees, effectively reducing costs. Part II reviews the effectiveness of traditional franchise recruiting methods currently used. In Part III, I discuss innovative and alternative methods franchisors can effectively find the right franchisees.

At a recent franchise conference, franchise experts were touting the value of Internet advertising with one person boldly suggesting that if a company “only” had $100,000 to spend on franchise advertising(as if an advertising budget of $100,000 was small potatoes), to put it all into internet advertising.

At face value, the logic would seem to make sense. The proliferation of the Internet has made it easier for franchise candidates to conduct research, not only at the company’s website, but more likely at franchise opportunity sites where hundreds of opportunities are advertised. However, the internet’s convenience is a double-edged sword: the proliferation of information has made it difficult for many franchise systems to standout in a crowded marketplace. The result is an ever escalating cost of recruiting and selecting qualified franchisees.

When most emerging systems struggle to sell franchises even after spending significant funds on advertising, how can one explain the success of one particular franchise system that grew from 4 units to 200 units in less than 5 years with zero money spent on advertising? It certainly wasn’t their website which simply stated that franchises were offered “on an invitation only basis” and provided no contact information. Their industry is no cake walk. They are in a highly competitive and relatively mature industry. And it wasn’t a low initial investment that most people could afford with most locations costing at least $500,000 to open.

Don’t get me wrong, the Internet is a key place to advertise franchise opportunities. However, unless one has something good to offer, all the advertising in the world isn’t going to make the concept fly. In my work with emerging systems, clients and I evaluate existing operations before focusing on outside marketing and advertising venues.

Some of the best systems I have worked with have spent no money on advertising their franchise opportunity. In studying what made these companies successful, our research found that they each possess the following five attributes:

• Unique and Superior Business Model
• Professional and Differentiated Branding
• Strong Return On Investment and Time
• Effective Support Services/Economies of Scale
• Know Their Target Candidate

Unique and Superior Business Model
For many franchise systems, their main problem is that they simply do not provide a truly differentiated business model. With the unprecedented record number of franchise systems to choose from, it can be a great challenge to stand out in the crowded market place. New business models (online auction drop off sites, home meal preparation, etc) aren’t the only one’s affected. Old-line models (pizza, cleaning services, sandwich shops) face equal challenges.

In many cases, the leadership team has not taken enough time to ask the hard questions:

• What differentiates our concept from the competition? What makes us unique?
• What competitive advantages do we possess over the competition?
• How can our franchisees effectively utilize these advantages to trump the competition?
• How do we effectively communicate this competitive advantage with franchise candidates?

By the way, if your answer is “higher quality”, “greater value” or “more for the money”, you haven’t sufficiently answered the questions. Dig deeper, a lot deeper actually.

Professional and Differentiated Branding
If you want to know why so many franchise opportunities look derivative and tired, then look no further than at their branding. Usually the problem is one or more of the following

• The leadership team discounts the value of investing resources into branding because either they think that their branding is “good enough”
• They allocate their resources into other competing needs (like franchise opportunity advertising)
• The leadership team wouldn’t recognize a good brand if it smacked them in the head.

The bottom line is that many leaders would rather blow money on selling a mediocre franchise system than building an effective brand.

Mature systems appear to suffer from The Tired Brand Disease and yet their executives seem to be the only ones that are aware of this fact (ask most people about dining in casual dining restaurants and they’ll tell you that they are bored, if not fed up with the faux antiques hanging on the wall).

Want to stand out in the crowded franchise opportunity marketplace? Craft a differentiated brand that manages to unite the company’s culture and vision.

Strong Return on Investment AND Time
Many franchise systems use a modification of the mantra, “our franchisees are breaking even or losing money, but if we sell more franchises, we’ll make up for it in volume.” Apparently few former finance and accounting majors enter the franchise field.

Let me state the obvious: It’s much easier to grant franchises with profitable business models than marginal ones, earnings claim in place or not. Yet most franchise systems offer a marginal return for the capital and time invested.

The aforementioned franchise system has a very profitable business model resulting in people in their industry clamoring to buy into their franchise system. Success begets success. As franchisees began to make money, they want to open additional locations, resulting in greater sales to existing franchisees.

Continuously look for ways to increase the profitability of your franchise model. Questions to ask:

• How can we lower our cost of goods sold?
• What product/service mix will result in higher transaction prices and lower cost of sales?
• What expenses could be more efficiently handled centrally?
• What tools and technologies can our system employ to increase customer retention, increase frequency of use/visits, decrease staff time loads, reduce expenses, etc.?
• What methods can we utilize to shorten the time to breakeven?

Increasing the franchise model’s profits benefits both the franchisee AND the franchisor.

Effective Support Services/Centralization of Services
One of the keys to successful franchise systems is to centralize functions that offer greater economies of scale. Not only does this result in reduced costs and overhead for both the franchisee and franchisor, but it allows franchisees to more efficiently use their time to seek out new business, open new locations or simply to spend less time in their business increasing their profits/hours worked. The result is that franchisees make more money with less effort.

Whether the system is emerging or mature, we require that all clients revisit their support services annually as part of an overall strategic review of the business. The reasons are simple. The franchise system evolves and changes in response to market condition. Two, the company can utilize new technologies to make franchisees’ businesses more efficient. However, if you are not looking to improve, how will you know these systems exist?

During your strategy sessions, review what services, products, software, intellectual property that might be more effectively offered centrally to increase franchisee profits or reduce work demands.

A special note to mature systems: Watch your back. With the increased use of outsourcing for an ever increasing number of services, you don’t want to be left behind by a newer, scrappier, and more innovative competing franchise system.

Revisit Your Ideal Franchisee
If you want to catch fish, randomly throwing a line off the side of the boat won’t cut it (ask me, I’d starve if I relied on my fishing skills). Smart fishermen present the bait where the fish congregate and more importantly, when their hungry.

Whether the franchise system is a newbie or established, ask yourself, who is your ideal franchisee? Where does this targeted franchisee live and work? What are their worries, issues, psychological needs? Answering these questions will help you position your franchise system to solve the problems they are experiencing.

Once the franchise leadership team has completed a thorough review of internal operations, attention can be turned to reviewing traditional methods to attract and select the right franchisees. This will be the focus of Part II of this series.

In 12 years of developing new franchise systems, I have begun noticing an interesting, albeit, disturbing new trend that should bring cause for concern to franchise investors. An increasing percentage of clients interested in franchising their business are asking the question: “Do we have to call our franchise offering, a “franchise”?

When I first heard a client ask this very question a few years ago, I chalked it up to the clients’ customers and potential franchisees; people that wouldn’t be caught dead in a chain store (Target and Whole Foods withstanding), never mind entertaining the thought of owning a franchise. However, when I heard the question repeatedly, I took notice and thought there must be more to the story.

In spite of the many good reasons for franchising one’s business (local control, additional motivation, access to expansion capital), when questioned further, these potential franchisors admit having unsettling concerns due to one or more of the following four general factors:

The Sleaziness Factor – As many clients conducted research on using franchising as an expansion method, they inevitably came across business opportunity magazines or websites featuring marginal, tired or potentially fraudulent concepts. These entrepreneurs fear that franchising their business concept might destroy years of positive brand equity by associating with these types of franchise systems.

I share the same fear based on my personal experience when I attend franchise conferences. Rare, do I hear a critical word spoken about franchising. Worse, are the over-the-top hype and relentless promotion of hot new concepts (that are subsequently never heard from the next year or are suddenly in litigation).

The Bad “Personal-Experience with Chains” Factor – Clients often site poor service and product quality at chain businesses as reason enough not to franchise. Bad examples run rampant. Locally, the renowned coffee and donut chain employees deploy their classic up-sell question: “youze wanna try a combo?” And nearly everywhere, a plethora of casual dining restaurant chains share the same “faux antiques on the wall” build-out strategy, indistinguishable menu items and artificially friendly service. And last, but not least, the overpriced home cleaning franchise with its cackle of maids cruising around town in tired, branded station wagons leaves quite the impression.

The Franchise Failure Factor – While most potential franchisors lack accurate data on franchise system success rates, many have a sneaking suspicion that system success falls far short of industry claims based on personal observation. In addition to observing the open and closing of chain locations in their marketplace, most clients site the experience of a business associate or friend that purchased a franchise. These folks either ended up working long hours, earning a modest wage at best, or worse, closed their franchise and lost a significant chunk of their retirement savings.

The Chainification Factor – Many recently developed cities are populated exclusively by chain locations, making finding a local restaurant, store or service, an arduous chore. Whether these potential franchisors live in these newer cities or not, many fear that franchising will erode the unique characteristics that made their concept so special in the minds of their current clientele.

So is franchising the new “F-Word”? I don’t think so, at least not yet anyway. However, with more potential franchisors pondering this question, the franchise community should work to ensure that franchising remains a reputable expansion method into the distant future. If more competent business owners question franchising as a viable expansion option, it could result in fewer valid franchise concepts brought to market, as expanding companies explore less “tainted” options.

Franchising can be an excellent expansion method, but no matter the growth path, it takes work.

Whether you fall under the franchisor or franchisee camp, consider the following when evaluating franchise systems:

• Think ROI & T. Two of the most successful franchise systems I have been blessed to work with do not advertise their franchise concept in the marketplace. The reason is simple; they don’t have to. Their respective concepts offer superior profitability on invested time and capital. Yet, many systems place too much emphasis on selling marginally profitable opportunities while exerting little effort to improve unit efficiency and profitability. Is there any wonder why so many franchise systems offer marginal opportunities or outright fail?
• Think Differentiation. Does the concept possess a thought out differentiating strategy in a crowded marketplace? Many newer franchise systems with limited expansion capital, a commitment to cohesive brand and product development is critical. For established and mature system, the company must constantly reevaluate existing product lines and branding to ensure the concept does not become stale. Even an old stalwart such as McDonald’s has benefited from renewed product differentiation and branding efforts. Not only have same store sales where existing stores were replaced with their new upscale look have increased 40%, but their stock price has quadrupled over the past 5 years.
• Think Continuous Improvement. Mediocrity is not a best practice. If you are evaluating a franchise system, it should go without saying that you should shop multiple locations to see what kind of service you receive. If it is a service business, what is the disposition of the franchisee? Attentive, desperate, friendly, indifferent? As a franchisor or franchisee, view your concept from the eyes of their customers by shopping locations where employees don’t know you (and if they do, invest in a secret shopping service). Ask customers for one suggestion to improve their experience with the company. Or even better yet, ask competitors’ customers why they don’t do business with your company. You may find some surprising answers.
• Think Strong Marriage. Not unlike a good marriage, strong, open communication is paramount to the success of a franchise system between the franchisee and franchisor. There must be a good cultural fit between the system and franchisees. It takes constant effort to produce outstanding, long term results.