Preparing new franchisees effectively

A recent report by Melbourne-based research firm Corven has identified certain recruitment practices by franchisors as a potential source of problems with franchisees further down the track. The study concludes that franchisors need to spend more time developing ‘best practice' recruiting methods and pre-entry education opportunities. It also raises issues about the credibility of some franchise consultants.

The transformation of a ‘prospect' into a ‘franchisee' is an experience full of activities, assessments and considerations, with many people involved. The Corven study, entitled Into the Fold, aimed to build a definition of effective new franchisee preparation and explore the factors that support or restrict its achievement.

The study, with 47 participants, took place in Australia where franchise legislation (particularly around disclosure) has been in place for 10 years. The situation in New Zealand, where there is no such legislation, may differ in degree but is likely to reflect similar concerns.

Measurement

New franchisee preparation has two distinct phases: prior to signing the franchise agreement and, after signing, the lead-up to being open for business.

According to respondents, the effectiveness of these preparations can be measured by:

• The accurate and timely completion of activities and assessments as determined by the franchisor's recruitment process and the (Australian) Franchising Code of Conduct;
• The degree of demonstrated, informed decision-making by both the franchisee and the franchisor; and
• The achievement of fundamental franchisee competency, to the point where they can operate and manage the business system independently and as intended from the first day of operation.

 Key Finding One

The need for best practice standards in franchise recruitment.

Factors that have a major positive influence on new franchisee preparation were found to be:

• Having a determined franchise recruitment process that is followed by both the franchisor and franchisee;
• Formal education of franchisors on recruitment and selection processes;
• Having franchisors conduct a risk assessment on the franchisee's willingness, ability and business location.

Perceived problems in achieving this are:

• The competency of the franchisor and their personnel to effectively recruit and prepare new franchisees;
• Willingness of both parties to minimise or forgo pre-entry preparation in favour of a speedy franchise recruitment process;
• The fear of misrepresenting and misinterpretation information.

Participants confirmed that there are major variances in the application of franchise recruitment processes and activities. Some mentioned that franchise recruitment processes are not even documented. This is ironic, as the application of a process to achieve an acceptable standard lies at the heart of franchising. These results are a significant concern.

Key Finding Two

The need for credible advice from service providers.

The term 'service providers' was used to encompass legal, accounting, financial and franchise consultants. The study found that poor access to professional and accurate advice from service providers negatively impacted effective new franchisee preparation. It indicated a need for franchisees to access appropriate advice in a timely and meaningful way from professional advisors.

Results show that seeking advice from experienced franchise professionals was resoundingly favoured over seeking the same advice from their generalist colleagues. While the legal and accounting disciplines are bound by ethical and professional conduct standards, respondents raised specific concerns about the credibility of franchise business consultants and how they could be held to account for their advice.

Key Finding Three

The need for formal educational initiatives.

While the results show some franchisor-centric opportunities for improvement, the chance for on-site experience and education for new franchisees indicate that formal learning initiatives should form part of new franchisee preparation. Respondents indicated the major factors that had a positive impact on new franchisee preparation were:

• On-site experience prior to signing the franchise agreement and during the franchisees' induction programme.
• Formal education for franchisees on franchise and non franchise regulations, legislation and obligations.

 This adds more weight to the direction of pre-entry education policy for the sector and the need for franchisors to take responsibility to ensure franchisees are adequately informed.

Comments

Since 1996 there have been constant calls in Australia for regulatory change to ensure the franchise market is adequately regulated. No amount of regulation will ensure franchisees are successful, as failure can occur for many reasons. This study clearly indicates Franchisors would be wise to review their recruitment processes to reduce or eradicate poor practice. However, it is also vital for commentators and observers of the franchise sector who continually call for greater regulation to realise that pre-entry behaviour and conduct by all parties should not just be the responsibility of the franchisor. Franchisees remain culpable to do their due diligence prior to entry.

About the Survey

The Executive Summary of Corven's report can be downloaded along with another paper on Lessons in Learning: what are the challenges of delivering training in franchise systems? These two summaries form part of Corven's annual Insight Programme, an industry-initiated qualitative research programme. The full reports are available from the author at julia@corven.com.au

We welcome links from other websites to this article. Please note that this article is copyright © Eden Exchange NZ Holdings Limited, Franchise New Zealand magazine and Franchise New Zealand On Line. While it may be downloaded for personal use, no part may be reproduced on any other website, in electronic or printed form or in any other form whatsoever.