Why Investors Are Drawn to Franchising

Author: Jeff Elgin
Source: Franchising World October 2004; www.franchise.org

One of the universal questions we all ask in the franchise business is, “Why are prospective franchisees attracted to a franchise”.  The obvious follow up question Is, “How can we attract more and better quality franchisees to our system”.

New franchisees are attracted to franchising for a number of reasons.  Though these reasons vary from person to person, we’ve learned over the past 20 years that most investors are attracted for one or more of the following:

Control Issues

Many prospective franchisees are driven by the frustration they’ve felt in past employment situations where they didn’t have enough control of their work environment to influence results in the manner they desired.  Perhaps they had a micro-managing boss, a parent corporation that would not listen, or something comparable.  In any case, they are drawn to the idea of being their own boss, having the final say in relation to business decisions, and being able to accept either the credit or responsibility for whatever outcome their business produces.

Economic Need

In the past 15 years, there has been an increasing trend in large corporations to displace more experienced managers in favor of less experienced (and therefore less expensive) workers.  This dynamic has created a pool of experienced managers in the 45 to 60 year-old age bracket who have found it quite difficult to gain employment comparable to what they had before.  In most cases they cannot afford to retire and need to create a replacement income for a period of time.  More and more, these experienced managers are being attracted to franchising as a vehicle to accomplish this goal without the fear of having to go through another down sizing in the future.

Lifestyle Issues

Another major attraction for many prospective franchisees is related to lifestyle issues.  We see a steady stream of potential investors who talk about their desire to reduce business travel, job-related stress and the number of hours they work per week.  They often also want to find businesses with down times at certain points in the year so they can take more time off with their families or for other leisure activities.  The advantage of franchising to these people is that there are so many options to choose from they are undoubtedly able to find an opportunity that matches their desires.

Investors aren’t buying a business, they are buying a result.

Wealth Creation Goals

Many prospective franchises have figured out that though their work efforts may be creating a significant amount of wealth, in most cases they are not sharing directly in the wealth they are creating.  They will put in their 40-plus years and then retire on whatever they managed to save plus Social Security.  Many investors are attracted to franchising because they understand that their efforts of wealth and they will be the ones who own the wealth that is realized when it comes time to sell the business they’ve built.

Though there are other reasons that an investor might be attracted to any given franchise opportunity, one or more of these four reasons will almost always be present in the prospective franchises your company is dealing with.  In order to best answer the second question posed above, “How can we attract more and better quality franchisees to our system,” it is necessary to seek some additional information from the investor and have strong discipline in your franchisee recruiting process.

In order to make your franchise more attractive, always start by asking a prospect the reasons that they’re interested in your franchise opportunity.  It could be one or more reasons mentioned above or perhaps they have an entirely different motivation for wanting to become a franchisee.  In any case, you need to know if you’re going to make your company more attractive to them.

Spend some time exploring in detail their motivation for wanting to become a franchisee.  If it is not possible for them to achieve whatever their goal is through your opportunity, the time to determine this is early on so you won’t waste time on a prospect who is never going to be happy as a franchisee in your system.

Tailor Your Presentations

Assuming they can meet their goals through your franchise opportunity, make sure to stress whatever is most important to the investor during your conversations in the investigation and research phase with this prospect.  In other words, if they are focused on the economic need to get something going soon and the wealth creation aspects of owning their own business, but don’t seem to care at all about lifestyle issues, tailor your presentation accordingly.

You’ll be showing you care about what’s most important to them and that will make your opportunity more attractive than someone else’s who is not as attuned to the priorities of the prospect.  Never forget that investors aren’t buying a business, they are buying a result that they want in their life, so focus on that result if you want to attract them.

The answer to getting better-qualified new franchisees in your system is easy to state but harder to accomplish for many franchisors.  The answer is to have the discipline to determine the characteristics that define an excellent new franchise for your system and then don’t accept any candidate unless they meet the definition completely.

This starts with financial qualifications such as net worth and liquidity, but often goes into a number of other characteristics involving personality, skills, attitudes and values.  Many franchisors, especially fairly new ones, think that they have to take anyone who is willing to become a franchisee in order to produce growth.

If you are in the frame of mind, ask other experienced franchisors.  Most have learned the hard way that a new franchise who is unqualified or the wrong fit for a system is a nightmare far worse than simply having no new franchisee.  Set your standards and you’ll be a lot happier and more successful in the long run.