DOs and DON’Ts for Prospective Franchisees
For individuals and groups of partners or investors considering pursuing a franchise opportunity, there are several important steps to be taken and considerations to be had before committing to any particular franchise system. Back in December I wrote an article discussing qualitative and quantitative aspects of due diligence, and sources of information for prospective franchisees. This article discusses some basic “dos and don’ts” (with heavy emphasis on the “dos”) for prospective franchisees to consider when evaluating franchise opportunities.
Do: Consider Multiple Franchise Opportunities
Many times, prospective franchisees will mentally commit to one particular franchise opportunity before doing their research on the franchise system, and without meaningfully considering any other franchise opportunities. The reasons for this can range from hype about a “hot” concept or trendy product offering to hard sales tactics by brokers or internal sales personnel. As with any significant investment or business opportunity, prospective franchisees should at least consider some comparable franchise opportunities. This comparative analysis will shed light on unique aspects of different systems, expose departures from industry standards, and generally provide further insight for making an informed final decision about the franchise to be pursued.
Do: Speak with Current and Former Franchisees
When evaluating a potential franchise opportunity, current and former franchisees can provide valuable insight into several aspects of the franchisor’s system. From perceived brand value, to quality of operational standards and support, to financial data, these independent business owners will hold a wealth of information that can help inform a decision regarding a potential franchise investment. In addition, in certain, limited circumstances, one or more former franchisees may be able to tell you all you need to know to avoid a debacle of an investment.
Of course, new concepts and geographically-focused concepts may have no or only a limited number of franchisees. These opportunities should not simply be avoided wholesale; however, in these cases it will be particularly important to have candid and open discussions with the franchisor’s owners and representatives.
Do: Acknowledge and Understand the Role of Franchise Brokers and Internal Sales Personnel
This is not intended to detract from the role of and value of services provided by franchise brokers and internal sales staff, but, as in any situation, it is important to acknowledge and understand that these individuals—to varying degrees depending on reputation, experience and philosophy—are paid to sell prospects on the franchise offering. When working with a franchise broker, prospective franchisees should seek out information as to how many and which franchisors the broker works with, and how the broker is compensated by these franchisors. When working with internal sales staff, prospective franchisees should still seek access to operations personnel, and the sales staff should be knowledgeable about basic franchise disclosure regulations and the basic terms of the franchise agreement. In any case, the process should be reasonably transparent, and pushy sales tactics and signs or suggestions that information is being withheld should raise red flags.
Don’t: Rush Into a Franchise Without Performing the Necessary Due Diligence
As alluded to by the foregoing “dos,” the investigation, selection and pursuit of a franchise should involve an intensive process of acquiring and digesting pertinent information to allow for making an informed decision to move forward with the chosen franchise opportunity. Prospective franchisees should invest the time necessary to perform the requisite due diligence, and should work with experienced advisors to make sure that their interests are fully weighed and adequately represented with respect to the ensuing franchise relationship.
Jeff Fabian is the owner of Fabian, LLC, a boutique intellectual property and business law firm serving new and established franchisors and prospective franchisees. Contact the firm directly at 410.908.0883 or jeff@fabianlegal.com. You can also follow Jeff on Twitter @jsfabian.
This article is provided for informational purposes only, and does not constitute legal advice. Always consult an attorney before taking any action that may affect your legal rights or liabilities.
Advertising and Promotion Watch: McDonald's Monopoly is Back
This month sees the return of a venerated promotional campaign, McDonald’s Monopoly. The promotion first began in 1987, and in the last decade has become an almost yearly tradition. Each year, certain McDonald’s products come with Monopoly game tokens, each with either a space from the Monopoly board or an instant win prize for items such as a small fries. Larger prizes are won by collecting all of a group of Monopoly properties, usually three, but sometimes two (Illinois Avenue, Indiana Avenue and Kentucky Avenue, for example). Each group of properties have one whose piece is much rarer than the others; for most of the groups, it’s the last alphabetically (Kentucky Avenue for the red properties, Ventnor Avenue for the yellow), but for the dark blue, it’s Boardwalk, as it is the last and most expensive property on the board. More recently, McDonalds developed an online counterpart to its in-store Monopoly game in which customers can roll virtual dice, or more recently pick one of three chance cards for various prizes.
Best Practices in Protecting and Enforcing Trademarks, Copyrights and other IP
Trademarks, copyrighted works, trade secrets and proprietary business information form the core of any franchise system, and are frequently a company’s most valuable assets. Trademarks, including service marks, logos, slogans and trade dress, define the brand identity as presented to the public. The “behind the scenes” business know-how on which the system is built and implemented by franchisees is embodied in a variety of copyrighted and proprietary works – operations manuals, proprietary processes, recipes and formulas, custom software, advertising copy to name a few.
Franchisor-Franchisee Independence and Joint Liability, Redux
In the Tilted Kilt case, the franchisor allegedly published an “employee handbook” for franchisees to distribute to their staff, and exerted significant control over the operation of the franchised outlet in question. If true, these are two factors that typically weigh in favor of finding the franchisor to be a “joint employer” with its franchisee, thereby potentially subjecting it to liability for the alleged harassment.
