Franchise Opportunity Seekers & Due Diligence

Yes, for an obvious reason. Franchisors have a giant edge in terms of experience while the prospect understands little, if anything, about franchise due diligence.

Consider this scenario. An older man or woman, take your pick, desires to meet a younger potential mate. From lounges to Internet dating services the seeker has a given universe of opportunities among those who make themselves available via these venues.

For the time being, let's forget about our characters' individual needs and motives, and just assume that the searcher and the available pool of mates are both sincerely interested in establishing a new relationship. Initial meetings are followed by several phone conversations and emails during which both parties make personal disclosures.

The more experienced person has a set agenda and, with near surgical precision, gathers up enough information to make a decision about the next step, namely meeting for dinner. The younger, (perhaps) less experienced person, although becoming comfortable and accepting the invitation, is (usually) not operating with a long-term strategy. It's just a dinner date. In other words, while the behavior of the older person is calculated, the younger one may be (and probably is) acting more on emotion.

There you will find the crucial balance of power and the predictability of things to come; at least for the short term. There’s no need to flesh out additional details. So long as there is a decent fit between the two parties, the relationship may continue well beyond dinner. None of this is to say that the older person is deceptive or bad. It is simply a matter of experience and the ability to make judgments based on present facts.

On the other hand, if there was deceit, it could easily go undetected. Over the course of time, both parties would come to know the good, the bad, and the undisclosed about each other, but that will take time. In other words, one side, the emotionally driven side, may find out much too late, that they were wined, dined, charmed, and coaxed into a committed relationship without gathering all the facts available about the older, more experienced partner.

OK, calm your heart, I’ll bring this back to franchise opportunity search.

Whether we face a (potential) personal or business relationship, it must be examined unemotionally to reach a sound decision. But, unfortunately the novice franchise buyer usually falls easy prey to emotional seduction, and the all too common “who did what to who” battle cry ensues when all the facts become obvious. Does this all sum up to say that franchisors are big, bad wolves? Not at all. In fact, I believe that most are quite honorable. While they may be uninformed regarding selection criteria, I can’t pass judgment that all those who make mistakes in the selection of franchisees have bad intentions.

Nearly 850,000 franchise units operating in North America is sufficient proof that many people are making informed decisions. The older, more experienced party may actually be performing better due diligence than we choose to believe.

In spite of any and all negative publication, most franchise relationships continue to work out.

Now, bottom line, franchising should not be a game of chance for anyone. Buyers should, at minimum, invest in proper due diligence assistance that includes both a test of “best fit” with their skills and personality, as well as fundamental analysis of each franchise placed on their “final selection” list. But, in spite of my encouragement that buyers partake of personal and professional due diligence, I cannot slam franchisors for not “insisting” upon “professional” due diligence by their prospective owners.

Disclosure: You will hear more from me on this since I am soon to offer a due diligence service in a new and holistic way of structuring entrepreneurial decisions. Stay tuned.

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About the author: Nick Bibby is a franchise consultant and Principal of the Bibby Group.