Ask Franchisees, But How Do You Know Their Response Is True?

March 14th, 2011

When you’re buying a franchise, numerous people (usually including the person who’s trying to sell you the franchise) will advise you to call existing franchisees and ask them a set of questions before you make your investment decision.

Is that a good idea?

It depends!

Who’s telling you the truth?

It’s a good idea if you’re absolutely certain that the existing franchisees answered your questions truthfully. But in most instances you won’t be certain. And in many instances the answers you got can be categorized as false negatives or false positives. Meaning you didn’t get truthful answers.

Here’s why:

“Franchisees will give a prospect a false positive if they think the corporate office is checking up on them,” explains Jeff Johnson, founder and CEO of the Franchise Research Institute. “They won’t tell the truth for fear that they’ll be penalized.”

Glowing, but false

To avoid the downside of telling the truth, existing franchisees will give their franchisor a glowing report.

But at other times they’ll lie even though they like the franchise and are profiting from it, continues Johnson. “Franchisees may answer questions with a false negative if they want to discourage more franchisees from joining the network. If the existing franchisee thinks the prospect might open a unit in his territory, he’ll deliver false negatives about the franchise company.”

Either way, the prospect doesn’t have a clue about what’s really going on at that franchise company! (Sadly, neither does the franchisor, though some franchisors know what’s going on and they want to hide it).

Getting to the real truth

How can a prospective franchisee avoid false negatives and false positives when talking to existing franchisees?

Rely on a third-party evaluation of the franchise company. There are several in the marketplace, but not all measure up. The Franchise Research Institute has issued 21 reports that designate world-class franchise companies. Use these reports to avoid getting the wrong impression, good or bad, about a franchise company.

About the author: John P. Hayes, Ph.D. is a 30-year franchise veteran. He writes several blogs, including HowToBuyAFranchise.com and FranchiseMastermind.com.

Related Reading:

How Do You Avoid Double Talk When Interviewing Existing Franchisees?

John Hayes

Dr. John P. Hayes, has written more than 20 books, including numerous Amazon.com best sellers: Buy "Hot" Franchises Without Getting Burned, 101 Questions to Ask Before You Invest in a Franchise, 7 Dirty Little Secrets of Franchising, FASTSIGNS Business Opportunity, and many more. Hayes wrote Franchising: The Inside Story, one of the first books to teach people how to buy a franchise. He is a faculty member at Gulf University for Science & Technology in Kuwait where he teaches in Business and Mass Communications. Formerly he was the CEO of a major US-based franchisor and he has served as Director of several franchise companies. Dr. Hayes has been a franchisee of several concepts and for more than 35 years has served as an advisor to franchisors and franchisees. His most popular seminars include The A To Zs of Buying A Franchise and How To Capture & Keep Customers. Dr. Hayes teaches seminars at franchise expos and speaks to franchisor, supplier and franchisee groups worldwide. He coaches prospective franchisors and franchisees and edits Franchising Abroad, an e-newsletter for international franchisors.

Comments

Old Sword

March 14, 2011 - 11:08am

Franchisees response to potential zees: Author, you missed one.

The author missed another one: The franchisee wants to be perceived as successful or is too embarrassed to admit that they are failing so they will give the caller a false positive so the franchisee will not look foolish.

I can't tell you how many franchisees I called prior to purchasing that gave me glowing responses - only to find out after signing on that many of those same franchisees were not only unprofitable but they were inundated with additional debt trying to keep their site afloat.

I stated this before: I was called by potential franchisees while I was open and when I gave them the truth (that most sites were barely or not at all profitable and the system was flawed) they said I was the only one who was providing that information. The difference was I was able to back up my claims with hard financial data that potential franchisees are not privy to - and few current franchisees were qualified/willing to analyze.

March 17, 2011 - 08:56am

Negative Feedback

Old Sword:
In our situation our franchisor was on a selling spree back in 2000-2004 right before their 2006 whole business securitization. Being that the majority of the franchisees were profitable in our system, at the time, they were sticking franchisees in between each other knowing that the majority could absorb the losses.

The franchisor use to send many prospects our way and I told them the truth that business was good but required a lot of work. When I realized the prospects were not truthful in which territories they were exploring I began my silence. Spoke to the area franchisees about their experiences and each of them were pissed with the same story. So, we decided to tell the prospects that the business is no longer profitable.

Within a month, the franchisor stop sending in prospective franchisees. We were able to get back to business. A couple of years later, we were selected for a franchisee audit that escalated into an all out franchise litigation. It is the reason why there is Silence Of The Lambs.

March 17, 2011 - 09:35am

Re: Negative Feedback

Your complaints about securitization are specious since you endeavor to conflate your encroachment charge with Dunkin's financing structure. And while it may seem attractive for a one-eyed man such as yourself to proclaim himself king in the land of the blind that is BMM, there are fully sighted folks who know you are full of crap.

Jerry you are a more articulate and obfuscating franchisee whiner.

March 17, 2011 - 10:34am

I'm with you gwest,

Don't cha hate it when on top of all those 'poor performers' that balls up and speak their minds ya get ya self some lousy rotten bastard that brings parts of it all together.

Damn ya ta hell and back [even maybe twice] ye Satin ye Jerry. Leave the trutth alone. [find ya own link]....

Lets talk perspective, lets talk experience, lets talk balance, lets talk reality .,............

March 17, 2011 - 10:43am

Obfuscating Feedback

Jerry did not conflate between franchise sales that encroach and the franchisor's financing scheme. He said the franchisor sold numerous territories before securitizing the whole business. Makes sense.

He then went on to comment on the subject matter of the blog and I believe to provide feedback to Old Sword. You, however, seem to obfuscate Jerry's mere reference to securitization in the crap you write.

March 17, 2011 - 10:56am

Re: Obfuscating Feedback

Jerry's "hobby horse" is to demonize Dunkin's financing structure and imply that the franchisees were duped and are stakeholders deserving rights over and above their franchise rights.

March 17, 2011 - 11:37am

Jerry's Hobby Horse

I've read Jerry's comments, and although some of the issues are new concepts to franchising, I believe he has a valid point considering a franchise is already pre-leveraged with franchisee capital prior to the additional leverage added by the franchisor.

Stakeholders are meaningless. However, franchisees do have the right to know who they are dealing with - 1) An Asset Manager, or 2) The Franchisor.

Quite honestly, for me, I was intrigued by the revelation of the securitization mechanics. Now that we have conflated Mr. Hayes' blog, I suggest you free to blog your own rebuttal to Jerry's views and commentaries.

March 17, 2011 - 12:07pm

Poster writes - "a franchise

Poster writes - "a franchise is already pre-leveraged with franchisee capital prior to the additional leverage added by the franchisor"

How so?

Maybe in some franchisee stakeholder financial fantasy world.

Old Sword

March 17, 2011 - 18:05pm

Re: Negative Feedback (Jerry)

Jerry, if I am reading your comment correctly, it is the fear of lawsuits/franchise audits that creates the Silence of the Lambs. I do agree that this is the result of speaking out against franchisors. But I believe Fred is stating that in order for things to change, franchisees MUST speak up and "put their nuts on the line". Why? Without the change, most franchisees will eventually go down in flames anyway - maybe not today, but definitely tomorrow or the next day.

Franchisees are the proverbial "ostrich". They stick their heads in the sand hoping the "bad" will go away. Unfortunately, this position leaves the zor not even needing any lube.

Howard R. Morrill

March 14, 2011 - 15:57pm

One of the great franchise myths

is that the existing franchisees are likely to provide meaningful information to prospects. The prospect doesn't necessarily know what to ask and the franchisee is often in denial about the disaster he's invested in.

March 14, 2011 - 16:05pm

poor performers lie less

Accepting a glowing report from a franchisee you don’t know and over the telephone is a highly promoted practice. Look someone in the eye and the message might be different but newbies will mostly miss it. Newbies mostly perform perfunctory due diligence designed to reinforce their want to sign.

Cheap due diligence is generally expensive.

Before performing due diligence on one’s suitability to a concept, ‘the’ brand and then a site the prospective franchisee should get a serious education about franchising. But that can take an awful long time so best save it until after your franchise experience when you’ll probably have much more time.

Rely on a third-party evaluation of the franchise company.

Reliable, experienced v broker, consultant kickback on the sale. Something else to ponder.

A brand is only as strong as the support received by the weakest links. If a prospect is going to perform shortcut due diligence why not at least start there. Ask for a list of the 'poor performers' and then ask the poor performers who are the real 'poor performers'.

March 14, 2011 - 16:06pm

Birkeland's Response

I would like to see either Jeff or John respond to Peter Birkeland's observations about self reporting problems:

http://www.bluemaumau.org/node/9037/talk#comment-101047

March 14, 2011 - 18:43pm

Ask Franchisees : What's a Candidate to do?

John, I don't disagree with your premise, however, there are far too few franchisors that use the services of a company like FRI, which does a great job. The result is that a franchise candidate needs to obtain feedback from current and former franchisees. It's been my experience that this subject has been typically given lip service by most franchisors and so called experts. The result is usually " Be sure you speak with some franchisees before making your final decision"  without the admonition that they include terminated franchisees and without suggesting the questions to ask. Your comments regarding the reasons why a franchisee may not be totally honest in providing feedback is valid, but if a candidate is <a href="http://www.franchiseknowhow.com/buying_franchise/whyfranchisesfail.htm&…; target="_blank">provided certain questions to ask</a>, I have a feeling they would be much better informed regarding the franchise opportunity that they are evaluating. We can't expect every prospective franchisee to be a savvy interrogator, but then again, they may not have a choice but to rely upon the feedback of existing and former franchisees.

About the Author: Ed Teixeira has over 35 years of franchise industry experience as a franchise executive and franchisee. He has served as a franchise executive in the c-store, manufacturing and home healthcare industries and has licensed franchises in Asia, Europe and South America. Ed operates <a href="http://www.franchiseknowhow.com/" jquery1298253043514="106" jquery1300141693397="106" rel="nofollow" target="_blank">FranchiseKnowHow</a>  which provides information and advice to prospective and existing franchisees and franchisors. He publishes newsletters for the franchise community.

Granville_Bean

March 15, 2011 - 11:54am

Why?

Why would an existing Zee even take the time to entertain such questions? If some stranger tried to "interrogate" me about our franchise, I would show him the door rather quickly, with the assistance of the police if need be. There is nothing in it for the existing Zee to sell another prospect; that is the Zor's job and it is the Zor who rpofits.

And if the business sucks, the existing Zee is only devaluing his own investment by further detracting from the brand.

The only prospective Zee whom I'd talk with is the one to whom I'm trying to sell my own stores.