Gaining Trust with Franchise Brokers
Building a franchise on a foundation of trust is critical for success.
For new and emerging franchisors in the process of growing their business, the idea of working with franchise brokers can be appealing.
From networking opportunities to highly qualified candidates and increased franchise sales, the advantages of establishing relationships with brokers are undeniable. However, obtaining those benefits isn’t a given – especially when you’re just starting out. Because franchise brokers’ reputations depend on the success of the brands and candidates they work with, establishing a professional relationship based on trust is critical.
“From a franchisor standpoint – a new franchisor wanting to come into FranNet – they've got to have the trust of the broker group if they're ever going to get any traction,” says Jania Bailey, CEO of FranNet, a franchise broker network that has connected franchise brands with qualified candidates for over 30 years.
Validation is critical for trust
For franchisors, a key component of building trust with brokers is validation – including having the ability to demonstrate competent and experienced leadership that can take the brand to the next level.
“One of the first questions is, tell me about your team. We love to have people from the franchise industry already on that team, so that it's not their first time to franchise and they know nothing about the industry,” Bailey says.
Although it’s not uncommon for startup franchisors to start out solo or hire friends and family to fill early corporate roles, Bailey says eventually expanding the brand’s leadership to include seasoned veterans is a crucial step for developing trust with franchise brokers as the system matures.
“Running a business and running a franchise are two entirely different things. [Franchisors] need to have someone on that team that has been there, done that, and understands what it means to support and run a franchise company,” Bailey says.
Bailey says franchisors also need to be able to validate claims about their brand through the testimony of existing franchisees – something that can make or break the trust of brokers and candidates during the sales process.
“Don't tell us about it and not be able to have it validated, because that's worthless. We have to be able to hear it from the people that live it every day,” Bailey says.
Taking a realistic approach to franchising
Because validation is critical for establishing a foundation of trust with franchise brokers and future candidates, franchisors should make sure they’re in the right position to franchise their business before offering their first franchise opportunity.
“One of my biggest issues is, I get calls from individuals that probably shouldn't have franchised. They've worked with these consultants – whether they're cold-called or they're sold on these packages – and it's heartbreaking. Sometimes I even have veterans who spent money they shouldn't, and they don't even have a location open,” says Charles N. Internicola, a franchise attorney with over 25 years of experience and the founder of The Internicola Law Firm.
A common problem Internicola says he encounters when helping clients correct the mistakes of “one-stop-shop” franchise developers is that those consultants often push the idea that selling franchises is almost an afterthought in franchising. In reality, franchise sales require a considerable investment of both time and money on the part of the franchisor – especially in the beginning.
“Developers make it sound like franchise sales are easy – we're just gonna get you leads. No one's giving thought to … how many [franchisees] can you support? Because that's a very big obligation you're taking on,” Internicola says.
In addition to providing validation for future franchisee candidates, making sure franchisees are well-supported and positioned for success is critical for establishing trust with franchise brokers. Because of that, franchisors should make sure they’re positioned to over-support new franchisees while avoiding over-expansion in the early stages of franchising.
“One of the questions that we ask is, how many new franchisees could you support in a year? How many could you get open? And when they blink and say, ‘As many as you bring me,’ that brings me no comfort. They haven't thought that through – they haven't really thought about what it's going to take to get 10 or 20 or 30 franchises up and running,” Bailey says.
Because brokers are often hesitant about connecting well-qualified franchisee candidates with franchisors whose systems of support don’t immediately inspire confidence, Bailey recommends approaching franchise sales and growth with an attitude that is more prudent than impulsive.
“I feel much better when somebody says, ‘You know, we could probably handle 10 to 15 [units]. More than that is going to be stretching it.’ They've thought it through; they understand. Or they say, ‘We've actually hired a team that could onboard 50 a year.’ Okay, they've thought it through. You need to know they're plugged in to what's coming their way,” Bailey says.
Transparency as a tool for building trust
Another key strategy for earning the trust of franchise brokers is transparency – particularly when it comes to evaluating a franchisor’s Item 19 financial performance representations in the Franchise Disclosure Document (FDD).
“I remember 15 years ago when we were saying, ‘Oh, only 20% of the industry has [an Item 19], it's not a big deal.’ Now if you don't have one, we won't bring you into our portfolio. We will not talk to a brand that doesn't have an Item 19 – it's that important to the process,” Bailey says.
Because Item 19 contains important information about the franchisor’s track record of success, including unit-level economics and revenue streams, Bailey believes it’s a critical point from which qualified franchisee candidates can ask questions and gain a clearer understanding of the brand they’re considering investing in.
“[Item 19 is] going to be polished up as best possible, but at least it gives a starting point to the candidate – and that's what's important. … Without an Item 19, [candidates] are flying blind,” Bailey says.
As a seasoned franchise attorney with decades of experience developing and reviewing FDDs, Internicola agrees that Item 19 is a valuable tool for helping candidates make informed decisions about potential investments.
“[Item 19 is] the beginning point of that story that gives insights into what revenue streams could look like, or categories, and helps you fill in the gaps. And I think if franchisors take that perspective, it's a win,” Internicola says.
Beyond sales, Internicola also believes Item 19 can be used as a tool for building trust with franchisee candidates and brokers – particularly if startup franchisors have weak points they’re working to strengthen as their system grows.
“If there's a weakness, maybe you own it and you disclose it and give that transparency,” Internicola says.
Leaving a good impression … even when it’s hard
For franchisors looking to build trust with brokers and franchisee candidates, another important strategy is to treat every franchisee with integrity – even when they’re a bad fit.
“We all talk about how important that first five to 10 [franchisees] are. They are so crucial. And invariably, you're going to bring in somebody you shouldn't. And the best thing to do – as soon as you see there's going to be problems, you've got somebody that no matter what you do, they're not going to be happy, they're just not the right fit – [is] help them exit with grace as quickly as possible,” Bailey says.
Because unhappy franchisees can negatively impact validation and trust, Bailey says it’s important to find amicable ways to part as early as possible. One option for franchisors is establishing a resale program before offering franchise opportunities, allowing dissatisfied franchisees to exit gracefully while simultaneously opening the door for better-suited franchisees.
“You should already know what your resale program is going to be before you start selling franchises, in my opinion, because without question, you're gonna have two or three people out of your first 20 that you need to get rid of and help them go somewhere else where they'll be happier,” Bailey says.
Internicola agrees, explaining that franchisees who aren’t a good fit can sometimes unnecessarily bring down the overall mood of the franchise system – making a resale program a valuable asset for everyone involved.
“[When franchisors are] doing the right thing, they have a great system, [and] there's that one or two franchisees that – I’m not going to attribute blame to them, but they're hurting the system; their perspective, their attitude. And then it does cross over, that mindset, to other franchisees,” Internicola says.
By having a resale program in place, franchisors can mitigate those risks by creating a win-win situation that doesn’t compromise the trust of franchise brokers, franchisees or future candidates.
“I'm not a big believer in fighting or litigating with franchisees. Not at all. But it's so important to exit with grace. … So you need to embrace [franchisees] and help them exit. Hug them on the way out,” Internicola says.
If you’re ready to start your franchising journey, we’re here to help. To learn about the services we offer for new and emerging franchisors, give us a call at (800) 976-4904, chat with us, or contact us here.