Are Franchises Bought, Sold or Awarded?

Posted on May 05, 2008 by Ginger Watford

By Lori Kiser-Block, CFE
President, FranChoice, Inc.

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This seemingly simple question is actually quite complex. It demonstrates the power and importance of terminology and how the words we use to describe a process can influence the philosophy we use to direct that same process.  By the way, the correct answer to this question in the title is “yes.”

Award is such a positive word
The term “awarding” came into widespread use in the 1980s in relation to franchising.  This was a brilliant technique designed to cause franchisors to focus on selecting quality franchisees that would be assets to the brand and not merely space fillers.

As the concept of franchising matured, savvy franchisors realized that to be successful, new franchisees needed specific characteristics in personality, experience and skill. Prior to this, the standard criteria for acceptance of a new franchisee were that they needed to have both a pulse and a bank balance. 

The process changed from “selling” a franchise to a mutual discovery situation where each party needed to learn the pros and cons of the other. In this case, both parties had something to both buy and sell, so the exchange of information led to acceptance or elimination. Like a bad date, either party could simply notify the other if they found that the match wasn’t right for them.

To facilitate the review process, the franchisor could create a committee to pass judgment on all the prospective franchisees who wanted to join the system. They could pick the top applicants, those few people who appeared to have the best chance of success, from the multitude banging on the door to get in.

That’s when the theory developed some holes. The problem was that some franchisors decided that awarding franchises meant that there was no longer a need to have a strong and effective “sales” system in place. “We’re not selling anymore, we’re awarding,” they believed. 

From a financial standpoint, this downsizing of the sales and marketing staff led to some immediate benefits for these franchisors. They could save a lot of the money they had been spending to attract leads, produce and distribute quality promotional tools and the expense hiring the best sales people who could close a lot of deals each year. 

But what happened, of course, is this change also led to many a short and lonely meeting of the review committee as the hordes of applicants turned into a trickle.

Don’t underestimate the importance of the sale
Those who follow franchising have noticed that there are C- franchise systems that grow very rapidly. In spite of the fact that they don’t have a very good opportunity at the unit level, they don’t provide good support to their franchisees, and in many cases they have a significant amount of litigation and unit failure in their track record, they still attract large numbers of potential candidates. How is it that many qualified prospects will go right past a number of A+ franchises in order to buy a C- opportunity?

The answer is that before franchises can be awarded, they have to be sold.  It’s a multi-contact, reasonably non-threatening process conducted over the span of a few weeks. Nevertheless, it is a sales process. A franchise that’s a C- opportunity with an A+ sales system is going to outgrow (by leaps and bounds) any A+ franchise opportunity that has a C- sales system.

What determines the success of a franchise sales system / awarding process?
The most important determinants of success for a franchise sales system are:

•     First, it should be able to attract the very best candidates, those that will execute the franchisors system and processes, helping build the brand.
•     In order to be most effective, the sales system must meet intellectual as well as the emotional needs of the prospect. People want to be awarded franchises from people they like, they trust, they feel comfortable and identify with. A great sales system will reinforce the prospect’s feeling that you are the “right” people for them to be in business with. 
•     It must also lead the prospect through a logical and organized series of steps that naturally leads to a point where a decision is made.  
•     The sales system should create a degree of urgency to make a decision. It doesn’t matter what the decision is as long as it is made on a timely basis.

Sold, Bought, Awarded?
The best franchise sales systems combine elements of each. The bottom line of any development effort is the number of qualified prospects who decide they want to become franchisees with the company. A strong sales system that awards a large number of franchises to quality candidates anxious to buy is essential to create strong growth in a franchise system.
 

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Lori Kiser-Block is President of FranChoice, a national network of franchise consultants that provide free guidance and advice to qualified individuals in the United States searching for franchise opportunities that match their personal interests and financial qualifications.