The Real Power In Franchise Validation
There are many critical stages to researching a franchise and
determining if it’s truly the right opportunity for you,
but few are as valuable as a stage called validation. This article
will explain what validation is and what questions to ask, but
also how to really read between the lines, filter your responses
and truly determine if a particular franchise is a model you can
not only be successful with, but happy as well.
What is Validation?
Validation is simply the process of speaking with current (and
even past) franchisees in a particular system to determine overall
franchisee satisfaction and financial performance of a franchise.
In a nutshell it’s a method used to check up on a franchise
to determine if they are delivering on their promises, supporting
their franchisees properly and are offering a truly viable and
successful opportunity. In all franchisors’ disclosure documents
are the contact information for all other franchisees in their
system, both current as well as franchisees who have gotten out
of the business within the last 3 years. Most franchisors require
that you spend a good bit of time speaking with other franchisees
but even if they don’t require it – DO IT! These franchisees
have nothing to gain or lose by your decision to purchase that
franchise therefore have no reason to give you anything but honest
answers about their experience owning that franchise. Many franchisors
will give you a “suggested validation list” of franchisees
to contact but keep in mind this is commonly a cherry picked list
of satisfied, top producing franchisees. Use the contact list in
the disclosure document and make it a point to speak with a range
of franchisees including top producers, struggling franchisees,
those that have owned their business for many years and those that
are fairly new to the system. You want to get feedback from those
in all phases of owning their business as you too will experience
these different phases as well.
All franchisees have gone through the validation process themselves
so they will understand why you are calling and for the most part
be happy to speak with you and share their experience. That being
said, understand they are most likely busy running their business
so be respectful of their time. Be willing to speak with them at
their convenience outside of business hours or at least during
slower times of their day. If there are franchisees within driving
distance of you, it’s also a good idea to offer to make the
trip and take the franchisee to lunch or dinner for a face to face
meeting. I would advise you to make a point to speak with 10 – 20
franchisees during your validation when possible.
General Questions to Ask When You Validate
When speaking with other franchisees you of course want to get
feedback about their experience owning the business but remember,
your ultimate goal is to determine if this is the right opportunity
FOR YOU, not for them. No business is right for everyone so never
forget that one man’s trash is another man’s treasure.
Below are some good questions to ask other franchisees during your
- What did you do before you invested in this franchise?
other franchises did you explore before making your decision
to go with this one?
- What were your key reasons for choosing this
franchise over the others you were exploring?
- How long have you
been in business?
- Do you feel your initial training adequately
prepared you to launch your business?
- Did the franchisor provide
adequate support during your grand opening and launch phases?
often are you in contact with the franchisor?
- Are you pleased
with their efforts to continue to support you as a franchisee?
often are you in contact with other franchisees?
- Do you find the
other franchisees in the system to be of value to you in achieving
success with your business?
- Do you feel the franchisor is doing
a good job of recruiting top quality franchisees?
- What more could
the franchisor be doing to help you be more successful with your
- What have been your biggest headaches and challenges
to running this business?
- What do you feel it takes to be a top
producer with this franchise?
- What advice would you give me as
a new franchisee just starting out?
Financial Questions to Ask When You Validate
Remember, if you are validating properly you will be speaking
with franchisees in all phases of their business ranging from those
who are wildly successful to those that are new and still grinding
it out to break even. Also keep in mind when talking numbers that
people structure their businesses in different ways. Some pay themselves
salaries, drive company owned cars, take frequent business trips
and work out of posh office space, while others take only dividends
or distribution and operate the business on as lean of a budget
as possible. Be prepared for a wide range of methods and responses
when discussing the financial picture of a particular franchise.
These questions will also vary depending on which phase of the
business a particular franchisee is in.
- What can a typical franchisee expect to produce in gross
revenues in year one, year two and year three of this business?
are the top producers doing in gross sales?
- What are the lower
producing franchisees doing in gross sales?
- Currently what is
your gross revenue and how much of that is going into your pocket?
long did it take to break even for you?
- How accurate were the
franchisors operating capital projections? Did you spend it all?
Did you need to go into pocket for more?
- What are the typical
cost percentages of sales? Labor? Occupancy and other overhead?
a franchisee is running a fairly streamlined operation what
should I expect typical margins to be before taxes, debt
And Of Course the Big Question…
- If you had it to do all over again, would you?
Filtering Your Responses
When you validate keep in mind you will not receive 100% satisfaction
from every franchisee you speak with. No franchisor has a 100%
satisfaction rate and all business owners have bad days at the
office. You will too! While it is easy to do, resist getting too
hung up on negative or less than satisfactory responses. Negative
feedback will resonate more with you than positive, that’s
just human nature. Focus on the overall percentages of your feedback
from everyone you speak with and rate the franchisor accordingly.
Look for trends more than specific experiences to get a sense of
overall franchisee satisfaction.
Reading Between The Lines
Probably the most over-looked concept in validating is striving
to identify with the different people with whom you speak. As you
speak with franchisees, constantly ask yourself, “am I like
this person”, “do we share similar values”, “do
we have similar strengths or weaknesses”. The bottom line
is this… if you are cut from the same fabric that the majority
of the super satisfied, top producing franchisees, there may be
a great chance this is the right opportunity for you. On the other
hand, if you find you are more like the less than satisfied franchisees
who are the under achievers of the group, then there’s a
chance that particular franchise may not be the right opportunity
for you. We all have strengths and weaknesses and finding the franchise
that best leverages your strengths while compensating for your
weaknesses is critical.
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