Why racing to the altar can result in poor franchise marriages

The process of finding the “right” franchise can take from three months to three years for many franchisees, but once the “right” system has been found, there is often a rush to finalise the deal, which can result in poor or even non-existent due diligence by the franchisee.

This “race to the altar” may at first seem to be driven by franchisees, but franchisors can be equally eager to consummate a franchise agreement just as quickly.

Like starstruck couples in some romantic movie, the franchisee and franchisor spend an extraordinary amount of time and energy finding one another, and when they finally do, their mutual enthusiasm to seal the deal can be likened to the decision to elope rather than to wait for the big church wedding.

Eloping holds particular appeal for franchisees because it’s seen as a quicker path to a franchising marriage by avoiding all the tedium and inconvenience of making a highly detailed assessment of the future spouse (such as looking into their background by reviewing the disclosure document, and contacting current and former franchisees with whom the franchisor has done business, etc).

There is also the issue of cost. A “church wedding” franchise marriage involves significant expense to the franchisee for lawyers, accountants and business advisors, whereas eloping keeps the cost right down by excluding or minimising the involvement of killjoy professionals who will identify and highlight any downsides of the proposed union.

The following are some of the key drivers for franchisees in their race to the altar:

Emotion

Research by the Franchise Advisory Centre indicates that the largest factor which contributes to a person’s decision to buy a franchise is the desire for a better lifestyle. To spend more time with family or friends, or to spend more time on leisure pursuits increases happiness, and the pursuit of happiness leads to emotional more so than rational decisions.

This means that potential franchisees are likely to be attracted to franchises in which they can see themselves working and enjoying lifestyle benefits ahead of monetary rewards.

Impatience

After a potentially long time spent looking for the right franchise – usually between three months and three years – a franchisee is often so fed-up with the search for “the one” that they have little interest in a long engagement.

The relief at finding the “right” franchise is often demonstrated as a short engagement in the franchisee’s rush to start enjoying the lifestyle benefits they have pictured for themselves in their new business.

Also, a franchisee’s haste to exit an unhappy relationship for something better (ie. the grind of an unsatisfying job or an unhappy workplace for the lifestyle benefits of self-employment via a franchise) also contributes to their impatience and desire to quickly commence their chosen franchise.

Income

While income may not be a major motivating factor to become a franchisee, the lack of one will spur a potential franchisee into action. A person who is no longer drawing a wage or salary can be far more motivated to find a franchise than others who are still in the workforce.

A detailed assessment of the amount of income to be provided by the franchise may be overlooked in the haste to establish at least some income.

Deadlines

While not usually at risk of turning into a pumpkin at midnight if they have not found their Prince Charming franchise, a potential franchisee may have set deadlines for themselves to be operating their new business, or instead, speed up or overlook their due diligence processes in order to meet external deadlines (such as the availability of a site, training intakes, opening in time for the Christmas season, etc).

This may be a small but contributing factor in the race to the altar.

Franchisors on the other hand are also driven in the race to the altar, but by different considerations as follows:

To gain commitment

Engagements can be easily broken but a marriage requires commitment. If a franchisor is satisfied that a franchisee meets their recruitment criteria, a quick marriage may be necessary to gain the franchisee’s commitment before they change their mind and while the romance is still fresh.

The high number of franchise systems in Australia (1,100 according to the 2008 Franchising Australia Survey) indicates that there is significant competition among franchisors for franchisees, and this may also be a factor in the franchisor seeking an early commitment from a potential franchisee.

To secure an important site or market presence

Unlike mobile service franchises which can establish operations without a shopfront, retail franchises are dependent on finding the right amount of retail space in the right location. Once these locations are found, the franchisor may then be faced with a choice of renting it until a franchisee can be found, or hoping that the site will still be available at a later time when and if a franchisee becomes available.

There are downsides to both courses of action. On the one hand, the franchisor could be paying rent on a site for a long time before a franchisee comes along, and this can be very costly. Alternatively, hoping that the site will be available at a later stage could be problematic if a competitor takes it in the meantime, and create future barriers to entry in that market.

Therefore a retail franchisor may be tempted to race to the altar with a franchisee in order to keep down their cost of rents on unoccupied sites (as the franchisee will pay the rent when they start their business), or to prevent key sites falling into the hands of competitors.

To grow the network

In their haste to grow their network, control the market and generally secure world domination, some franchisors may set ambitious outlet growth targets each year. To reach these targets, the franchisor’s recruitment team must “marry” a certain number of franchisees during the year, and may be internally incentivised to get earlier commitments to meet these targets.

Conclusion

While the concept of a “race to the altar” may seem ridiculous, some or all of these drivers may be present each time a franchise “marriage” occurs. Often it is the franchisee who is in the greatest haste, and will not necessarily be slowed or dissuaded by the franchisor.

Taking the time to do proper due diligence when staking the family home and investing their life savings should never be optional for a potential franchisee, irrespective of the appeal of a quick franchising marriage.

Slowing down the process and taking the Franchise Advisory Centre’s recommended due diligence time of one hour of research per $1,000 to be invested in the business might require a longer engagement, but it sure beats a messy divorce.

Jason Gehrke is a director of the Franchise Advisory Centre and has been involved in franchising for 20 years at franchisee, franchisor and advisor level. He provides consulting services to both franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News & Events, Australia’s only fortnightly electronic news bulletin on franchising issues.