10 red flags that Franchisors Look for in a Franchise Owner

BRENT DOWLING
October 28th, 2022

Throughout the process of entering a franchise relationship, both the franchise candidate and the franchisor are closely examining one another to make sure that each is entering into a good deal. Although brands are often in a hurry to claim market share, they will still invest several months into developing each new franchise relationship.

A responsible franchisor will be closely studying franchise candidate just as intently as business-savvy candidates should be evaluating potential franchisors. Not every pairing of a quality franchise owner and quality franchisor will result in a suitable match. 

While this article will touch on red flags to look for in a franchisor, this article is all about building some empathy for franchise candidates and helping them see through the eyes of franchisors.

The Single Most Important Red Flag to Look for in a Franchisor

There are thousands of franchises for sale. It’s a fundamental requirement that franchise candidates appreciate early on that not all franchise opportunities are created equal. The one franchisor red flag that will be covered in this article is the presence of a robust, structured, and consistent franchise education process. This is where inexperienced and emerging brands tend to get into trouble, since they are eager to begin awarding franchise licenses but have not yet develop an understanding of the type of person who is more likely to be successful as a franchise owner in their system.

Conversely, strong franchisors will provide a clearly defined franchise education process, complete with several stages that allow both the candidate and the franchisor to better understand one another. Most (quality) franchise brands will offer a similar franchise education process, often referred to as an “education process” or “discovery process”. No matter the name, the intent is always the same: for each party to learn more about the other, acknowledging the reciprocal commitments of the franchise business model.

If the franchise brand you’re investigating doesn’t provide you with a well-defined process of the steps ahead and seems to be pushing you to sign an agreement and send them a big check as soon as possible, I’d dare say it’s time to RUN.

10 Franchisee Red Flags that Franchisors are on the Lookout For

Candidates often make the mistake of thinking that the franchise application process is a one-way street in which they are being sold something and therefore expect to be wined and dined. While wining and dining does occur, the goal of the process (for a quality brand) is to confirm a strong fit involving a two-way relationship, where interest is mutual and reciprocal.

At Raintree, an industry leading franchise development organization and leader in national franchise sales, our role is to facilitate that evaluation process. We ensure that the candidate has all the information they need to make a well-informed decision about investing in the franchise, and confirm that the candidate has the required skills, financial backing and culture-fit in order to be successful with their chosen brand.

So, without further ado, here are the franchising red flags that a quality franchisor should be on the lookout for:

1. Poor Communication Skills

Communication skills are leadership skills. They are necessary to lead and motivate employees throughout an organization, and they are also critical in providing top-notch customer service. Communication skills don’t necessarily refer to the size of your vocabulary or how grammatically correct your emails are. It’s about how you turn your ideas into language, along with the attitude you have when communicating those ideas to others.

Without effective communication skills, franchisees will find it difficult to achieve unit growth, sales success, the recruitment and retention of talent, and operational efficiency, among other things. In the day-to-day operation of the franchise unit, the way that the franchisee (aka franchise owner) communicates to others serves as the glue holding everything together. If the franchisee is unable to communicate effectively, then he or she will be unable to delegate tasks, set short-term and long-term goals, or instill a vision in the minds of the entire operation to guide the franchise unit(s) towards success.

2. Not a Team player 

McDonalds franchising mastermind Roy Kroc put it best by promoting the slogan, “In business for yourself, but not by yourself.” The reason for becoming a franchisee has everything to do with your financial goals, your professional goals, and your desire to build generational wealth for your family. But running successful franchise businesses, the kind that achieve those types of goals, requires teamwork and the ability to collaborate and work well with others.

Remember that becoming a franchisee means joining a network and a community of other franchisees, as well as franchisee support professionals (if you’re franchising with a quality brand). If you don’t work well with others, you won’t be able to fully leverage that network to your advantage, and that tendency is associated by franchisors with lower profitability, fewer sales, and brand-damaging customer service interactions.

Franchisors will absolutely be looking out for how you interact with their development or franchise sales representators, as well as other franchisees within the brand to determine how well or poorly you engage with those around you. Note that some franchise opportunities require less teamwork and collaboration than others. If you like interacting with people but see yourself as more of an introvert, or a “lone wolf”, then make sure you select a franchise brand that is well-suited to that aspect of your personality. If you like to see yourself as a lone wolf, look for opportunities that better suit that aspect of your personality.

3. Will Not Ask for Help 

This is largely a consequence of #3, but it’s so important that it’s given “red flag status”. If you are unable to ask for help from your franchisor, staff members, or others in your network, then it involves a combination of several problems:

  • Poor judgment
  • Inability to think ahead and plan strategically
  • Poor problem-solving skills
  • Egoism
  • Unreceptive to feedback
  • Unwilling to learn from others (will come back to this one later in the list)

Quality franchisors understand that the success of the brand ties to the franchise owner’s ability to problem solve effectively. An inability to ask for help, especially for new franchise owners without experience in the industry, can be detrimental not only to the franchise owner’s respective franchise unit(s), but to the entire franchise brand reputation.

This is again why Raintree likes to think of a franchise relationship as a marriage, since it implies a two way street. You must give, but you must also know how to take. Strangely enough, this is a VERY common problem amongst franchise owners. The ability to be honest with yourself and feel comfortable asking for help is something the franchisors will be on the lookout for.

4. Lack of Financial Capacity

One area that isn’t so much about how the franchisee presents himself or herself but has more to do with the initial application submission, is all about your net worth and how much financial strength you bring to the table. Franchise units that don’t have a solid financial backing from the franchisee will already be behind in this area.

Experienced franchisors know that candidates who only just scrape enough liquid to cover the initial investment are extremely high-risk and will be unwilling to award you a franchise agreement. Since everything is on the line, new franchise owners without the right financial backing can often make emotional decisions in the day-to-day of running their business. And they may not be able to inject more operating capital maybe needed to get the business through the first year. Good franchisors

Make sure that if you want the best chances of success, make sure that you will not be financially strained by the time you open the doors to your franchise. Be realistic, and make sure that your journey towards becoming a franchisee is not being led by blind optimism. Be realistic and honest about what you can afford and what you can invest into the business financially.

5. Not Passionate/Invested in the Brand

For the brand to be successful, there must be a natural chemistry between the franchisee and the brand. They need to match—the franchise relationship needs to make sense. That’s what will ultimately determine whether the franchise unit is a success. It must have that synergistic mix of the right brand characteristics and the right franchisee leadership. Not every relationship between a franchise brand and franchise owner will look identical, but they will all need to include aligned values for how the franchise units will be run, along with how well they honor the brand messaging and vision of the franchisor.

Only these types of franchisee candidates will gain franchisors’ confidence that their franchise owners are making decisions based on what’s best for themselves AND what’s best for the company.

6. Unwilling to Learn

Coachability is so incredibly appealing to franchisors, and an unwillingness to learn is a major red flag when vetting franchisee candidates. Someone who is not prepared to learn form the franchisor, or from fellow franchising peers and customers, leads to the same bundle of red flags as someone who will not ask for help.

In a strategic partnership, each member brings something to the table, and by sharing information and helping one another, the partnership can reach its full potential. Anyone unwilling to take, meaning take help or take guidance, is not a good candidate for entering into a franchise relationship. Franchisees lacking the “coachability” element come into franchise ownership thinking they have all the answers, and they quickly learn that no one has all the answers. That’s why franchising, which involves a franchise network of support, enables stronger, more resilient businesses than the independent ownership route. The network of support that franchisees receive when they align themselves with a quality brand is one of the most important advantages of franchising. You’ll also need to be adaptable to changes in the market, with can be unpredictable and require problem solving from the entire organization.

If you think you know everything to the point that you pass on training and advice from your franchising peers, then maybe try going into business on your own first. There’s a 50/50 chance that your business will survive five years, but I can’t speak to how profitable you’ll be, since opening a business involves the high cost of learning curves and early mistakes.

7. Not Fully Committed

Ultimately, franchisors are looking for signs that the franchisee candidate is hot on the trail of a profitable franchise model but isn’t willing or able to put in the hard work and quality effort needed to how up the franchisee’s end of the franchise relationship.

Franchise ownership does offer a strong, lower risk path to business ownership and passive income than starting an independent small business, but it still requires hard work and personal sacrifice. Remember that the franchisor is taking a major risk on every franchise license they award, and a quality franchisor will have high standards for the franchisee candidates they award them to.

4 Important Stages in the Franchisee Selection Process at Raintree

At Raintree, we have a robust and discovery process for our franchise candidates. We pride ourselves on our ability to learn from and guide our franchisors and candidates towards perfectly matched franchise relationships. 

Below are just a few of the key stages in our process where the franchisor is looking to better understand how well you fit into the organization: 

1. The Qualification Call 

Unless you were directly introduced to a recommended brand via a franchise consultant (aka a franchise broker or franchise coach), when you reach out to a brand, either via a phone call or by submitting an online inquiry through their website, you’ll receive a call soon afterwards from a franchise representative. Internally, they are known as a “lead qualifier”.

During the qualification call, the lead qualifier is going to ask questions and listen closely to your answers to determine whether you check the following boxes: 

  • You meet the minimum financial requirements 
  • Your preferred territory aligns with their subsequent availability 
  • You possess the prerequisite skills to be successful 
  • Your characteristics, goals and motivations suggest a good culture fit (they align with the brand culture)
  • Your timeframe matches the speed at which the brand plans to capture market share (if you’re not looking to start in the next 6-12 months, most brands will opt to move on)
  • You are respectful and courteous to the lead qualifier (only polite and respectful candidates are likely to be polite and respectful partners to the brand franchise and a solid addition to the network of franchise owners) 

If you tick all the boxes verbally and the lead qualifier is satisfied with your answers, he or she will likely ask you to complete a short application, which will then be used to present you to the senior development staff as you move into the next stage.

While it’s ok to ask your initial list of questions, don’t expect to get several hours’ worth of information from the initial representative. There is red tape in place preventing the brand from divulging proprietary information too early on, and again, there’s a set process in which all the information is shared strategically across the coming steps.

2. The Initial Call 

Making it to this next step means that you checked all the lead qualifier’s initial requirements. To be clear, this doesn’t mean that the franchise brand has decided that you are the right person to bring the brand to your market. Rather, it means that they think it’s at least a good use of both their and your time in continuing down the full franchise discovery process, which is often a 6–8-week journey.

This step is referred to as the initial call because it’s typically the first interaction you’ll have with a more senior franchise development representative. This same person will act as your tour guide, point-person, educator and salesperson for the remainder of your franchise journey.

3. The Presidents Call/ Executive Interview

Usually after about 3-4 weeks of mutual evaluation and brand education, if you continue to show signs that have all the ingredients necessary to become a successful franchise owner, you’ll be invited to speak directly with a brand founder or top executive.

They will answer any questions you have for them. They will be looking for thoughtful questions that show you’ve done your research in the prior month. They’ll also be looking to ask you questions to confirm everything our franchise development team believes they see in you:

  • You have the aptitude and skill sets
  • You understand the true investment requirements
  • You fit the culture and community 
  • Your financial expectations are aligned with the reality of our other owners
  • Your expectations of the support team and process are aligned with what we provide

On top of that, we look to see if there’s a little chemistry. We will be business partners, and in order for us both to be successful together, we need to click.

4. Approval Day

This is your chance to visit the franchisor’s home office, meet the executive team, see the business model in action, and test out the idea of a business relationship. 

At Raintree, we call this “Approval Day” reflect more directly on the intent of the day. It’s the final step of the process and gives one last opportunity to approve of us, and vice versa.

To that end, throughout the day, good franchisors will quietly be evaluating you, trying to identify whether:

  • You’re paying attention, demonstrating organizational skills, and appear excited about the business 
  • You have positive interactions with support staff and other potential franchise owners in the group
  • You respect the model and understand the importance of adhering to the model and system as is, day-in-and-day-out.  
  • You match the culture!
Becoming a Franchisee with Raintree
Again, you may be under the impression that everyone who applies for a franchise license receives one. Maybe that’s been your experience with other brands, but that’s certainly not the case when franchising with the quality emerging brands in the Raintree portfolio. If you want a sense of how selective we are with our candidates, take a look at the statistics on how many of our franchisee candidates (across the franchise brands in our portfolio) ultimately succeeded in being awarded a franchise in 2021:

2945 Total
Franchise Applications for 2021

2945 Total Applications

2599 Immediately Declined Applications (~88%)

- 107 Post-President Call Denials (~4%)

239 Total Number
of Franchises Awarded (~8%)

Less than 10 percent of our almost 3,000 franchisee applicants succeeded in making it through our selection process and became franchise owners. We know what it takes to create successful franchise relationships, and we see it as a responsibility and a privilege to help make perfect matches.

Raintree is an industry leading franchise development organization, as well as a leader in national franchise sales. Our professionals drive the success of quality franchise brands by assisting in the matchmaking process between top-notch franchisees and franchisors. Our portfolio includes the best franchises to own, including brands like Footprints Floors, Dog Training Elite and Voodoo Brewing Co., which have lean staffing requirements, higher economic performance potential, and the type of business ownership experiences that franchise owners love.

If you have an interest in learning more about our process or the brands we represent, please visit our website and schedule a call today!

References

Crocco, Kerry. “7 Characteristics of a Great Franchisor.” Franchise.com. https://www.franchise.com/blog/great-franchisor/. **as a note, this is a GREAT article.

Elgin, Jeff. “Top 5 Characteristics of Successful Franchisees.” Entrepreneur.com. https://www.entrepreneur.com/franchise/top-5-characteristics-of-successful-franchisee-buying-a/60986. 

Gustafson, Katherine. “The Percentage of Businesses that Fail and How to Boost Your Chances of Success.” Lending Tree. https://www.lendingtree.com/business/small/failure-rate/.

Sayegh, F Georges. “12 Characteristics of a Successful Franchisee.” CMC Canada. https://cmc-canada.ca/blog/Our%20Blog/twelve-characteristics-of-a-successful-franchisee.

“Our History.” McDonalds. https://www.mcdonalds.com/us/en-us/about-us/our-history.html.

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Brent Dowling
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