If you’ve made it the peer review stage of the franchisee application process, good for you! This is one of the latter stages and suggests you have a fair shot at becoming a franchise owner with your chosen brand. This stage is all about getting your questions answered, but don’t forget that franchisors will be observing how well you mesh with their current franchise owners.
Still, so long as you display the common characteristics of a successful franchise owner, you’ll have nothing to worry about. So, remember to be yourself and ask the three types of peer review questions that we’ll review in this article.
As a reminder, my franchise development company, Raintree, is an industry leader in national franchise sales because of our robust, evidence-based, and highly effective methodology. This article will explain the purpose of the peer review stage and share our strategy for getting the information you’ll need to make an informed final decision about the brand.
We’ve talked in other articles about the need to follow each franchise brand’s discovery process. You’ll want to follow any guidelines the franchise representatives provide to you, since your behavior will undoubtedly factor into the franchisor’s final decision. Now, let me guess what you’re saying here (especially if you’re new to franchise ownership):
“In the FDD Review Stage, I saw all the franchise owner names and contact information. Why can’t I just go ahead and contact them?!”
This is understandable, but there’s a few reasons why you should take a moment to reconsider before dialing:
At Raintree, we are especially protective of the franchisees we successfully guide through our processes, and we see them as an ongoing investment in Raintree’s overall success. This requires us to highly discourage a peer review free-for-all, since Raintree brands often grow by roughly 50 new franchises a year—meaning there are about 500 qualified applicants who reach the peer review stage per candidate cycle.
Can you imagine being asked to have the same 1-hour conversation up to 500 times per year? On top of that, franchise owners are not compensated for taking those calls; in fact, it would be illegal for franchisors to pay their franchise owners to speak with franchisee candidates, since in theory, franchisors could require that the franchise owners say only good things about the brand.
So, when a franchisor says, “please don’t dial away”, understand why that is, ask what other options are available on demand for your peer review research before any direct peer review opportunities, and trust in the brand’s peer review process if it seems reasonable.
Franchisors don’t want their franchise owners to be endlessly distracted with questions from aspiring franchisees, since current franchisees need to put their energy into running the brand’s franchises. The strategies that franchisors use to protect their owners from unsolicited questions are referred to collectively as “Validation Management”, where direct communication is limited only to certain times and under pre-established conditions.
It never hurts to know all the validation management tools currently employed by your chosen brand. Peer review opportunities are often conducted through:
Group conference calls involve one or more franchise owners participating in a call with candidates. These calls often arrange franchise owners into panels, which allows them all to chime in on candidates’ questions.
Not only will you be able to get multiple answers to a single question, but other candidates may ask useful questions you hadn’t even thought of yet.
Quality and transparent franchise brands often get permission from all parties to record these conference calls and can offer franchise owner candidates access to a library of recently recorded calls. When made available to candidates, these recorded calls offer a great tool for learning about the brand.
I once had two separate franchise owners approach me in the same week with almost identical feedback regarding the Peer Review process:
“Brent, I have almost the same conversation on each call. Of course, the questions are slightly different, but the information I provide on my experience is largely the same each time. Can’t we just record a version that people can reference so I can stop wasting the time I spend repeating myself?”
As it turned out, these franchise owners were onto something!
Because of these conversations, most Raintree brands now offer candidates the opportunity to watch long-form interviews with franchise owners. You’ll get to see their faces and have basic questions answered, freeing up your time to ask more in-depth questions during in-person peer review opportunities.
But beware of any franchise brand that only offers pre-recorded video interviews. Obviously, this might be a way for a franchisor to cherry-pick the best franchise owners and hide negative or unflattering opinions of the brand.
Just like no marriage is perfect, no franchisor-franchisee relationship is perfect, either. So realistically, when you speak with franchise owners, you should expect honest answers to reflect those imperfections. But how can you accurately put those answers into perspective?
There are a few data points and bits of evidence highlighting what to look for in answers given during peer review. When it comes to newly formed franchise relationships, data shows that these relationships develop over the course of four unique periods:
The honeymoon stage is the first, and the relationship quality is fairly positive, as is financial performance. This is early on in the franchise relationship before the franchisee hits the inevitable challenges that accompany business ownership.
Once the franchise unit begins to hit a few stumbling blocks, the relationship moves onto the routine stage, where financial performance takes a dip, the realities and challenges of running a business set in, and the franchisee’s expectations adjust, all of which temporarily strains the relationship.
Once the kinks get worked out, the relationship moves onto the crossroads stage, which means better financial performance and an improved relationship.
The final stage is stabilization, where the relationship reaches its full potential, and the franchise unit reaches its full financial potential. At this last stage, franchisees are generally far happier and more successful than at any other stage of the franchise relationship.
Understanding these four franchisor-franchisee relationship stages helps to provide you with a framework for interpreting franchise owner responses and understanding their various perspectives. So, how should these bits of evidence help to inform your approach to peer review?
Whether you’ve been given a list of franchise owners to speak with or the brand’s franchise representative says, “feel free to contact anyone in the FDD”, you’ll need to formulate a peer review strategy and stick to it.
The questions you ask should be strategic, and each should offer new insights into whether the brand you’re considering:
While you can set a goal to ask a full list of questions during peer review, know that if you put together an ambitious list, you may not get all of your questions answered.
For that reason, it’s important to have a systematic approach to asking questions, making sure that you divide your questions into types and ask enough questions about the franchise opportunity to leave you feeling fully informed. And as with any process, don’t work harder—work smarter by having a strategy.
In analyzing close to 1000 brands throughout my career in franchise development consulting, I’ve learned that franchise systems are remarkably consistent in terms of performance:
Set a goal to speak with at least one franchise owner from each category. Your job is to collect as much information as possible.
While learning about obstacles is critical in developing fully informed expectations for the brand, remember to focus just as much time and energy on the top performers. Understanding if we share similar characteristics to the Top Performing Franchise Owners is the best way for us to predict how well we are going to perform, and enjoy, the brand in question.
Learning directly from the franchise owners of the brand you’re evaluating will perhaps be the most important part of the discovery process. Known more commonly as “Validation”, at Raintree we call this stage “Peer Review.”
Here, you’ll have the opportunity to verify much of the information the franchisor has provided you with, and, if you ask the right questions, learn even more than you have in all of the weeks’ worth of cumulative information you’ve collected prior to this stage.
Over the years, through trial and (too much) error, we’ve developed a strategic process of interviewing franchise owners of brands we are looking at either investing in as franchise owners, or representing at Raintree as a franchise development company.
Here are the three types of questions you should prioritize:
No matter the franchise or type of franchise owner, we recommend that you prioritize asking current franchise owners:
In the previous article, we looked more at the quantitative data for a franchise opportunity. But bottom-line profits and ROI potential, as communicated in numbers, are only one part of the puzzle. During peer review, you can dive into a more qualitative understanding of the franchise opportunity’s profitability.
You can look at profit through a number of lenses. In our opinion at Raintree, the three most valuable lenses for assessing profitability are via an understanding of franchise opportunity revenue (sales), profit, and benefits.
Here’s our list of helpful questions we associate with each:
**Sometimes, this answer can be difficult for franchise owners to answer. Your goal, at the bare minimum, is to get a sense of sales percentages so that you can estimate net profit potential (by reverse engineering profitability).
Franchisee satisfaction not only influences profitability, but it also influences the long-term trajectory of the franchise relationship. For that reason, you absolutely want to know more than the profitability of a franchise opportunity.
These three types of questions uncover whether the brand truly offers a high-quality franchise business model and give the questioner a sense of whether he or she would be likely to succeed as a franchise owner within that brand.
Remember that franchise owners attending peer review opportunities are donating their time to you. Be respectful and courteous. Becoming a franchise owner involves a learning process. If franchise owners are willing to be vulnerable and share potential early failures in running their businesses, focus on being curious, not judgmental.
Also note: some brands allow the franchise owners to play a role in the franchisor’s evaluation process. I’ve seen quite a few brands ask each franchise owner to evaluate the candidates they spoke with. Once again, it’s a two-way street; peer review is just as much about you reviewing franchise owners as it is about those franchise owners assessing how well you’d fit within the brand.
Peer review offers a unique opportunity to begin building relationships with your future peers. In any strong franchise brand, you’ll find genuine camaraderie among franchise owners, along with franchise support networks designed to leverage your skills and support your growth as a franchise owner. These networks will encourage franchise owners to communicate freely in the spirit of collaborative problem-solving, which allows everyone to benefit from working together towards a higher quality, stronger franchise brand. The franchise owner you interact with during peer review, may one day be the franchise owner you go to for advice in a year or two as a franchise owner yourself. These are real people with genuine experiences, and they all have something to offer.