Turning Failure into a Sales Tool

Franchisors that provide a strong support program to help struggling franchisees should seriously consider using this as a selling point to help make new franchise sales in uncertain times.

"What?" you say, "Tell candidates about franchisees who didn't succeed?"

Every brand always has a small percentage of franchisees at the back end of the Bell Curve, franchisees who, for whatever reasons, have not succeeded within the system. That's a fact, and any candidates worth their salt know this. Franchise sales people generally are repelled by the idea of raising the possibility of failure during the sales process, but it's surely on the mind of candidates.

Consider proactively raising this possibility during the sales process - and showing that your organization has a team in place that has worked successfully with distressed franchisees in the past. Show that you've helped them turn their unit(s) around, or helped them sell the distressed unit(s) for the best price, whether through a transfer to someone else or a buy-back by the franchisor.

In this period of tight capital, when financing is hard to find, especially for new franchisees, franchisors have been competing to provide financial incentives to help candidates over the Commitment Hump. These include reduced or waived franchise fees and royalties. Some franchisors even have offered money-back guarantees if certain sales or profitability metrics are not reached by a specified date.

Although financial incentives surely help, present-day discounts on franchise fees and reduced royalties are hard to balance against fear of failure. What if there's an E. coli scare? New government regulations, like mandatory health care? An unforeseen event in the personal life of the franchisee requiring relocation or a quick sale? What if a construction project diverts a large percentage of their customers for six months?

Franchisors are well acquainted with candidates' last-minute jitters. One of the last hurdles for candidates is saying "Yes" on discovery day, knowing they will soon be signing not only a check, but an agreement for 5 or 10 years, or more.

That's why franchisors not only should have an in-house "SWAT" team ready to jump in and help existing franchisees who get into financial trouble, but also the courage (and smarts) to use it as a selling point. It's not only about providing the franchisee with the confidence that the franchisor will be there for them if they need it down the road, but also about building trust and relationships during the sales process, which can go a long way toward overcoming last-minute fears. It's a competitive advantage.

When speaking with candidates, franchisors highlight their financial incentive programs and their Item 19 Financial Performance Representations. If you have a strong turnaround team (or a third-party partner with a track record of success), why not trumpet that as well? In the real world, where businesses struggle and fail, why not highlight your strengths in supporting franchisees who are underperforming?

One successful multi-unit franchisee successfully operated Applebee's, Aaron's, and Famous Dave's units, and decided to add Sonic Drive-In to his holdings. "It was a good concept but didn't fit us for some reason. It was a different kind of culture," he said. Sometimes it's simply a mismatch. Helping those franchisees sell or transfer a troubled unit is the best thing for both franchisor and franchisee.

Candidates expect to hear how strong a franchisor's programs are in the usual areas of training, field support, operations, etc. But seeing a franchisor's commitment to step in beyond the call of duty (i.e., beyond the terms in the franchise agreement) when a franchisee gets in trouble demonstrates - through concrete action - the franchisor's commitment to the brand through its willingness to invest resources and personnel to keep the system strong: "We want you to succeed. It's in our self-interest. And here's how we've done it in the past."

During the validation process, for example, it can go a long way if a candidate hears a true-life story from a franchisee (even a former franchisee) extolling the support they received from the franchisor in turning around or selling a troubled unit. One way to do this is to tell your existing franchisees that when a candidate comes to you during the validation process, they should talk up the brand's SWAT team. Speak with the franchisees you've helped turn around. Have candidates talk to them during their due diligence. Write up their stories and post them on a candidate-only website, with contact information (if the franchisee is willing). Testimonials, written or video, from franchisees you've helped turn around are powerful selling tools.

"Yes, this is a great brand, but it didn't work out for me because of X, Y, Z. But when I got into trouble, they did right by me, helped me get the best return on my investment. We parted friends. Maybe it will be a better fit for you."

Show candidates that you have the expertise - and the track record to prove it. There are no guarantees in business or in life, but there is insurance, even if it only provides the necessary comfort to know you'll be there if things go bad

Conclusion

Raising the possibility of failure - and defusing it early in the sales process by providing not only a strong support program, but also an exit strategy that comes closest to win-win as possible when things go wrong - can be a powerful selling point - and make the difference between a candidate signing with you instead of a competitor.