Buy A Franchise, Eat An Elephant
By Gerald Moriarty & Howard Bassuk

You know the old line: to eat an elephant, you do it one bite at a time. It is a folksy way of saying that we manage complex tasks by breaking them down into many simple steps. The identical approach works for franchise research.

Over the last few months, we have written a number of "how to" articles that deal with issues from knowing yourself, to knowing the franchise you are thinking of buying. A number of people have asked us for a step-by-step template to investigate a specific franchise. There are two broad areas of research: an inquiry into the industry, and a close scrutiny of the franchise itself. In a future article, we will look at industry research. Now, let's think about researching the franchise opportunity.

At Franchise Network ("FranNet") we deal with clients throughout North and South America who are considering buying a franchise. We work with a wide variety of franchises and are paid from franchise fees which are usually similar from franchise to franchise, not gross investments, which vary tremendously. So, we have no vested interest in trying to interest you in one franchisor or another. So, our role is not as a "seller" of franchises, but rather as a guide to help people identify and stay focused on their individual needs and goals. We have no particular bias towards one business or another. We do not have a preference as to what a buyer buys, so long as it is what he or she wants. People are different, so they want different businesses. No surprise here!

In theory, every wise investor should buy the biggest, strongest, least expensive, most defined, most proven system that he can afford, so long as it can also satisfy that investor's growth strategy. But that theory fails! It does not consider the different values and personal needs that go beyond financial considerations, and are more complex and more powerful.

For example, there are many people who simply would not feel at home in a very defined and proven system. These people may have a pioneering spirit or a need to innovate and contribute. The mature and highly evolved system may not encourage these contributions.

"I myself am one of those people. I love being in on the ground floor of a business. I enjoy the excitement and challenge that comes with creating and building something either from scratch, or from its early days. Yes, there is more risk in starting or working with a young organization, than with an older more proven one. I find, however, that the risk is more than counter-balanced by the challenge. I find satisfaction in being part of something that I can help to grow. I would rather have more flexibility and more input to a system than to have more structure. If that means a certain element of increased risk, then so be it." Howard Bassuk

Is this a logical approach to business selection? Actually, it is! The reality is that I (and you) have interests and needs that go beyond cold and abstract financial considerations. So our research must go beyond a financial analysis. That is why we at the Franchise Network (FranNet) have devised a Four Step Plan that will take you right into the heart of the franchise you are researching.

Some Preliminary Considerations

The two main sources of research on any franchise are the Franchisor and its Franchise Offering Circular, and current and former franchisees. The Circular, of course, is the key to locating the franchisees. Before we get into the Four Step Plan, however, let's answer two questions: how many franchisees should you contact, and which ones? To the first question, we at FranNet maintain that, if possible, as a minimum you should contact fifteen to twenty franchisees. If it is a small, young franchise, that may encompass the entire complement of franchisees!

But which franchisees should you contact? There are several possible approaches. You might make a purely random selection. Or you might ask the franchisor to suggest people whose background is similar to yours, say a banker wanting to talk to ex-bankers. Or you might emphasize franchisees located in markets much like yours. Or you might want to have a selection of franchisees that will reflect the business at various stages of maturity. So, perhaps one third of your contact is with owners in business one to three years; one third in business four to five years; and one third over five years. Or you might ask the franchisor to direct you to high volume owners, if you aspire to a high volume business. Or you might do some combination of the above, or use some other criteria of your choice.

There are two tips to keep in mind. First, do not limit your research only to local franchisees. While they may welcome you as a colleague, they may also see you as a future competitor for new locations, and discourage your entry. The story is told of an upset prospective franchisee who called up the franchise company. He reported that the local franchise owner had told him what a miserable business this is, and how he regretted being in it. "Did he also tell you," the franchise representative replied, "that he has a second unit under construction, and a deposit for a third?"

The second tip is this: expect to find, even seek out, the unhappy franchisee. Every system, even the finest, has some. Are you surprised? Do you know of any human institution, be it business, education, religion, science, medicine, the military or whatever, that is comprised of 100% happy campers? Of course not! Why should you seek out the unhappy franchisee? Because it allows you to ask yourself: "Am I more like this unhappy person, or more like the other satisfied franchisees?" Your answer will be a pretty good predictor of what will happen to you if you buy the franchise.

In what follows, you will see that each step includes a gut check -- a pause to determine if your interest still holds. If it does not, you should stop. Never, never waver about this! The business either continues to meet your personal test as to whether it will be the right one for you to achieve your goals, or you should walk away from it.

The Plan assumes you receive the Offering Circular without having to visit the home office of the franchisor. If you are required to visit the home office first, adapt the plan accordingly.

Overview

What follows is a sketch of how to research a franchise. Feel free to adapt this plan to your needs and your style of finding out the information you need. Remember: only you can make the important decision about owning your own business. Anyone making such a decision needs solid information, but how one obtains it is a personal choice. Caution: beware of having your dream "ambushed" either by a spouse whom you have not kept informed and involved or by well-intentioned but uninformed friends. Value any opinion by how informed it is.

This approach has four key elements:

Read the Offering Circular. Take notes about any questions you want the franchisor to answer. Highlight the sections you may wish your attorney to explain.

Glean "inside" information from the people who run the business on a daily basis: the franchisees. There is no one better equipped to tell you what you need to know. If approached properly, you will find the majority of the franchisees to be very forthcoming with useful answers. To make the most of your learning, you will have to conduct telephone interviews and visit franchisees in their places of business.

Visit the home office of the franchisor to obtain first-hand impressions of the franchisor's staff

Have experienced professional advisers -- an attorney and an accountant.

Pace and Cost

This is a moderately paced but steady approach that will help you make a sound decision in a reasonable amount of time. There is little or no expense for the first two steps. Also, you challenge yourself to determine your level of interest at the end of each step.

Step One

________1. Read the Offering Circular.

These documents may seem technical, so as you read, compile two lists of questions, one for the franchisor and the other for franchisees. Highlight sections that you may wish your attorney to explain at a later date.

________2. Interview franchisees.

Commit to completing eight to ten telephone appointments with franchisees. View these as structured interviews, and you are the interviewer. Do not expect the franchisee to stop everything to talk to a stranger. Rather, introduce yourself, explain that you are researching the franchise, and ask when it will be convenient for you to call back. Make a telephone appointment, at your cost but at the convenience of the franchisee. Prepare a list of questions as a starter, but add to them any other questions that occur to you.. Divide the list into four groups labeled "A" "B" "C" and "D" according to importance. This will help you focus on the most important items. Take complete notes of each interview.

________3. Write questions for the franchisor.

On a separate sheet of paper, write down any new questions for the franchisor that occur as you speak with the franchisees. When you complete the first round of interviews, call the franchisor to get answers to these questions. Again, take careful notes.

________4. Check your level of interest.

Your first step is complete. Now ask yourself: "Am I still interested? Is my interest growing or declining.?" If you decide to continue your research, then go on to....

Step Two

________1. Revise your questions.

Edit the list of questions for franchises. If you received the same answer from eight to ten people, chances are you have learned all you can, so drop it. Add to the list any new questions that came as a result of your previous interviews.

________2. Interview more franchisees.

Plan to complete eight to ten telephone interviews with franchisees. Again, take careful notes, and also compile a list of more questions for the franchisor.

________3. Have more questions for the franchisor.

Call the franchisor with your new list of questions. Take complete notes.

_____4. Check your interest level again.

Still interested? Then go on to...

Step Three

Up to this point, you have spent some time and some money on telephone calls -- but you have learned a great deal, and from reliable sources. Now you will incur some additional expense.

________1. Arrange to visit franchisees.

Plan to complete three or more visits with franchisees in their places of business. Prepare by making a list of what you want to learn before you go. The franchisees will know you are a serious person by the amount of investigation you have already completed. Thanks to that

research, you are prepared to learn a great deal more. The unspoken questions you are asking yourself are: "Can I see myself doing this business? Will I like it? Is it what I have been looking for?"

Caution -- local franchisees may have mixed feelings about helping you. They may see you as a resource for growing the business or they may see you as a potential competitor for future locations!

________2. Check your interest level.

After completing the visits ask yourself: "Am I still interested?" If so, go on to...

Step Four

________1. Visit the home office of the franchisor.

Arrange to visit the home office of the franchisor. Also have your contact person schedule appointments for you with key players: officers, and managers of training, accounting, operations, customer service and accounting. Treat these as formal interviews by planning what you want to learn. They will be sizing you up, but you should be sizing them up as well! Allow your intuition to answer this question: "Are these the kind of people I want as my (senior) partners.?"

________2. Check your interest level.

After completing the visits ask yourself: "Am I still interested?" If so, go on to...

________3. Obtain qualified professional advisers.

Hire an attorney experienced with franchising. First, ask him what he would charge to review the Offering Circular and Franchise Agreement. Caution: you hire an attorney for his legal, not his business opinion. Also, hire a qualified accountant to review the financial strength of the franchisor, and advise you of the economics of the opportunity.

Conclusion

Now you have a mountain of information and impressions about the franchise. You also have the advice of professionals such as an attorney and an accountant. You are prepared to decide: "Is this for me?" Whether the answer is yes or no, you can be confident that you carried out an intelligent and diligent investigation.

If you follow each of the four steps, you will have the opportunity to intensively analyze any opportunity that you are considering. Always remember that YOU are the one making the investment and the life choice. The best decision is the one that will work best for you. No matter what that decision turns out to be, if you have done your research properly, you will significantly improve your likelihood of making a best decision.

Howard Bassuk is Founder and President of FranNet, the nation's largest group of franchise consultants. FranNet helps people find the right franchise, assists companies in becoming franchisors, and consults with franchisors on upgrading their sales systems.