What determines success in the franchise recruitment space? Suzanne Jarzabkowska CEO DCS Group and James Young,Head of Recruitment, DC Strategy, look at the issue.
While most franchise networks would define success similarly in the long term, the journey to the multi-million dollar liquidity event to an international VC or private equity buyer is marked by a number of phases. Each of these have a number of determining factors and to some degree each franchise system will have a different answer.
Your franchise network’s success depends firstly on the desirability of your products and services to consumers and your ability to sell and differentiate them in the marketplace. The second factor is the desirability of your franchise proposition.
While that is partly connected to consumer uptake, it is as dependent on the appeal, strength and maturity of your franchise system compared to competitors with franchise offers in the same price category. Success can also be defined differently at the various stages of the franchise cycle:
As a new franchisor, the path to success will be evident through the development of your franchise offer. You will need to develop operational systems and procedures and compile an operations manual with training guidelines and a head office training and support system.
You’ll need to extrapolate your financial performance data to create an economic model for the franchisee prototype and develop a network expansion model. Your franchise specialist lawyer will draft the franchise legal documents and you’ll need brand guidelines and marketing collateral.
Finally, you’ll need to profile your ideal franchisee and set up a lead generation and recruitment process to find and screen the right candidates. And then your success begins when you grant your very first franchise. This is a day to be celebrated!
Success to an emerging franchisor is reaching that number of franchisees that sees your business model move into a level of profitability where the royalty, fee and levy streams combined with the supply chain rebates start to deliver a level of sustainability. This will be tied to the forecast returns in your network’s business model and may be measured by a certain number of grants within a specific time period, or reaching a significant operational goal such as central warehousing, a central commissary for a food network or interstate expansion.
Success to a maturing franchisor may be measured in a number of ways, all of which are predicated on a strong head office capability and secure supply chain. It could be outperforming a category competitor in turnover and store units.
Or it may be reaching a profitability milestone that provides access to finance to support manufacturing some of your own products under your brand, thereby increasing your margin on the supply side of your business. It may be international expansion with the grant of one or more master franchises overseas.
Success at this point is steady, sustainable growth which is dependent upon the innovation that keeps you ahead of market trends and your competitors.
A mature franchise network’s success may be evident in approaches made by private equity or other potential purchasers interested in acquiring part or all of your franchise network. For some, this is the ultimate benchmark of success. The sale of Boost Juice to Bain Capital in 2014 in a reported deal of about 80 per cent for $185m in 2015, and the 2017 sale of Laser Clinics Australia to KKR for mid-$600m are unambiguous measures of success in the franchise sector. For many franchisors however – and Boost is a case in point in both the Riverside PE purchase in 2010 and the more recent Bain purchase – retaining a share and remaining active in the business they created, may be an even greater measure of success.
The recruitment journey
So how do you ensure that you are successful at each of the stages in your franchise expansion? Recruiting the right people from that first franchisee is the key in the short and longer term.
1. The value proposition
Ensure you have the most compelling franchise offer in your price bracket. Your $450,000 cafe franchise isn’t only competing with other cafe offers, you’re competing with every $450,000 franchise offer from a gym or a bakery to a homewares boutique or a hairdressing salon. Entrepreneurs buy a franchise because they want to reduce the risk of going into business for themselves. They know four out of five small businesses fail in the first five years, so they look to you for a proven profitable concept with the systems, procedures, training, support, brand, marketing and supply to increase their chance of success. Go back to the beginner paragraph. Use the best specialist franchise advisors to ensure you have all the collateral noted there as this is what the best franchisees will demand.
2. Franchisee profiling – who are you after?
The first question to consider is who are you looking for? What values, attributes, skills and experience will they need? What are they doing now and how can you reach them with a message they will receive and believe? Your franchisee avatar needs to well rounded and you need to articulate your message consistently in all media.
3. Lead generation – what’s the message and where do you place it?
Make sure the message you are sending out to prospective franchisees is a true reflection of what life will be like as part of your team or network. Does the quality of the presentations, collateral and marketing materials do justice to your business?
Ultimately, you want to portray a successful business that appeals to the highest quality candidates and also ensures that their first impression of the opportunity provides a realistic business proposition.
Additionally you need to ensure these ideal people are getting your message.
So whether it’s Facebook and Instagram, or ads in professional and trade journals, or the messaging on your in-store collateral, when you know who you want, you can present your offer cost effectively in the media they see and find credible.
4. The screening and selection process
Who is representing your brand in the first engagement with your future partners? Do they represent your values? Do they understand the legal requirements (Franchising Code of Conduct, Australian Consumer Law, Unfair Contract Terms) and are they experienced enough to ensure that they do not create major issues (such as what constitutes deceptive and misleading representations, observing the required disclosure and cooling off periods) for you at a later stage?
Twenty per cent of all franchise agreements we have seen from outside our law firm are not even executed correctly!
Very importantly, the recruitment process is the grant not the sale of a franchise. It is just the beginning of, on average a seven year association, so it’s imperative to establish the correct power dynamic for that future business relationship. If you are recruiting yourself as an owner, are you the best person?
Many franchisors in the first two stages of growth are justifiably so focused on the operation of the network, that managing leads effectively and diligently following the recruitment process can take a second priority. Consistent, staged communication is key during the recruitment phase.
So it is vital that you have a well designed system in place to manage, engage with, screen and convert the candidates you want from the very first enquiry to the induction and training.
Track and measure
The non-negotiable in recruitment is tracking, monitoring and reviewing your systems. Investing in technology and platforms built to analyse and track lead generation is important for any business involved in recruitment. Gaining these statistics will provide you with data relevant to your recruitment journey. Moreover, these metrics will determine your return on investment underperformance, provide industry comparisons or identify areas of improvement.
Record and retain
A leading CRM (Customer Relationship Management) system is imperative. Examples include; Hubspot, Zoho, Salesforce or Franchise Cloud Solutions. The CRM system used will be based on your preference and requirements. You need to be able track and report instantly on lead sources, the journey of the candidate and your conversion rates. Keeping detailed notes is vital and ideally you should store all documents and correspondence in a secure way, such as cloud-based technology solutions so that is also easily recoverable.
There is a considerable investment in determining which system to purchase and the time, training and cost of managing the lead generation and recruitment process.
This is another reason many successful franchisors, particularly in the first two growth stages use an outsourced specialist franchise lead generation and recruitment provider.
Success here is based on ensuring the recruiters invest the time to learn your business, familiarise themselves with all the documentation and collateral and understand your values and your brand and business ambitions.
3 steps to recruitment success
Lead generation: how much is it costing you to have someone enquire about your franchise? How many leads are you receiving? What is the standard of your response and the time it takes you to engage with candidates? Is your communication resonating with the types of franchisees that you want to bring on board? The cost per lead from each source and the lead generation avenue must be apparent.
An overall understanding of which lead sources are providing you with the leads needed to succeed in granting franchises to quality applicants is also essential.
Recruitment : what is your conversion rate? How many leads are generated per franchise grant? Where are the sources of the leads that lead to the most franchise grants? What is the quality of the franchisee’s performance one year after they entered the system? Success in recruitment is not just the ‘sale’ – It’s the franchisee’s quality of performance.
Happy franchisees are profitable and motivated to succeed. Both parties need to be able to meet their respective obligations and the expectations set up during the recruitment process.
Operations: is your operations team enjoying working with the new franchisees brought into the organisation? Are your franchisees getting a realistic picture of the first six months of life as a franchisee?
Success here is a seamless transition from potential franchisee to a high performing franchisee and then to a satisfied departing franchisee many mutually profitable years later.
Your recruitment reward
If you are achieving a number of sales but have poor performance, unhappy franchisees or frequent disputes in the system, then this is not success. Remember that quality will eventually lead to quantity.
Every one of your franchisees is your real recruitment team. With the names and contact details of every existing and former franchisee available under the franchise disclosure document for incoming candidates to interview, your future success is utterly dependent on getting this right virtually every time!
Success is a recruitment process that delivers quality leads at the right price; that produces the right number of grants to ideal candidates; and ensures that the expectations and promises during the process made by both the recruiter and the franchisee are maintained.
Success in recruitment is a whole organisation commitment, not just how many franchises you as an organisation is selling. The measure of success is long term sustainability, continued innovation and improvement of your franchise system and ultimately being one of the elite 15 to 20 per cent of franchise networks that attract premium investors.