If a Franchise Deal Sounds to Good to Be True...A Great Franchisor Lesson

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I remember the time I got a call from a hot prospect in a market we were targeting.

We'll call him Charlie since that happens to be his first name.

Charlie really sounded like he knew what he was doing.

But, I'd only been selling franchises for about 14 months. I was greener than green.

As a potential franchise buyer Charlie asked great questions like:

How much does it cost to develop this franchise?

What are the real estate and site requirements?

How long did it take to build the franchise?

I answered all his questions respectfully and carefully.

And then I took the opportunity to ask him some qualifying questions.

I wanted to know if he met or exceeded out financial requirements.

Charlie surprisingly answered that his net worth was about $5 million with 80% in real estate and he had cash or cash equivalents of about $1 million.

Now Charlie already had me excited with his questions at the outset! And now he had told me his financial profile which exceeded our requirements.

Charlie was my kind of guy and we were having such a great call.

It was now time to get Charlie approved. Send him a NextDay UPS franchise information packet with an application and instructions on how to fill it out (back in early 1990s that's how you did it).

Charlie said that would be terrific!

At this point Charlie and I were like family. 

And then Charlie said to me -

"You know Joe I've got this piece of land that I think will make a great QSR restaurant site and I'd like to build one of yours on it. Do you think you could have one of your real estate guys come take a look at it before we go any further? I'd really appreciate that, Joe. You'd be doing me a big favor and we'd both be moving this process along faster."

Now I had a dilemma we didn't pre-approve sites before a franchise candidate had been approved to be a franchisee.

But Charlie was perfect and so easy to talk to. I told Charlie I'd have to check and get back with him the next day.

Then I looked at the Director of Real Estate's schedule and saw that he could be in that market next week if he stayed out in the field another day. My real estate guy said he'd do it if I thought that Charlie was that good of a candidate.

I called Charlie back the next day with the good news. And he thought it was fantastic that we would break with our franchise sales process for him.

Well the week goes by and the Director of Real Estate is back in the office with good news that from a preliminary look at the market, demographics and competition the site was acceptable.

I was delighted!

So, I phoned Charlie back with the good news about his location --and now it was time to get his application in to us and get him approved. Charlie said would get right on it and that I'd have it faxed in within 3- 5 days.

After to waiting the 5 days and one more day for good measure I called up Charlie to check on the status of his application. No answer so I left a voice message. I thought for sure that I'd get a returned call straightaway from Charlie.

But I didn't.

I dutifully called Charlie for the next 4 weeks until one evening late in the office I gave Charlie a call and he picked up. Charlie apologized for not getting back to me sooner but assured me that he'd like to see one of our restaurants on his piece of land.

I said okay when do you think you could get you franchise application in?

And then Charlie said -

"About the application, I've been talking to my real estate guy here in town and he says that some of your big competitors have been sniffing around at sites around town including mine. I was thinking Joe that I might be better off as a landlord on this location and I'm wondering if you've got any franchisees who like to be in our town or maybe you'd want to put one of your company units in here".

I asked Charlie just to be clear you no longer want to be a franchisee? His answer as you would expect at this point in the  in the story was a resounding No.

I'd been duped. As you might suspect Charlie was never interested in being our franchisee. He was selling a real estate deal. And I was providing the validation and possibly the tenant.

We never did a deal with Charlie.

And my very experienced Director of Real Estate would in a nice way ask me from time to time how I was doing with my Uncle Charlie.

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8 Comments

Joe, you never forgot this incident.

But, I would wager that it is only recently that you have understood the bigger strategic story.

From a strategic story point of view, you made an error.

You allowed Charlie to give you an unenviable choice.

1. You could have insisted on getting the application filled out and risk losing your "whale" of a sale.

2. You could have "broken" the sales process and jumped right to site selection.

If Charlie was real, then 2) is the right option.

If Charlie is an "Uncle Charlie" then 1) is the right choice.

How do you know? How do know what you would do next time?

The mistake I made at the outset was ceding control to Charlie.

If Charlie didn't have control he would have felt less comfortable & confident asking me to jump through his hoops.

And there was no trade. There needed to be one.

Charlie got his site looked at and we got nothing in return.

I developed a process for future Charlies so I didn't get any new Uncles.

I would put it slightly differently.

1. You didn't spot him early on as someone looking for a free site validation.

2. Had you, you would have demanded a credible commitment to becoming a franchise operator. You might have straight out braced him with the question: "Why do you want to be an operator, rather than a landlord -with your background?"

You hit the nail on the head.

We asked a version of "Why do you want to be an operator, rather than a landlord -with your background?".

In fact we put that on our qualifying script for incoming franchise inquiries.

Here is the Unenviable Choice Game, which I developed some years ago. (Two player version)

Materials: There are two players P1 and P2. Each has two cards - a blue card and a red card.

Rules of Play:

1. P1 moves first and can play a red card or a blue card.
2. If P1 plays a blue card, then the game is over & each player wins a point.

3. But, if P1 plays a red card, then P2 plays. P2 can play either a blue or red card.

If P2 plays a red card, the both players lose a point.

But, if P2 plays a blue card, then P2 receives nothing while P1 gains 2 points.

Obviously, once P1 plays a red card, then P2 has an unenviable choice.

Ten rounds of play with 2 minutes of talk per round.

Object of the Game:

P1 and P2: To gain as many points as possible.

P2: To deter P1 from playing the red "aggressive" card as many times as possible. To avoid the unenviable choice.

P1: To compel P2 to submit and play a blue card as many times as possible. To compel P2 to submit.

Playing the Unenviable Choice game makes you good at spotting credible commitments.

When you replayed the conversation in your mind, did you have an "AHA" moment? When you should have realized that your "Uncle Charlie" was playing you?

Yes.

I should have known more than a couple of times that Uncle Charlie was not as he was presenting himself.

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This page contains a single entry by Joe Caruso published on November 4, 2014 3:11 PM.

6 Tips on How You can Get Four Star Service from Your Staff was the previous entry in this blog.

What Never to Say to Your Franchise Operator is the next entry in this blog.

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