What is the difference between selling and granting franchises?

No topic draws more interest in the franchise sector than the evergreen issue of recruitment. Finding the right franchisees is one of the most challenging and costly aspects of franchising.

It is a topic that can engage franchisors of all different shapes and sizes, irrespective of business or industry, and provide a source of lively debate and exchange of ideas.

Fundamental to the topic is the cultural approach to recruitment on the question: Are franchises sold or granted?

The difference between selling and granting depends on who is asked the question, and in what context. There are great similarities in the mechanics of the two approaches. Both involve prospecting, a refinement of prospects, a constant exchange of information, and ultimately, a contract and an exchange of money.

While on the surface the two approaches appear similar, they sit at opposite ends on the same continuum. On one end, franchises are sold, and at the other, franchises granted.

But because the sale or grant of franchises are both on the same scale, many participants inside the franchise sector, and even more observers outside the sector, incorrectly use the two terms interchangeably.

Key to this issue is an understanding of the definition of a franchise as a conditional grant. A grant is not a permanent right. It is subject to certain conditions, and if those conditions are not met, then the grant can be revoked. Ownership is secondary to the performance of the conditions on which the grant is based.

On the other hand, ownership is considered to be transferred when something is sold. The ongoing performance conditions of a franchise are diminished when a franchise is sold because the buyer assumes ownership is a right, and neither buyer nor seller may appreciate the truly conditional nature of the ‘sale’.

These key differences between selling and granting franchises are rarely enunciated and are usually determined by actions, rather than written policies. In daily language both franchisors and franchisees will readily use “buy, sell, sold and bought” to describe the acquisition or disposal of a franchise grant, mainly because the grant is exchanged for cash like other things that can be bought and sold.

Therefore, it is what franchisors do and how they act culturally that determines whether they are selling or granting franchises.

Because both the sale and grant of franchises exist at opposite ends of the same spectrum, the distinction can often be blurred. The following are a few pointers which may help both franchisors and franchisees identify characteristics which can reveal whether a franchise is sold or granted:

A seller will cast the net as broadly as possible

Franchisee selection is a combination of art and science. It begins with identifying what a perfect franchisee might look like, and then attempts to find those candidates which have the desired attributes. This of course is simple in theory and something altogether different in practice.

Franchisors that grant franchises will have a more highly evolved profile of their ‘perfect’ franchisee, based on a deep understanding of the business, its drivers, its performance across seasons and markets, and the nature of the people it attracts than franchisors who sell franchises.

In granting a franchise, a franchisor will rigorously apply a wide range of selection criteria to narrow down the best possible candidates, rather than casting the net as widely as possible and encouraging all comers.

The process of granting a franchise will involve an elimination process where unsuitable candidates are encouraged to withdraw, rather than encouraged to continue.

Any buyer will do if the deal is right

A franchise seller will be focussed on the deal and little else. Issues of price, finance, inclusions and settlement are minor objections to be overcome in the relentless pursuit of the deal. Consequently, any buyer who can meet the price and satisfy the standard conditions for finance, inclusions and settlement timeframe may well be acceptable to a franchise seller.

A franchise granter, on the other hand, understands that these considerations, however important, are less significant than the attributes and qualities that will make the candidate a long-term success for the brand and the network as a whole. The grant of a franchise is by its very nature a discriminatory process – not everyone can qualify and even those who do may still not be accepted because their expectations are unrealistic, their motivation is unsound, or for a plethora of other reasons.

A seller is interested only in the deal

A franchise seller maintains a unilateral focus on three things at all times: the deal, the whole deal and nothing but the deal. The seller lives in the present moment alone, the here and now, and gives little thought to tomorrow other than its potential to bring in another deal.

By contrast, a granter of franchises looks to tomorrow and chooses franchisees carefully on their capacity to be good franchisees tomorrow, and great business partners the day after. The deal diminishes in importance compared to its potential long-term impact on the brand, the network and the integrity of the business.

A seller loses interest once the deal is done

A seller looks to the present and the granter looks to the future. Time is measured in minutes, hours or days to a seller, but in weeks, months or years to a granter. The seller is impatient. The granter understands the pace of business and will refuse to rush, or be rushed into making a poor decision.

More importantly, the granter understands the lifetime value of the relationship with the franchisee, and maintains a high level of interest in the wellbeing and performance of the franchisee long after the grant has been made.

A seller lives from deal to deal

The seller will focus only on the deal of today, or multiple deals at once, whereas the granter focuses on the lifetime value of the relationship, and will understand that good candidates might be worth waiting for, and that not all good candidates are good right now. The impatience of the seller will accelerate their initial growth, but be a poor filter that allows many unsuitable candidates to slow the system later. The granter will be in less of a rush to grow, opting for quality over quantity, and seeking only the finest candidates.

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Beyond these characteristics, and at their worst, sellers may further engage in the kinds of sales tactics often used in commission-only environments such as used cars and real estate. Understanding the difference between the sale or grant of franchises may seem like a small distinction to someone new to franchising, but its importance is not to be underestimated. The choice of cultural perspective and behaviour by franchisors on this issue can make a world of difference to the long-term prosperity of both franchisors and franchisees.

Jason Gehrke is a director of the Franchise Advisory Centre and has been involved in franchising for 18 years at franchisee, franchisor and advisor level. He provides consulting services to both franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News & Events, Australia’s only fortnightly electronic news bulletin on franchising issues. In his spare time, Jason is a passionate collector of military antiques.

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