Selecting a new franchisee can be a big risk for a franchise. Will this person perform well? Will they grow the business? Will their customers form a favourable opinion of the brand?
But it’s also a big risk for a new franchisee, not only in terms of money, but also in terms of their time, labour and emotional commitment.
For everyone concerned, it’s important to get it right.
How can franchisors – and prospective franchisees – make sure they make the right decision?
CVs and interviews reveal only so much. They don’t reveal, for example, whether this person is a strategic thinker or someone who is happier following proven processes. They also don’t reveal very well whether this person is a team player or a sole operator, or what their learning style is.
Psychometric testing and analysis can reveal that information, helping prospective franchisees and franchisors make more informed, and successful, decisions about whether this is a comfortable fit that will result in an effective franchisee who grows the business.
Some people get scared when they hear the term ‘psychometric testing’. But really, all it’s doing is measuring how people relate to others, what they will pay attention to, what they might pay less attention to, what will motivate them – and applying that to the demands of the job. It’s about ensuring the right fit between person, role and work culture.
How does it work?
Effective psychometric testing, or assessment, will provide a detailed picture of an individual’s strengths, weaknesses, motivations, working style and preferred work environment.
By considering the interaction between many different facets of an individual’s personality, their abilities, personal style and ideal working environment, it will then predict how they are likely to perform in a given work setting.
When you add to the test in-depth analysis by a registered psychologist, that translates into how likely they are to succeed in that franchise.
Here’s an analogy: if abilities are like the size of a person’s car engine, then personal style is the way they like to drive, and ideal working environment describes the conditions they prefer to drive in. Only when you consider them all, can you predict how that person is likely to behave on the road.
How do you know what makes a good franchisee?
When franchisers regularly use a reputable and effective psychometric test on their franchisees, and prospective franchisees, they can quickly build up a profile of key success factors and high fail factors for their particular business.
Selector Ltd did this during a research project. The project set out to assess franchisees in several different systems, finding out what factors star performers shared, and what common factors were tripping others up. The results were instructive.
Across all the systems, successful franchisees tend to be strategic in their abilities but have low openness to new ideas. In other words, they see the big picture and understand what the franchisor is trying to achieve, but they don’t try to rework your standard operational procedures or constantly suggest new ways of doing things.
However, there are also differences. In a retail franchise system, strong logical reasoning and overall intelligence show as a success factor. This means the franchise can hold very conceptual planning and strategy meetings, confident its high-performers will absorb and act on the information.
In food retailing and health franchise systems, high overall intelligence and logical reasoning are not factors for success. In these systems hands-on, operational learners perform best. The implications for training are obvious: any training should be practical, hands-on and working with the product.
With information like this, franchisors can benchmark prospective franchisees and see how they measure up.
Take, for example, openness to new ideas. One “problem child” franchisee in one system has high openness to new ideas (always wanting to try new things), while more successful franchisees are less open to new ideas. By comparing prospective franchisees against existing scores, franchisors can see very quickly whether this person scores closer to successful franchisees, or whether they are more likely to have problems similar to the struggling franchisee.
For the retail franchise, the assessment reveals a struggling franchisee is low on strategic reasoning. Now it becomes clear – whenever there are any major changes in strategy or process, when a new initiative is launched, this franchisee will need one-on-one explanation, to successfully help them through the change process.
How can psychometric testing help franchisors?
By identifying what leads to success in each system, and what strongly predicts difficulty, effective psychometric testing can help franchisors decrease franchisee churn by consistently selecting prospects who will thrive and grow in the business.
But sometimes it’s not as clear-cut as “this person definitely fits” or “this person definitely does not”. Sometimes, psychometric testing will reveal a person has many strengths but a few weaknesses that might cause issues.
For example, your prospect may have the right amount of strategic ability, the right preference for teamwork, enough but not too much openness to new ideas, but poor attention to detail and low orderliness.
Now you know where their weak points are. As a result, your relationship manager can start calling in right from the beginning to see how the systems are going, and whether the franchisee is up to date with their paperwork. You can implement personalised management and training for this person, to ensure the business benefits from their strengths, but doesn’t get tripped up by their weaknesses.
How does psychometric testing help franchisees?
It’s not all about the franchisor – psychometric testing can really make a difference to existing and prospective franchisees as well.
I’ve already explained how, once a franchisor knows a franchisee’s weaknesses, management and training can be individually tailored to overcome them. But even before that, if a prospective franchisee is benchmarked against the system’s success and fail factors, they can be confident they are investing in a business they have every likelihood of succeeding in.
It may even make it easier for them to access the bank funding they need to buy their franchise.
Before lending, a bank has to decide whether the new business can service the loan from expected cash flow, and in these difficult economic times, those cash flows may not be so assured.
If the new business is a franchise, the bank also wants to know the franchisee will have a strong chance of succeeding.
How franchisors demonstrate whether prospects fit the business is crucial. Banks want to know new franchisees have been measured against defined and robust selection criteria. Not just any selection criteria, but criteria that benchmark them against other successful franchisees in the same system. (In franchising, unlike investment, past results can be an excellent indicator of future performance!)
To the bank, knowing that the franchisee has met brand-specific selection criteria is just as important as the business’s financial projections. Banks will take notice of that evidence in making their decision to lend.
Removing the guesswork
Selecting franchisees is a complex process. Too often, decisions are made based on gut feel, or selection criteria that have never been tested.
But in choosing franchisees based on what they feel comfortable with, franchisors may be hiring the wrong people – and missing out on people who would really help their business grow. Psychometric testing removes the confusion and tests for what really matters – what will really make a difference to business success.
It removes the guesswork so that franchisor and franchisee alike know this is a decision that will work for both of them and lead to an effective, prosperous and rewarding business.