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Turbocharge Development: Deliver Franchise-candidate Confidence on Financing, Convert More Leads

Franchisors must invest in ensuring that candidates access the right independent data to resolve any open anxieties.

Recently, I was lucky enough to visit with one of the industry’s leading franchise development executives, let’s call her Lisa, who summed up her success in a single sentence: “I’m in the business of addressing fears, uncertainties and doubts − you know, FUDs.”

This article seeks to explain FUDs, how to transform them into a powerful advantage and how to apply that concept to an area of interest for nearly all growing brands: financing.

After meeting Lisa, I did some research on FUDs and learned the concept in marketing goes back 40 years. Most typically it is focused on how firms plant the seeds of FUDs to torpedo a competitor. FUDs in marketing were most common in the computer industry. A simple, but powerful message went forth: “You don’t get fired for buying IBM products [or Microsoft, SAP, etc.).” The biggest players planted seeds of fear in procurement executives and it worked like a charm.

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In franchising, FUDs are those insipid seeds of anxiety that prevent candidates from diving into the franchise pool by signing their franchise agreement and investing their franchise fee. “Will I make money? Do I have what it takes to be successful? Will the location I pick work? Will a banker give me the loan I need to get started?” Too often these concerns aren’t expressed openly, but good development executives are skilled at teasing them out.

After identifying FUDs, the next obvious step is eliminating them. To fight FUDs, use FIRE: Facts that are independent, results-minded and easy to understand. Let’s look at one simple example:

  • FUD: Do I have what it takes to be successful?
  • FIRE: Brand management provides a professionally administered personality test. The results are presented with scientific rigor and, as planned, ease the candidate’s fears.

Fighting fear with facts works magic. Negative emotions − fear, uncertainty and doubt − are not just eliminated, but are transformed into positive emotions which quickly become steadfast convictions. Using fire transforms seeds of anxiety into roots of confidence.

This approach only delivers sustainable development growth when it is systematized. All franchise sales executives, not just Lisa, need a process to accurately identify FUDs in their leads and to deliver the right FIRE at the right time to unleash the lead’s confidence.

The FUD of all FUDs: Financing

Brands have long understood that financing is a critical path item in getting a new franchisee opened for business, as confirmed by an International Franchise Association member survey in which nearly one-half of respondents (49.2 percent) identified financing/access to credit as their No. 1 issue of concern.

These respondents understand a simple truth: If franchisees can’t secure financing, fewer units will open − brand growth and profitability will stagnate. Leading brands have addressed this issue by following the best practices trumpeted at the IFA convention and elsewhere: ensure your franchisees prepare a thorough financing request, have access to a wide array of lenders who can access information on the candidate and the brand, and actively monitor ongoing progress and adjust accordingly.

Yes, these respondents are focused on how financing impacts their franchisee’s opening schedule, but rarely on the just-as-important question of how financing impacts their candidate’s confidence to move forward.

Another truth exists as well: A candidate’s fears, uncertainty and doubts about financing felt before he commits to a brand is as impactful to the brand’s growth as whether a new franchisee can get a loan to open a new unit.

Financing has been the most prevalent, and too often, intractable FUD. It raises the question: “Will I get the financing I need to get open?” And although the historic credit crisis magnified this FUD, anxiety about access to capital has been with us since the dawn of franchising.

The FIRE to Transform the Financing FUD

Lisa, our intrepid franchise development executive, knows that finding a FUD is only part of her job − she needs to systematically eliminate it. The FIRE needed here is derived, in part, by how the brand gains confidence that the candidate is a financial fit. Let’s explore the prevailing approach and its basis.

“I need to see a minimum net worth of $500,000, liquid assets of $200,000 and a FICO score of 720,” a vice president of development recently reported when asked his approach to financing. The opening phrase “I need” signaled the first of two core problems: the financial criteria set for the brand is only to qualify-in or eliminate-out a candidate; it is not to address the candidate’s fears, uncertainties and doubts.

If the brand boldly stated in her marketing materials and FDD that, “Candidates who clear the brand’s net worth, liquid asset and FICO hurdles will be guaranteed financing,” then we have our FIRE ready to roll. But, of course, no brand makes such a claim.

The second core problem is the validity, or basis, of these hurdles. Take the FICO score of 720, for instance. When asked, “Why a 720?” the development officer defensively replies, “Because that’s what banks want, of course.”

My company, BoeFly, maintains a database of specific credit preferences, such as minimum FICO, from more than 3,600 lenders. The data shows plainly that lenders do not agree on what is required, either on the FICO score or on the countless other variables we track (e.g.: management experience, key financial ratios, geography, etc.). If bankers don’t agree, how can a franchisor determine a proper FICO score cut-off that will deliver confidence to the lead?

In addressing these two problems, we have our solution to help our candidate. Problem 1: The brand’s financial assessment is designed to help the brand make a decision (“Is this candidate a financial fit for my brand?”) and not to help the candidate (“Am I fundable?”).

The brand must provide a financial assessment − separate from, but perhaps reflective of, its own process − to help the candidate make a decision. The assessment must be presented in clear language that is easily digestible by the candidate. Above all, it must rely on independently obtained facts, such as credit bureau data, and must directly answer the candidate’s concern.

Problem 2: The brand lacks a clear basis for its own credit hurdles. The financial assessment to address the candidate’s fears must be based upon a universal standard, or actual prequalification offers from one or more lenders; in other words, based in fact.

Mike Rozman, CFE, is co-president and chief strategy officer for BoeFly, LLC.

Mike Rozman, CFE, is co-president and chief strategy officer for BoeFly, LLC.

A strong example of a universal standard is a new and exciting development in the U.S. Small Business Administration program which requires all loans under a certain dollar amount to score above 140 on FICO’s Small Business Scoring Service. Brands that make the SBSS Score available to the candidate, along with educational context, will be responding head-on to the candidate’s plea, “Am I fundable?” with facts that are independent, results-minded and easy-to-understand.

Brands seeking sustainable growth must think like Lisa who addresses FUDs with FIRE. And as in the area of financing covered above, the franchisor must invest in ensuring the candidate accesses the right independent data to resolve any open anxieties.

Mike Rozman, CFE, is co-president and chief strategy officer for BoeFly, LLC. Find him at fransocial.franchise.org via the directory.

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