Franchisors can no longer use franchisee questionnaires during the franchise sales process, according to a new Statement of Policy effective January 1, 2023, issued by the North American Securities Administrators Association (“NASAA”), whose guidelines are followed in the 13 franchise registration states.
Aug. 24, 2022
Who Should Be Involved in Discovery Day?
By Morgan Wood, 1851 Franchise Contributor
Featuring David T. Azrin, Partner
According to Franchise Times, a franchise discovery is the industry’s version of a show-and-tell. Prospective franchisees are brought to the brand’s corporate office for a day of interactions and education as the franchisor works to prove that it is the best option for attendees to invest in. In some cases, discovery days are conducted after a franchisee has signed with the express purpose of teaching them about the system.
“Some franchisors conduct discovery day to prospective franchisees who have not yet signed the franchise agreement, as a way of introducing them to the brand and ‘selling’ the prospect on joining the system,” explained David T. Azrin, a franchise attorney and partner in the New York City office of Gallet Dreyer & Berkey. “Other franchisors only conduct discovery day after the franchisee has signed the franchise agreement, with the goal of it being more of an educational and informative program, rather than being a sales tool.”
While discovery days have traditionally been conducted in person, the COVID-19 pandemic led to a shift in mode. Some continue to take place at a franchisor’s main office, and others are remote, conducted through video conferencing and pre-recorded clips.
During a discovery day, it is critical that the prospective franchisees are present, and many franchisors recommend that the spouse or family members join as well since business is often a decision that will impact the franchisee beyond just themselves. Azrin added that, though they should not attend every discovery day, the franchisor’s attorney should be involved in at least one discovery day.
“It is recommended that a franchise attorney should attend at least one discovery day, just to get to know the brand better and to be able to counsel the franchisor on the type of information the franchisor can provide,” he explained. “It is not necessary for a franchise attorney to be present at every discovery day, and normally franchisors do not have their attorney present at every discovery day because it is a business meeting and not a legal negotiation.”
The same logic applies to a franchisee’s attorney. Accompaniment would be expensive in terms of legal fees, and the franchisee does not necessarily have to make any legal decisions on a discovery day.
On the franchisor’s side, key leadership team members should be involved, and established franchisees will occasionally join the table to discuss their experience with the brand.
“Every department that's providing any level of support needs to be represented,” explained Iric Wexler, Former Chief Development Officer of Authority Brands and Premium Service Brands. “And in my opinion, I wouldn't have a discovery day, with a rare exception, if the highest level — the CEO — of the company wasn't available. It’s a huge, huge, profound investment in every way. Certainly in money, but in every way, to a potential franchisee.”
The size of the investment and its impact on other areas of a prospective franchisee’s life should not be downplayed. Having everyone present at discovery day not only shows a commitment to the franchisee and a willingness to provide support early on, but it creates space for a true atmosphere of discovery.
“At discovery day, franchisees get to sit with all of those heads of the departments and leadership, and it’s really a great open and honest conversation from the President on down, discussing the business,” explained Tim Courtney, vice president of Franchise Development at PuroClean. “The Ops team can come in and discuss a day in the life of a franchise owner and what to expect.”
In some cases, an operations executive may be one of the key players in the lead-up to discovery day as well as the day itself.
“Josh Hettiger, our COO, is the one who typically takes the conversation from the first point of contact through the discovery process,” explained Jason Markowicz, CEO of Fit For You Franchising*.
This model not only includes key leadership team members in the discovery day process, but it also allows the franchisee to come to the table with the knowledge that there will be someone from the franchise that they have already established a relationship with.
Azrin emphasized that the franchisor should try to give a full picture of what franchising with the brand actually looks like, including transparency about the expectations that will be set for the prospective franchisee.
“From the legal point of view, for a franchisor, the franchisor needs to be very careful that it is not giving any inaccurate or misleading information about the system, the support the franchisor will be providing, and the challenges that franchisees will face,” he added. “The franchisor should give special attention to discussing areas where prior franchisees have struggled, whether it be inventory control, site selection, employee issues, or marketing.”
Having a variety of perspectives at discovery day allows the franchisor to present the most thorough, truthful image of the brand while incorporating the input of individuals from various levels of the system, giving the prospective or freshly signed franchisee all of the information they need to succeed.
According to Franchise Times, a franchise discovery is the industry’s version of a show-and-tell. Prospective franchisees are brought to the brand’s corporate office for a day of interactions and education as the franchisor works to prove that it is the best option for attendees to invest in.
The Federal Trade Commission (FTC) has recently signaled a new drive to bring federal enforcement action against franchisers who violate the franchise disclosure rules by engaging in misleading sales practices.