In franchising, validation means calling existing and former owners to test what the franchisor has said. It is the step the FTC singles out: talking to franchisees "may be the most reliable way to verify the franchisor's claims" (FTC).
Where the names come from
Item 20 of the disclosure document lists current owners with the address and phone number of each outlet, and every owner who left in the last fiscal year, whether terminated, not renewed or otherwise out of the system, with name, city, state and phone number (16 CFR 436.5). The buyer does not need the franchisor's permission to call anyone on either list.
From the buyer's seat
The buyer's job is to make the calls representative. A franchisor may suggest owners to call, and those calls are useful, but they are not a sample. The former-owner list is the part most buyers skip and the part most worth reading.
From the owner's seat
An owner on the other end of the call is busy and was not paid to talk. Some will be generous; some will be guarded. Item 20 must also say whether owners signed confidentiality clauses in the last three years, because some current and former owners "sign provisions restricting their ability to speak openly." A guarded answer may be about a contract, not the business.
From the franchisor's seat
A franchisor knows validation is coming and that it cannot control it. The franchisors that do best on these calls are the ones whose owners would say the same thing whether or not anyone asked.
Making the calls count
Ask every owner the same few questions so answers can be compared: how long it took to reach steady operations, what cost more than expected, which support proved real, and whether they would buy again. Call owners in markets like yours and owners in different ones. Call people who left and ask why.
A short list of questions that travel well
- How long did it take before the business covered its own costs, and was that what you expected?
- What did the franchisor do, specifically, the first time you had a serious problem?
- Which part of the training did you actually use, and what did you have to learn on your own?
- What did you spend that you did not see coming?
- Knowing what you know now, would you buy again, and would you buy in the same place?
Questions like these are specific enough to compare and open enough that an owner can say what matters to them.
Reading the former-owner list
People leave franchise systems for many reasons: retirement, a sale at a good price, health, family, or a business that did not work. The list in Item 20 does not say which. A call does. A system where most departures were sales and retirements reads very differently from one where most were closures, even if the numbers on the outlet tables look similar.
The question to ask
If the stories from owners who stayed and owners who left still fit together, the system probably holds up from every seat in franchising. If they do not, the gap between them is the most important finding of the whole process.