Multi-Unit Franchisee - Issue III, 2019 by Franchise Update Media

GREG FLYNN operates 1,245 units

Q3 | 2019

SCALING FOR GROWTH

5 top operators tell how they do it pg. 52

Hell of a Ride! HIRING FOR SUCCESS

Finding and keeping top employees pg. 58

MULTI-BRAND 50

Ranking the U.S.â&#x20AC;&#x2122;s most multi-friendly brands pg. 46

FRANCHISE WITH OUR WORLD-CLASS BRANDS • Fresh and innovative store concepts

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FRANCHISE OPPORTUNITIES IN

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Franchise opportunities available in other select markets throughout the United States

CONTENTS Multi-Unit Franchisee | Q3, 2019

MU PROFILES

JODI LYNN GAGNE Former teacher shines as a multi-brand operator

MU PROFILES

BROOKE WILSON – RECONNECT Still growing strong with Two Men and a Truck

COVER STORY

HELL OF A RIDE!

DEPARTMENTS

CHAIRMAN'S NOTE 46

DEPARTMENTS

ONLINE

MU PROFILES

JOE WALKER

MU PROFILES

AMY LEGG & KELLIE WATTS “Retiring” from the C-suite into franchising

Multi-Unit Franchisee

ISSUE 3, 2019

RANKINGS

MULTI-UNIT 50 RANKINGS FEATURES

BUILT TO SCALE How 5 top operators do it

2019 MVP Veteran Entrepreneurship Award recipient

MATT FULTZ – UNDER 30

Multi-friendly brands by total and percentage

What's online @ mufranchisee.com

MU PROFILES

This young couple is well on the road to success

No better time to attend the MUFC!

KYLE SLEETH – PRO ATHLETE Ex-MLB pitcher transitions to franchising

Greg Flynn, with 1,245 restaurants, is gunning for more

MU PROFILES

FEATURES

HIRE, TRAIN, RETAIN, REPEAT Tips for finding and keeping employees

CHAIRMAN

Gary Gardner

CEO

Therese Thilgen

EXECUTIVE VP OPERATIONS

CUSTOMER SERVICE

ACE EVERY INTERVIEW 3 ways to make your hiring process foolproof

PEOPLE

HIRING, ANYONE?

EXECUTIVE EDITOR

Kerry Pipes

MANAGING EDITOR

Eddy Goldberg

CREATIVE DIRECTOR

Cindy Cruz

KEEP YOUR CUSTOMERS SATISFIED

Don Rush

WEB DEVELOPER WEB PRODUCTION ASSISTANTS

Esther Foley

Christa Pulling

SENIOR MANAGER, EVENTS & PRODUCTION

Katy Coutts

BUCKLE UP!

Sharon Wilkinson

FINANCE

FINANCIAL TRAINING

FRANCHISE FINANCE

WHAT’S YOUR BRAND’S FUND SCORE? CAPITAL IDEAS

CAPITAL ALTERNATIVES A primer on understanding your options

Juliana Foley

DIRECTOR OF EVENT OPERATIONS

INVESTMENT INSIGHTS

How that affects your lending terms

Jeff Katis

DIRECTOR OF TECHNOLOGY

Let your staff in on the numbers and prosper!

BUSINESS DEVELOPMENT EXECUTIVES

Benjamin Foley

What’s not to like about a little volatility?

VP BUSINESS DEVELOPMENT

Barbara Yelmene

MARKETING TECHNOLOGY

Pairing technology with a human touch

SVP, CHIEF CONTENT OFFICER

Diane Phibbs

Krystal Acre Judy Reichman

5 ways to win the war for hourly talent

Sue Logan

SENIOR SUPPORT MANAGER PROJECT MANAGER, CLIENT ENGAGEMENT

Joanne Peralta

SENIOR SUPPORT COORDINATOR FRANCHISEE LIAISON

Leticia Pascal

VIDEO PRODUCTION MANAGER

Greg DelBene

SPEAKER LIAISON

Chelsea Weitzman

CONTRIBUTING EDITORS Rod Bristol Carty Davis Kurt Krake John DiJulius Carol Schleif Mathieu Stevenson Darrell Johnson Edith Wiseman CONTRIBUTING WRITERS

Helen Bond

Sara Wykes

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Chairman’s Note

2020 MUFC: No Better Time! I am honored to have been named chairperson for the 2020 Multi-Unit Franchising Conference next spring. I have attended this conference since 2005 and have had the pleasure to meet some of the nicest and most talented folks in franchising. In fact, while growing our family business, I either started or finished several deals while attending the conference, always in one of my favorite cities, Las Vegas. In the early stages, conference founders Therese Thilgen and Gary Gardner had a vision to provide an environment where franchisees would have a forum to share ideas, learn from one another, and seek opportunities to become multi-unit operators. The vision has become a reality and the conference has become one of the main annually attended meetings for many of us in franchising. Like many, I began my franchising career working as a cook, at Jack in the Box in 1977, to earn income while attending college. Life took its course and education took a back seat to my career in the restaurant business, which I became passionate about. My leap into franchising began in the early 1990s as a married man with three boys I was responsible for. I knew I must find ways to grow, even without a formal education. I started by purchasing a small interest in the company I worked for in Sacramento. Soon after, the late Bill Brusslan, an Arby’s franchisee and president of the company I worked for, took on the duty of mentoring me toward my ultimate goal of becoming an entrepreneur and franchisee. He, along with a local dentist, Greg Maroni, also a franchisee, allowed me to buy in to an investment while establishing a new management company to provide services to restaurants they owned or controlled. I purchased two Long John Silver’s and two Arby’s from my employers and slowly worked on growing unit counts. Franchising was designed for folks like me who are willing to learn from others, work to duplicate success, and use their talents to focus on the attributes that matter most for any business. For me it was about taking care of the customers and employees while ensuring we remained profitable. Developing a strong relationship with the brand’s teams was also a key focus. By focusing on the easy, controllable tasks, I trusted the brand executives to do the heavy lifting of strategy, innovation, supply chain, and menu design among other things to keep the brand evolving—areas I had little to no experience in at the time.

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I learned about growth opportunities at the Multi-Unit Franchising Conferences. This eventually led to the growth of our family enterprise, which was well on its way of growth with more brands. With seven brands, including casual dining, fast casual, retail, and non-competing QSRs, we grew from a handful of locations in our hometown to more than 213 businesses in 11 states. Revenue exceeded $300 million and we had more than 5,000 employees. In 2016, I sold some of the businesses to my children and nephew, allowing them to start their own journeys and pursue their own dreams. I also sold off the retail and casual dining brands in preparation for the second stage of my life as I mentor others and pay it forward. Today I own and operate a consulting and administrative company providing mentorship and services to various companies, some owned by my children. Our story in franchising is not unique. Many of my friends who also attend this conference have had similar successes in growing their businesses and seeing their dreams come to fruition. While brand diversification was my personal vehicle for growth, for others it is to focus on one brand or geographical area. Success in franchising is simply having a well-defined plan and working vigorously toward achieving it every day. Attending this conference and learning from those who have done it can be the key to fi nding success and refi ning your plan. The breakout sessions are fi lled with franchisees and franchisors of various brands, some legacy and others at the very early stages of building their own stories. Franchisees openly share their stories and the lessons learned along the way, always providing advice and wisdom, which are hard to find in a single setting. The Multi-Unit Franchising Conference is the place for me, and now for my children. We are fortunate to live in a time with an expanding economy, historically low interest rates, and a world that has come to appreciate franchising as the mainstream for entrepreneurship and independence. There is no better time to grow and no better time to attend than at this year’s conference, April 13–16, 2020 at Caesars Palace in Las Vegas. I urge you to plan on attending and seeking the opportunities that await you. It will be an honor to meet you and have an opportunity to learn your story in franchising. Tony Lutfi

Join the

Evolution Differentiated culinary positioning.

High appeal to millennials and Gen-Z.

Fast-growing “off-premise” sales including: catering, online ordering & delivery.

Average net sales for top quartile:

$1, 576, 523 *

*This figure represents the financial performance of 124 franchised restaurants in operation continuously during fiscal year 2016, fiscal year 2017, and fiscal year 2018 (i.e., the period from December 27, 2015 to December 30, 2018) (the “Period”) based on the weekly sales reports submitted to us by franchisees during the fiscal year 2018, as published in Item 19 of our Franchise Disclosure Document (“FDD”). While there were 714 franchised restaurants in operation at the end of fiscal year 2018, there were 495 franchise restaurants located in traditional retail venues that were in operation throughout the Period. Of the 495 franchised restaurants, 124 restaurants were in the top quartile and had average net sales of $1,576,523 with 49 restaurants (or 39.5%) attaining or exceeding the average. The average net sales for all 495 restaurants was $1,104,055 with 213 restaurants (or 43%) attaining or exceeding the average. You should review our FDD for details about these figures. Some outlets have sold this amount. Your individual results may differ. There is no assurance you will sell as much. This information is not intended as an offer to sell a franchise. We will not offer you a franchise until we have complied with disclosure and registration requirements in your jurisdiction. Contact Moe’s Franchisor SPV LLC, located at 5620 Glenridge Drive, NE, Atlanta, GA 30342, to request a copy of our FDD. RESIDENTS OF NEW YORK: This advertisement is not an offering. An offering can only be made by a prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the New York Department of Law. RESIDENTS OF MINNESOTA: MN Franchise Registration Numbers: Moe’s Franchisor SPV LLC: F-8188. © 2019 Moe’s Franchisor SPV LLC. All Rights Reserved.

ONLINE Franchise Leadership & Development Conference

European Master & Multi-Unit Franchising Conference

October 15–17, 2019, Atlanta

January 28–29, 2020, Vienna, Austria

2020

An exclusive event for franchisor CEOs, presidents, COOs, CDOs, and franchise development executives. The advisory board of experienced franchise leaders directs the programs and content, focused on recruitment, sales, and development, as well as professional leadership—and the annual STAR Awards honoring the best franchise development teams.

For those interested in franchise expansion in Europe, this is a golden opportunity to meet like-minded franchising pros from across the pond. Join industry leaders, franchisors, franchisees, and master developers as they address common issues and solutions relating to European expansion.

Multi-Unit Franchising Conference

Franchise Marketing Leadership Conference

April 13–16, 2020, Las Vegas

June 16–18, 2020, Atlanta

The annual Multi-Unit Franchising Conference is the premier event for multi-unit franchisees in the food, hospitality, retail and service sectors—along with developers, chain store operators and private investment groups looking to build and expand multi-unit operations. This is the ultimate dealmaking event for franchisors, multi-unit franchisees, and service providers.

The only industry event focused solely on the topics most important to #FMLCon franchise marketers, brings franchisor CEOs, presidents, CMOs, and top

June 18-20, 2019 marketing executives together for 2½ days of speakers and presentations Atlanta, GA problem-solving workshops and roundtables. with peer-to-peer

Rankings

Franchise Opportunities

This issue contains our annual Multi-Unit 50 list, ranking the most “multi-friendly” brands, those with the highest percentage and highest number of multi-unit franchisees. To see our Mega 99 rankings of the largest multi-unit organizations and their most popular brands, go to www. franchising.com/topics/rankings/mega_99/

Looking for your next franchise opportunity? Have we got the tools for you! Find articles on companies, concepts, industries, trends, and profiles—and search our features. Find franchisors looking for multi-unit franchisees, area reps, and area developers. Search by top opportunities, alphabetically, investment level, industry, state, and more at franchising.com

Publications

Quicklink

“Don’t just survive, thrive!” Franchise Update Media’s 2019 Annual Franchise Development Report and the best-selling book Grow to Greatness by leading franchise consultant Steve Olson, offer invaluable tips for franchise sales success and unit growth. To order, visit afdr.franchiseupdate.com and www.franchising.com/franchisors/growtogreatness.html

For a one-click link to articles in this magazine and to past issues of Multi-Unit Franchisee magazine, visit www.franchising.com/magazines/multiunit_ franchisee

ONLINE Multi-Unit Community Grows Check out our community-based website for multi-unit operators. It’s your exclusive look into the world of multiunit franchising, your one-stop shop to find: • New brand opportunities • Networking opportunities • Online edition and archives

• Exclusive interviews • Operator profiles • Financing resources

www.franchising.com/topics/multiunit_franchising

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A Moving Experience My mother has been a huge influence on my business style and work ethic. While she wasn’t always the greatest mother in my youth, we have grown to be best friends. I better understand the sacrifices she made as a pioneering female in a male-dominated business world. Brooke Wilson

5 Two Men & a Truck territories

COME GROW WITH US inspirefranchising.com

HELL OF A RIDE! Greg Flynn, with 1,245 restaurants, is gunning for more

Written By HELEN BOND

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This information is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for information purposes only. If you are a resident of a U.S. state that regulates the offer and sale of franchises, are receiving this message in one of those states, or intend to operate a franchise in any of those states, we will not offer you a franchise unless and until we have complied with any applicable pre-sale registration and/or disclosure requirements in the applicable jurisdiction.

Greg Flynn — COVER STORY

s founder, chairman, and CEO of Fly nn R es t au r a nt G roup (FRG), Greg Flynn is the nation’s largest restaurant franchisee on a quest to be the industry’s premier operator. “It means being able to walk into a franchise convention and have people wonder, ‘How do they do it so well, at such scale?’” says Flynn. With the December 2018 acquisition of all 368 units from Arby’s largest franchisee, U.S. Beef Corp., Flynn is well on his way to being both the biggest and best franchise group in a business he has redefi ned with scale. San Francisco-based FRG operates 1,245 Applebee’s, Taco Bell, Panera Bread, and Arby’s restaurants—a $2.5 billion portfolio employing nearly 48,000 people across 33 states. The recent addition of a fourth household brand name establishes the company as the fi rst privately held franchise operator to top $2 billion in sales, an impressive follow-up from 2012 when FRG became the first U.S. franchisee to reach the $1 billion mark. For Flynn, who now oversees one of the top 20 largest food service companies of any kind, the double distinction simply

illustrates the power of a large operator to execute well. “I hope that franchisors have a growing appreciation of how positive a strong relationship can be with their larger franchisees,” Flynn says. “We can be great allies and stewards to drive the success of the brand.” An entrepreneur at heart, Flynn launched his first business at an early age when he sold fruit, purchased wholesale, off a cart to housewives in his Ross, California, neighborhood. He was just 10. Inspired by the life path of an uncle he considers his greatest mentor, Flynn spent the first third of his life learning—with gusto. The Bay area native holds an AB magna cum laude from Brown University, an MA from Yale University, and an MBA from the Stanford Graduate School of Business. At Brown, the history buff received a Rotary Foundation scholarship to study at Australia’s University of Queensland, where he earned a graduate degree in literary studies with a master’s equivalent thesis on Alexander Hamilton. In between his educational endeavors, Flynn pursued his passion for growing his

Greg Flynn, 55 Founder, Chairman, CEO

Company: Flynn Restaurant Group No. of units: 1,245 total: 283 Taco Bell, 135 Panera Bread, 369 Arby’s, 458 Applebee’s Family: Wife Julie, twin boys Jamie and Michael 21, daughter Sarah 18 Years in franchising: 24 Years in current position: 20

nascent business empire. Fly nn Holdings includes Flynn Properties Inc., which has directly and through its real estate funds acquired more than 3 million square feet of commercial real estate over the years. The real estate company also owns, in partnership, luxury resorts in Los Cabos, Napa Valley, and Telluride. Fly nn’s f irst foray into restaurants came in 1995 as an angel investor turned licensee of World Wrapps, a West Coast concept created by a Stanford classmate. “This was an early fast casual concept that created wraps as we know them today. No one before that called them wraps,” Flynn says. “It was hard. I realized I’m playing this business the wrong way. I

Flynn isn’t sure what FRG will conquer next. While there are no plans for another acquisition, polished casual, fine dining, or international expansion are all on the table. There are no limits to Flynn’s path, only opportunity. “It’s been a hell of a ride—and we are only halfway through.”

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should be a franchisee. So I pivoted and got into Applebee’s.” In 1999, Flynn bought his first eight Applebee’s locations in Seattle, persistently snapping up more locations to become the brand’s largest franchisee with 458 restaurants in 26 states. Along with operating the most Arby’s and Applebee’s franchise locations, FRG is the second-largest Panera Bread franchisee and third-largest owner of Taco Bell restaurants, with a significant presence across the three major industry segments of casual dining, quick service, and fast casual. While Flynn thinks big, the company’s unique “state and federal” operating model is relatively decentralized. States are run by market presidents empowered with a local approach to operations, with deep resources and high standards at the corporate level. This “Own it” mantra for FRG’s restaurants has resulted in two decades of greater than 30 percent annual growth for the company, led by an executive team with incredible stability, says Flynn. “We have all been together doing this for 20-plus years,” he says. “We can fi nish each other’s sentences—it makes it a very efficient experience. We also have complementary experiences, skill sets, and interests, so we divide and conquer very effectively.” Flynn isn’t sure what FRG will conquer next. While

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Greg Flynn — COVER STORY there are no plans for another acquisition, polished casual, fi ne dining, or international expansion are all on the table. There are no limits to Flynn’s path, only opportunity. “It’s been a hell of a ride— and we are only half way through,” says Flynn. PERSONAL First job: My very first job was in sixth grade selling fruit off of a cart in my hometown of Ross, California. I learned that you can get housewives in the town of Ross to buy much more fruit than they actually need when you are a little kid. Formative influences/events: For me, the guidance and mentorship of an uncle of mine. How he planned and lived his life sort of became my life plan, summarized by three words: learn, earn, return. His life plan turned out to be my life plan. I spent the first 30 years learning. I did a lot of schooling and did it deeply, took it seriously, and got a lot from it. Right now, I am in that middle 30 years of earn. I plan to then take the next 30 years—if I have 30 of them—and give it all away and do good with it. My wife and I plan to basically give all our money to charity during our lifetime. K e y a c c o m pl i s h m e n t s : Having created one of the best teams in an industry that includes a lot of great teams. Biggest current challenge: How to manage rising labor costs. Next big goal: That is a tough one. I don’t have a clear notion of what will come next. I have been nothing but opportunistic my whole career and I have ideas about what it might be. It could be a foray into polished casual or fine dining or international expansion. But I don’t know. It will somewhat depend upon the opportunities we find along the way. First turning point in your career: Making the decision

to migrate from the riskiest end of the risk spectrum in the restaurant industry to the least risky end. Best business decision: Same as above. I was running around Seattle opening up World Wrapps restaurants, a raw startup. Everything about it was hard. It’s hard to find real estate and convince landlords they ought to lease it, because you are unknown and you have no credit. It’s hard to get people to work for you, and it is hard to get customers to come to you because they don’t know you yet. And it is very hard to execute consistently well on a high-quality product in a high-velocity environment at a low cost. And you have no marketing budget. What I realized as a franchisee of a top 10 brand like Applebee’s is this: Everything is easier. The landlords know you and want to lease to you, the employees know you and want to work for you, the guests know you and want to come to you, and, most important, the banks understand these are lower-risk businesses and they will lend you basically all of the money to expand. Hardest lesson learned: That a combination of high operating leverage and lease leverage and fi nancial leverage can be devastating to cash flow when there is a serious downdraft in sales, as there just was at Applebee’s. We doubled our resolve to run our restaurants well and to not compromise at all on maintenance, on 100 percent staffi ng, and on a lot of the areas many other restaurateurs cut when times get tough. Now that we have been through it I have learned that what we did was the right thing to do. Work week: Breakfast every morning with my family. Clear my inbox. I exercise every day. I get into the office or travel, because I travel a lot for work. Dinner with family and go to

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I never let myself get so backed up in work I have to forgo something personal that I value bed. The weekends are usually focused on something active—hiking, sailing, skiing, or cultural activities. Exercise/workout: I exercise every day, typically for 35 minutes. Running is most common, but I’ll do the elliptical or the Peloton or go to a class. A few years ago, I ramped it up from four to seven days. I’ve come to the conclusion that exercise is the best thing you can do for your overall physical and mental health. You don’t need to do a lot of it, just doing it regularly is what matters. Best advice you ever got: Don’t run with scissors! ;-) What’s your passion in business? Executing on rapid, consistent growth with the best team in the industry. How do you balance life and work? I try to not be in a position where I have to choose between the two. I never let myself get so backed up in work I have to forgo something personal that I value,

like exercise or time with my family. Again, it comes down to having the right team. Guilty pleasure: The Arbynator! Favorite book: 1776 by David McCullough. Favorite movie: “The Lord of the Rings” trilogy. What do most people not know about you? That I have a master of literary studies degree from the University of Queensland in Australia. Pet peeve: Can’t-do attitudes. What did you want to be when you grew up? What I am. Last vacation: Rome, Tuscany, and Paris. Person I’d most like to have lunch with: Alexander Hamilton. I have been a lifelong A lexander Hamilton fan. I also happen to love musicals, so when a musical about Alexander Hamilton came out it was my dream come true. MANAGEMENT Business philosophy: Trust

Greg Flynn — COVER STORY people. Empower them. Agree on a vision and align our interests. Management method or style: Same as above. How do others describe you? Energetic. I hear that a lot. One thing I’m looking to do better: Delegate more. I have always been a good delegator, but as the business has grown in an exponential way there is always more for me to do going forward than looking back. I am used to a high level of personal involvement in all aspects of each of our brands. But now that we have four, realistically, I cannot be as involved as I was.

How I give my team room to innovate and experiment: It is the essence of our culture. How close are you to operations? I am extremely close. I am not an operator by background, but operations is the heart and soul of our company. Our operators are the heroes and the whole company exists to support them—including me. I am in charge of the whole organization, but the organization’s mission is to operate well. So in a way I am an operator. If we can’t execute well on operations, none of the rest of it matters. W hat are the t wo most important things you rely on from your franchisor? Marketing and menu.

What I need from vendors: Good service and low prices. Have you changed your marketing strategy in response to the economy? How? As a franchise operator, marketing is not one of our primary responsibilities. I participate in system directions on marketing, but it is not something I personally have spent more time with than I think is appropriate. How is social media affecting your business? Significantly, both positively and negatively. Positive is that it is a marketing channel. Word of mouth, in particular, through social media can be hugely and positively impactful. For instance, when we launched Dollarita

at Applebee’s it went viral and drove a lot of traffic. It can be very negative too. Mistakes you make in the restaurant that end up in social media can amplify the effect far beyond what we ever saw before. We need to be especially careful not to do dumb things. How do you hire and fi re? Considering we have almost 50,000 employees and approximately 100 percent turnover, we do it frequently. How do you t r a i n a nd retain? Training is mostly pursuant to programs developed by our franchisors or through our own training department and executed by our operators in the field.

Trust people. Empower them. Agree on a vision and align interests. Multi-Unit Franchisee

ISSUE 3, 2019

Greg Flynn — COVER STORY

Our strategy for addressing low unemployment and increasing labor shortages is to be the employer of choice, and the best employees have a lot of choice. Retention is one facet of a holistic culture project. We wish to be an employer of choice and the best employees have a lot of choice—more than they have ever had. How do you deal with problem employees? It depends on the nature of the problem. Our experience is that you can teach skills, but not personality. If you have the wrong personality fit, you are better off recognizing it as quickly as possible and making a change. Most problems come from that. Fastest way into my doghouse: Making it someone else’s problem. BOTTOM LINE Annual revenue: $2.3 billion. 2019 goals: To grow sales robustly enough to manage rising costs everywhere. Growth meter: How do you measure your growth? Bestgrowth growing is growing sales you’re generating out of your existing facilities. Comp sales growth is what we fi rst and foremost always strive for. And then there is growth through building new units, buying new units, and getting into new brands. But if

you made me choose between those, I would rather just have comp sales. Vision meter: Where do you want to be in 5 years? 10 years? In both time periods I would like to be recognized as the premier operator in each of the brands where we operate. In 5 years, I wouldn’t be surprised to have at least one more brand. In 10 years, I wouldn’t be surprised to have a meaningful international presence. How is the economy in your regions affecting you, your employees, your customers? We operate in 33 states, in basically all regions. We play mostly at the value end of the spectrum. And fi nally, the recovery over the past 10 years from the recession is putting more money into the pockets of the lowest income earners, and many of them are our guests. We are actually feeling some tailwinds from that fact. How do changes in the economy affect the way you do business? I don’t think changes in the economy have a great effect on how we do business because our job as franchise operators is to run

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our restaurants well. It probably has a greater effect on how our franchisors conceive of new products and promotions and advertising. How do you forecast for your business? We do bottom-up budgeting annually and have a constantly updated 5-year plan. What are the best sources for capital expansion? Debt and cash flow. We built this entire business on debt and cash flow. Experience with private equity, local banks, national banks, other institutions? Why/why not? I have had experience with all of those. We have had— a nd st i l l have—a consortium of 15 banks that lend to our Applebee’s business. We have tapped institutional private debt for our other businesses. We have had private equity investors in the past and we currently have a pension fund as our only outside investor. You name it, we have had it. This business takes a lot of money. What are you doing to take care of your employees? Our strateg y for addressing low unemployment and

increasing labor shortages is to be the employer of choice, and the best employees have a lot of choice. That means you have to pay competitively and have competitive benefits. But money isn’t everything, and for many people it is not the most important thing. It is the other aspects of the job that we try to be appealing about as well, starting with the physical work environment, which is clean and well-maintained and operates to the highest standards. It is having restaurants that are 100 percent staffed. There is nothing worse on your staff than being understaffed, so the best thing we can do for their work experience is be 100 percent staffed. It is making investments in technology that can make their jobs much easier in terms of fi nding us to apply, scheduling, making food in the restaurants, and interacting with our guests. It is one of the general culture norms of our organization. We greatly stress honesty, candor, and integrity. We have a lot of fun. We give back to our communities. We are very engaged with our communities. All these things really matter to the best employees. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? With all of our brands, we try to drive sales growth sufficient to cover our rising costs. That takes two forms: some of it is pricing, but hopefully it is driving additional traffic. How do you reward/recog n i z e top -per for m i n g employees? We have a higher level of profit-sharing in Flynn Restaurant Group than most restaurant companies. And we have generous equity sharing with our senior operators and team overall. What kind of exit strategy do you have in place? I don’t have one. T

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HOMETOWN HERO 2019 MVP Veteran Entrepreneurship Award Written By HELEN BOND

2019 MVP — Joe Walker

Joe Walker, 37 Owner/Managing Partner

No. of units: 19 Marco’s Pizza Family: Wife and four children Years in franchising: 8 Years in current position: 8

o matter what Joe Walker does, he leads by example. Walker is the 2019 recipient of MultiUnit Franchisee’s MVP Veteran Entrepreneurship Award for outstanding performance, leadership, and innovation by a military veteran.

and Furniture; along with marketing, construction, and real estate development companies, among other interests. A former Orangetheory Fitness franchisee, Walker had the chance to open only three studios before he got an offer to sell that he couldn’t refuse.

The South Carolina entrepreneur spent 8 years in the military, including leading U.S. Army operations in Iraq, earning a Bronze Star and a Purple Heart. When Walker returned to his hometown of Columbia, it was only natural he would launch a business model that was all about efficiency.

“We are always looking for opportunities,” he says. “I’m at the stage in my career if I exit a vertical it simply adds more fuel for me to go find the next one.”

“If you were to look at my org chart on paper and hold it next to a battalion level org chart from the Army, there would be a striking resemblance in how we cascaded our leadership and personnel from top to bottom,” says Walker, who operates 19 Marco’s Pizza restaurants across South Carolina and Wilmington, North Carolina, with aggressive plans for growth. Walker’s leadership resonates throughout his growing portfolio of businesses, which include Marco’s Pizza; his own retail brand, Carolina Mattress

Called to enlist after the 9/11 terrorist attacks, Walker graduated from Wofford College and served in the U.S. Army from 2004 to 2008, and in the U.S Army National Guard from 2008 to 2012. He spent 11 months fighting in Baghdad during a time considered some of the bloodiest fighting of the war—three days of which were captured on a handheld camera by Australian journalist Michael “Mick” Ware, who was covering the war for Time magazine and CNN. Ware’s footage, featuring Walker, would later become the HBO documentary, “Only the Dead See the End of War.” The A rmy platoon leader later appeared with Ware on panels at film festivals and

press-related events to promote the documentary, now available on Netflix. “It was impactful to have a soldier from South Carolina who was just seen on film in combat,” Walker says. “To allow them to see who we really were was amazingly beneficial. There was no narrative or spin. It ripped the politics right out of it.” Walker, who lives and leads his company by the Golden Rule, is focused on opportunities that will enable him to continue to build his company so he can give all he can back to his community and help others succeed. The husband and father of four has often been known to go above and beyond, recently donating $10,000 toward a hypertension implant for a Marco’s Pizza customer. He also shut down one of his stores for multiple days to make over 2,000 pizzas for families in need throughout his community. Walker got into franchising with the help of Harold Tuma, an investor he had worked with in commercial real estate. Today he feels especially called to help young entrepreneurs get their own start and succeed Multi-Unit Franchisee

in business. “I want to become what helped me get where I am today,” he says. PERSONAL Formative influences/events: The example set by my family. I had a very close family growing up, held together by my grandparents (my father’s parents). The way they chose to raise their families in proximity to my aunts, uncles, and cousins, who were like extended fathers, mothers, brothers, and sisters to me, was an example of what I thought family should and could be. It was a tremendous blessing for me throughout my formative high school years before I left for college. September 11 was the next pivot point in my life. I was a sophomore at Wofford College and the events of that day led me to join the ROTC and, ultimately, the Army. Obviously, my experiences in the Army, more specifically my experiences in combat, were incredibly formative in many different ways—from the leadership and humility perspective, pain, and how to deal with loss perspective, but also from a faith perspective. That is where I was given the gift of the realization that I

ISSUE 3, 2019

2019 MVP — Joe Walker

wasn’t in control of my life and needed to yield the attempt to control my life to the Lord. Marrying my wife Haley, and experiencing the grace she provides, and the birth of all four of my children, has really allowed me to keep my focus on things that matter, things eternal, and how to live my life in a way that is not living for today, but understanding and living in a way where the best is yet to come. Key accomplishments: I would say having the opportunity to serve with the men I ser ved w ith in combat, although not all of them came home. Growing this bond of brotherhood with those men, which truly does form, exist, and prevail, was very powerful and long-lasting for me.

Marrying Haley and having four children with her and watching them grow. Also watching Haley grow in her faith and encouraging me to do the same. I would consider that a personal accomplishment. Building the team we have built here professionally and achieving some of the benchmark successes we have set for ourselves. Watching teammates accomplish their lifelong goals is to me an incredible personal accomplishment. I thrive more on the personal success of my teammates than I do on, “What am I able to do?” Work week: There is no such thing as a typical work week. We have a vast array of businesses that we run and operate, along with my other endeavors, having recently been elected

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to County Council here in the capital county of South Carolina. My work week is about constantly figuring out and being confronted with the issue of the day and being able to prioritize and understand what is extremely important. What are you reading? Them: Why We Hate Each Other—and How to Heal by Sen. Ben Sasse. Best advice you ever got: Do your best, have fun, and always tell the truth (from my father). MANAGEMENT Business philosophy: The Golden Rule: treat others as I would want to be treated. That applies to transactional philosophy as well as how we run our business. Management method or style: Hire the best. Trust and delegate. And inspect what you expect.

Greatest challenge: People. How do others describe you? I don’t know, but I certainly hope and strive as Christ-centered, family-centered, and kind. How do you hire and fire, train and retain? I hire at a different level. I have an operationa l org a nization that allows me to hire at the C-suite level. They hire one level down to the area supervisor, and area supervisors hire one level down to the general manager. The general managers are tasked with staffing their stores. We hire and fire through delegation. At my level I always try to hire someone I would want to work for and who intimidates me with their expertise in the area I’m hiring. By intimidate, I mean that I try to hire people who know “it”

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Multi-Unit Franchisee, Kansas & Missouri

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*The Average Franchise Unit Volume of $4,350,000 is the ctual average of 47 franchised Twin Peaks Restaurants pen and operating for a full 52 weeks during fiscal 2017. **The verage Cost of Goods Sold of 27.1% and the Average Labor Cost of 29.1% are derived from the 30 company-owned Twin Peaks Restaurants that were open and operating during the full fiscal year ended December 31, 2017. AAUV, Prime Costs and other results of your Twin Peaks restaurant may vary depending upon various factors. See Item 19 and Item 7 of our FDD for complete details.

2019 MVP — Joe Walker better than I do. Training is built into the franchise model, and Marco’s does a good job of pushing out training aids and training mechanisms. A lot of training is experience. You have to be in the stores and make pizza. Retention is culture-driven from the top down. My COO focuses on culture every day. Do we treat people the way we want to be treated? And that means all the way down the ladder to every person in our organization. We strive for the answer to be yes. Do we get it right every time? No. But we experience a betterthan-most retention average in an industry sector plagued by high turnover because we try to do the right thing by every person every time. BOTTOM LINE Annual revenue: $15 million. 2019 goals: To understand and adjust to the implementation of Marco’s new national advertising fund; growth through opportunistic acquisition; and regionally diversify my portfolio of holdings within Marco’s. Grow th meter : How do you measure your growth? Number of stores and revenue. Profitability is ultimately the major growth indicator. Vision meter: Where do you want to be in 5 years? 10 years? I am constantly looking for new businesses to add. I would like to have a diverse, robust portfolio that generates enough free cash flow to allow me to put young entrepreneurs into opportunities that they otherwise would not have a chance to capitalize on— whether I do that in 5 years or 10, and I would like to do it in 2 years. I don’t really have a timetable associated with it, but that is the goal.

What are you doing to take care of your employees? That occurs every day at the store level. Our general managers get treated with a certain level of respect just like I would do in the military. If I was going to ask a private to kick in the door, I wanted that private to see me kick in a door first. So what we do is respect our employees in a way that we won’t ask them to do something we haven’t already done or are not willing to do ourselves as leaders. W hat kind of exit strategy do you have in place? Strategically, everything is built to sell. We are set up in a way that if an exit presented itself, we would be able to capitalize. I’ve already exited my Orangetheory vertical, so we have been through an exit before. My exit strategy is really more of a recycling strategy. It would simple parlay me into another opportunity. MVP QUESTIONS Why do you think you were recognized with this award? Because of my team. I believe that every award presented to me is accepted by my team. I make sure they know that. I work with and alongside an amazing group of people. My personal success stems from the selection of good people at the top of each vertical, understanding that if I hire like-minded and like-hearted people to run a vertical, typically their inf luence f lows down through it like mine would. So my success, and the recognition of my success, is really all attributed to my partners and employees. How have you raised the bar in your own company? Hopefully, by example. Again, it all points back to how we treat people, and that starts

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Do we treat people the way we want to be treated? And that means all the way down the ladder to every person in our organization. We strive for the answer to be yes. Do we get it right every time? No. But we experience a better-than-most retention average in an industry sector plagued by high turnover because we try to do the right thing by every person every time. with me. It’s how I treat not only the high-level people in my office day to day, but also the people when I walk into the stores, and an employee when I find out they are going through a hard time. It is how I treat the vendors, or someone cleaning the windows in one of our stores, and how that trickles down to the pizza delivery driver who may be walking by and hears that interaction. It all boils down to humility. I want to treat people the way I want to be treated. Whether I’m at the top of the podium or cleaning the podium that is how I live my life, and it is how I want my children to live their lives. I hope that influence is seen, absorbed, and implemented at every level of our operation and that, in and of itself, raises the bar. What innovations you have created and used to build your company? We have been innovative in our organizational structure and willing to spend a tremendous amount reinvesting in people. Bringing on people before we need them. Staffing to be a much larger company than we were at the time that we spent the money for staffing. Being prepared

for growth, instead of acting because of growth, in building the team. W hat core values do you think helped lead win this award? Being respectful and being honest. How important is community involvement to you and your company? This community is my hometown. This is where I grew up. A tremendous number of customers are friends and family—not of just me, but of people involved in our company. We give back at every opportunity we have. I feel called. Part of culture is caring for those around us who need help. We participate in many different philanthropic endeavors and we want to do more. Other than helping other entrepreneurs get started and become successful, I would love to be able to give away more. What leadership qualities are most important to you and your team? They don’t differ from some of my other answers. Hire people who are like-minded and like-hearted. I look for honesty first, and then I look for humility, which trickles down to respect. T

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High Flyers

Former C-suite execs “retire” into franchising

Written by KERRY PIPES

he way they see it, f r a nch isi n g is t he retirement project for Amy Legg and Kellie Watts, partners who operate three Wild Birds Unlimited (WBU) shops in three different states. Watts, an attorney and former C-suite executive for a Fortune 500 company, and Legg, a former C-suite executive for a financial services firm, were looking to make a change in their lives when they relocated from Dallas to Branson, Missouri. “When we first moved to Branson in 2010, neither of us knew what WBU was. But there was a store here that we drove by almost every day,” Watts recalls. One day the two went in to see what it was all about and simply fell in love with it. “We left the store that

day with about two hundred fewer dollars in our pocket!” They struck up a friendship with the owners and began to explore franchising opportunities with the brand. In October 2015, they purchased their first store in Lake Forest Park, Washington, and have since added two more, one in Warson Woods, Missouri, and another in Austin, Texas. All are profitable, long-tenured stores with great staffs that still have the potential for growth, says Watts. And if the partners have their way, they will take on a few more. While this may not sound like a retirement plan to most, Legg insists the two couldn’t be happier doing anything else. Their passion for the brand is one of the things that makes

Kellie Watts (left) and Amy Legg

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the job so enjoyable, says Legg. They look for employees who share their passion, values, and work ethic. “We need strong leaders to motivate and train our employees to provide excellent customer interactions and focus on delivering the best possible customer experience,” says Legg. “We want every customer to leave happy, and all of our team members have the authority to make that happen.” Watts says it’s not a requirement for their team members to be bird lovers when they’re hired. However, she adds, “I think it’s safe to say that if a new team member is not into birds when they start working for us, they become bird lovers!” The former business executives understand that scalability is one of the strengths of the

franchise model. Their goal, says Legg, is to build a financially successful operation that will bring a sweet return when they’re ready to sell one day. That shouldn’t be difficult for these two savvy operators. They keep a keen eye on everything from the revenue numbers and average ticket amounts in their three stores to making sure costs remain in line and that customers continue signing up for the WBU loyalty program. “We are constantly looking for other opportunities within the WBU system for potential acquisitions, but they have to satisfy certain criteria before we will proceed,” says Legg. “They must have a strong team in place, be profitable, have a great reputation, and have growth potential. Our goal is to own at least one more store and possibly two.” So far the duo have built a $2.5 million business. That’s some retirement project! First job: AL: Farm hand (I grew up on a large grain farm), followed by my first real job out of college as a marketing coordinator for a small manufacturer. KW: Working at Hardee’s when I was 16. I hated it and quit because I wanted to spend New Year’s Eve with my friends, not cleaning up burned mustard at midnight! Formative influences/events: AL: I learned the most about running a business from my dad. He gave me 10 acres of the farm every year, and I had to decide what to spend on

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Amy Legg & Kellie Watts

Amy Legg, 49 & Kellie Watts, 60 Owners

Company: On the Fly Ventures, LLC No. of units: 3 Wild Birds Unlimited Years in franchising: 4 Years in current position: 4

it, how to invest in it, how to maximize yield and minimize costs, labor for it, and how to make the money it produced last an entire year until the next harvest. KW: My high school years were not the best for me. Kids are cruel and relentless in their cruelty. These events made me want to pursue greater things both in education and in business to “show them.” I got out of college in 3½ years, went to law school, and rose to a high level in a publicly traded Fortune 500 company. Key accomplishments: AL: Becoming a multi-unit franchise owner with Wild Birds Unlimited in a relatively short time. Also, turnarounds and scaling of several businesses in multiple industries. CEO of a stone business, COO of a wealth management company, President’s Club at Andersen Windows. KW: Rising to an officer level in a Fortune 500 company and starting its firstever corporate ethics program. Biggest current challenge: AL: Finding time to enjoy life and be “retired.” KW: Feeling guilty if I don’t work all day every day. Next big goal: AL: Build our enterprise to make it more scalable and acquire more units. KW: Acquiring more WBU franchises and growing our business to 5 stores. Best business decision: AL: Taking the leap to leave Corporate America after years

of experience and exposure to multiple business models and starting to build our own enterprise together. KW: Deciding to stay at my last employer when I had the opportunity to leave on multiple occasions for other positions. My decision to stay for 18 years was the best decision, both financially and professionally, I ever made in business. First turning point in your career: AL: The first business I started from scratch. It taught me a lot about international business, VC funding, hiring the best in the industry, hard work, and who not to partner with. Hardest lesson learned: AL: Years ago I had a business partner without the same business philosophy and integrity level that I had. That was, and is, a terrible idea. KW: Interjecting my opinion into a conversation when I had no experience or real knowledge of the subject in question. It was embarrassing and I never did it again. Work week: AL: Sometimes 7 days, but 2 days others! KW: I work 7 days a week, but not necessarily all day. Exercise/workout: AL: Daily cardio and weight workout. K W: Elliptical and weight training at least 4 days a week plus daily walking. Best advice you ever got: AL: Find your strengths and use them to positively affect as many people as possible, and hire people to do the things you’re not good at. KW: Never

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have too much alcohol at a company event. What’s your passion in business? AL: Developing others and positively affecting their lives. KW: I love to see what I can do to cut expenses. How do you balance life and work? AL: Hiring more people to do the daily tasks so I can focus on strategy and enjoying life more. KW: I’m not so good at that right now. I was better when I was not self-employed! Guilty pleasure: AL: Studying businesses and figuring out what makes them better. And a lot of wine! KW: Dark chocolate, Raisinets, and wine! Favorite book: KW: The Da Vinci Code. Favorite movie: KW: “Ferris Bueller’s Day Off.” What do most people not know about you? AL: I’d rather not travel and enjoy being home the most. KW: I have been in the Cabinet Room at the White House and stood at the open doorway into the Oval Office, although I was not allowed to step inside. Pet peeve: AL: People who drive slow in the left lane. KW: People who mispronounce words, especially when people say “Real-a-tor” instead of “Re-al-tor.” What did you want to be when you grew up? AL: A farmer. KW: A lawyer and then go into politics. Accomplished the former but not the latter. Last vacation: AL/KW: The San Juan Islands. Person I’d most like to have lunch with: AL: Pat Summit. KW: Robert Kennedy. MANAGEMENT Business philosophy: AL: Be transparent, treat everyone with respect, and always have high integrity. Everything else will work itself out. KW: Do not micromanage. Management method or

style: AL: Always build people up and increase their confidence. Give them more positive feedback than negative. Be completely straightforward. People never wonder where they stand with me. KW: Give our team the tools they need to make decisions that are best for the business. Greatest challenge: A L: Letting go of things I shouldn’t be doing. KW: Being too direct. How do others describe you? AL: As someone with high expectations, but nothing I don’t expect from myself. KW: Serious but affable. One thing I’m looking to do better: AL: Delegate. KW: Listen. How I give my team room to innovate and experiment: AL: Trust them to make decisions. I expect them to make mistakes along the way and know that’s how they learn. I coach after they have made their decision if needed, but never berate. KW: Give them a platform to express their ideas and always give them a fair hearing. How close are you to operations? AL: Still pretty close currently, but looking to remove myself more from these daily tasks over time. We have recently hired someone who will dramatically improve this. KW: Very close. Despite the fact that we have recently hired a director of operations, we are still very much an integral part of daily operations, with a focus on marketing. What are the most important things you rely on from your franchisor? AL: Marketing, vendor analysis and research, leverage with vendors when needed, training materials, benchmarking our business against others. KW: Marketing, IT, and operational support. What I need from vendors: AL/KW: For them to work with us when we’re in a bind

Amy Legg & Kellie Watts

on something and to back their products with our customers. Have you changed your marketing strategy in response to the economy? How? KW: We haven’t really changed our marketing strategy even when our sales are lower. We believe that continuing to get our brand in front of current and prospective customers is the best way to capitalize on a resurging economy once things turn around. How is social media affecting your business? KW: It is starting to have an increasing impact on attracting new customers to the hobby. While it’s difficult to quantify at this stage, we feel it is a great strategy and one we will continue. How do you hire and fire? KW: Our goal is to hire slowly and fire quickly. However, circumstances don’t always allow us to work that way. We have learned over time the qualities we want in good, solid full- or part-time staff, and that leads to a very deliberate process. The few times we’ve had to fire someone, it has been because of gross misconduct or lack of performance. In the former

circumstance, the decision and the execution were rapid. In the latter, we held the employees accountable and then let them come to the realization that they weren’t getting the job done. This has led to them leaving by mutual agreement or by resigning. How do you deal with problem employees? KW: Firing squad. No seriously, if they haven’t committed a grievous offense, we will manage them out of the business in a methodical manner. Fastest way into my doghouse: KW: Lying to me. BOTTOM LINE Annual revenue: $2.5 million. 2019 goals: $2.7 million. Grow th meter: How do you measure your growth? Revenue increases, but also increases in our average ticket and the number of people signing up for our loyalty program. Vision meter: Where do you want to be in 5 years? 10 years? 5 Years: 5 stores in the top 30 stores in the country. 10 years: sell the stores and retire. Do you have brands in

different segments? Why/why not? No. This is our “retirement project,” so we don’t want more brands. How is the economy in your regions affecting you, your employees, your customers? Our stores are in a variety of regions, so we have differing impacts. Overall, with the low rate of unemployment, we have trouble finding help, let alone affordable help. Are you experiencing econom ic g row t h i n you r market? Not sure the economy is growing, but our stores are all growing. How do changes in the economy affect the way you do business? We have to be more judicious with our labor hours to keep spending in line. How do you forecast for your business? This business is tougher than most because nature and bird activity affect our activity in the stores. We forecast as best we can based on history, but changes in climate can really affect our businesses. W hat are you doing to take care of your employees? Flexibility, good hours,

employee discount, education and development. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? Finding other ways to be more efficient and to keep costs in line. What laws and regulations are affecting your business and how are you dealing with it? New regulations providing for paid leave, $15 minimum wage, and the new overtime regulations. How do you reward/recog n iz e top -per for m i n g employees? We are working on a more robust incentive structure. Currently, we have year-end bonuses based on performance of the stores and individual employees. What kind of exit strategy do you have in place? We are working to build a self-sufficient and profitable enterprise that can be sold to an investor in the future who sees the opportunity to continue to grow what we have built. T

We haven’t really changed our marketing strategy even when our sales are lower. We believe that continuing to get our brand in front of current and prospective customers is the best way to capitalize on a resurging economy once things turn around. Multi-Unit Franchisee

ISSUE 3, 2019

TOP OF HER CLASS Former teacher finds a sweet spot in franchising Written By KERRY PIPES

odi Gagne spent t wo decades in the teaching field before getting the itch to go into business for herself. She admits it was a challenge transitioning from educator to entrepreneur without any previous business experience. “It took a little bit of time to acclimate through that learning curve,” she recalls. “But I’ll be forever grateful for the opportunity.” Today, while she has more freedom as a franchisee of Mrs. Field’s, Pretzelmaker, and TCBY, she also recognizes the responsibilities that come with her new role. Gag ne operates 3 Mrs. Field’s, 1 Pretzelmaker, and a TCBY vending machine (a standalone dessert kiosk) in Michigan. It’s a state with a low unemployment rate and an increasing minimum wage. “It’s an employee’s market here,” she says. Nevertheless, she works hard to offer her team growth opportunities and a chance for advancement if they will stick with her. And she demonstrates her dedication by often working long hours right alongside them.

“I don’t ask them to do anything that I would not do,” she says. “We offer competitive pay when possible, and bonuses on holidays.” She also does her best to create incentives and offer scheduling flexibility to her employees. “However, I believe our strongest attribute is creating an environment of support and care, one of family and team.” Ten years into her franchising career, Gagne says she is happy with her brands, considering opening her own retail shop, and is “really interested” in working for a franchisor. Could be another learning curve with another successful outcome. PERSONAL First job: High school: teaching private clarinet lessons. College: nurse aide at nursing home. Formative influences: I have parents with an incredible work ethic and was always taught to do my best and work hard at whatever I decided to take on. My brother’s success in business and his continued support during my introduction to franchise ownership and beyond, has been encouraging and educational. My

Jodi Lynn Gagne, 52 Owner/Operator (co-owned with spouse) Company: Lilliart, LLC No. of units: 3 Mrs. Field’s, 1 Pretzelmaker, 1 TCBY vending machine Family: Bob, husband of 30 years, son Zane, 29, daughter Justine, 28 Years in franchising: 10 Years in current position: 10

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husband Bob always pushes me to be better and to challenge myself and provides me with constant feedback and support. K e y a c c o m pl i s h m e n t s : Related to business, invitations to sit on boards, present at conferences, and represent the brands I love. Recognition for operational excellence. Biggest current challenge: Staffing, in a multitude of ways. Michigan has an increasing minimum wage rate, now at $9.25/hour, and unemployment is low, so there are not many applicants, and businesses are offering even more to entice new hires. I am not able to offer a higher starting wage and therefore get mostly high school students as applicants. While many of these students work out wonderfully, often many have never worked before, or even at home, and therefore have no idea what it means to work! Additionally, once they become strong team members, many of them are anxious to move on to something new. We try to offer growth opportunities and advancement for those interested so that we might hold on to them a little longer! Next big goal: I am considering opening my own retail shop (non-food). But I am really interested in working for a franchisor. First turning point in your career: It was a huge transition for me to move from a teaching career of 20-plus years to business ownership. The challenge of owning and running a business without any previous experience brought with it a new learning curve that took me some time to acclimate to, but also an opportunity for

which I will forever be grateful. I have more freedom, and more responsibility. Best business decision: Adopting a philosophy of “making it happen.” Across all of our brands, making a conscious decision to go above and beyond, to focus on excellence, to do more to make my customers happy, has resulted in loyal customers and increases in sales. Hardest lesson learned: There is so much not in my control, and not everyone thinks and works like I do. There are things that affect the outcomes and success of my business that I can do nothing about. Lacking that control is frustrating, so I work to affect what I can to improve my business. Work week: Until recently, I spent my days mostly “overseeing” the operations of our businesses, including monitoring sales, visiting to make my presence known, evaluating staff and outcomes, overall planning, meeting with managers, accounting in the home office, and more. However, because of staffi ng shortages, I have been working in my stores some 50 to 60 hours per week—and trying to keep up with the other responsibilities! Exercise/ workout: Occasionally walking my dog or riding my bike, but most recently really enjoying my experience with yoga. Best advice you ever got: My father taught me “never to call in sick,” which I have expanded to how I live my life in general. I show up and I do my best.

DON’T LET THE OTHER GUYS EAT YOUR LUNCH! JOIN THE FRANCHISE THAT PLAYS TO WIN! TropicalSmoothieFranchise.com or call 770-441-4973

750+

CAFES FROM COAST-TO-COAST WITH 110 OPENED IN 2018

$1,096,062

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**Top 25% of Cafes. Based on calendar year 2018, 52 of 142, or 37%, of the Cafes gained or surpassed this sales level. This information appears in Item 19 of our Franchise Disclosure Document. Your results may differ. There is no assurance that you will do as well. This information is not intended as an offer to sell or the solicitation of an offer to buy a franchise. It is for information purposes only. The offering is by prospectus only. Currently, the following states regulate the offer and sale of franchises: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota (File No. F-4953), New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. If you are a resident of or want to locate a franchise in one of these states, we will not offer you a franchise unless and until we have complied with applicable pre-sale registration and disclosure requirements in your state. New York State Disclaimer: This advertisement is not an offering. An offering can only be made by prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law.

CALIFORNIA DISCLAIMER: THESE FRANCHISES HAVE BEEN REGISTERED UNDER THE FRANCHISE INVESTMENT LAW OF THE STATE OF CALIFORNIA. SUCH REGISTRATION DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION OR ENDORSEMENT BY THE COMMISSIONER OF CORPORATIONS NOR A FINDING BY THE COMMISSIONER THAT THE INFORMATION PROVIDED HEREIN IS TRUE, COMPLETE AND NOT MISLEADING. ©2019 Tropical Smoothie Cafe, LLC. Tropical Smoothie Cafe, LLC 1117 Perimeter Center West, Suite W200 Atlanta GA 30338.

CONSECUTIVE YEARS OF POSITIVE SAME-STORE SALES TOTALING MORE THAN 48%

Jodi Gagne

What’s your passion in business? For me, it is all in the details. It is in effort, in personal accomplishments of my staff members as they grow and become stronger (as sales persons, decorators, etc.). It is in the delight of my customers when they are impressed with our work. How do you balance life and work? I have a very supportive family. During the tougher times, they step up and help me. When things are going well, spending time with them is my favorite thing to do. I strive to create opportunities to gather and celebrate. I also work hard to build and nurture a fantastic staff, so that they excel without me. This allows me to take the time I need and achieve balance. Guilty pleasure: Binge watching Netflix. Favorite movie: “It’s a Wonderful Life.” What do most people not know about you? I evaluate myself often. I regret when I make mistakes or fail at being the best I can be. Pet peeve: Lack of common courtesy, self-centeredness, and mediocrity.

What did you want to be when you grew up? As a small child, I wanted to follow in my mother’s footsteps and be a nurse. As a college freshman, I thought I wanted to be a genetic researcher until I had a biology lab and realized I could not spend my life looking into a microscope! Last vacation: Leelanau Peninsula, near Traverse City, Michigan. Person I’d most like to have lunch with: There are so many people I would enjoy having lunch with and learning from, including my deceased grandparents, Maya Angelou, and Justin Timberlake. MANAGEMENT Business philosophy: My success is in the details. Preparation is key and could refer to giving my team the training or tools they need, or to planning appropriately for an event by watching my inventory. Appropriate decision-making on behalf of all the members of my team is vital as well. If they’re making a decision based on something other than what is best for my business, the corporate standards, or a customer’s need, then it is the wrong decision.

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Management method or style: I like to influence, monitor, and provide feedback. I believe in training properly the first time, but realize that continuous retraining and follow-up are necessary. My managers understand what my goals and standards are, but have the autonomy to achieve. Greatest challenge: Getting others to “buy in” to my philosophy, to care about their work, the business, and the customer. How do others describe you? Strong work ethic, organized, operational excellence. One thing I’m looking to do better: There are many things I am looking to do better, but I would like to be less critical and improve my patience. How I give my team room to innovate and experiment: There is not a ton of “innovation” at the store level in a franchise, but I invite ideas for more efficiency and creativity. And when we do have a new idea, I have taken it to corporate to get permission to use it. How close are you to operations? Very! Until two years ago, I had no managers. I had several shift leaders and assistant managers I was developing

over time. However, with the addition of our third Mrs. Field’s location, it was necessary for me to put the stores in their hands. Currently, we have just one regional manager, one manager, and an assistant manager in our entire system, so I am still somewhat involved in all our locations. W hat are the t wo most important things you rely on from your franchisor? Communication and marketing. What I need from vendors: Consistency, quality and reliability in product, packaging, delivery, and communication. Have you changed your marketing strategy in response to the economy? How? We have always marketed in unique ways to mall employees, corporate entities, and our everyday customers. However, we are trying to be more involved in social media and participate in online ordering to capture the customer who chooses those routes, rather than visiting the malls in person. How is social media affecting your business? There is some buzz generated on Facebook, occasionally with our posting of personal cookie cakes, but in general social

Jodi Gagne media has not affected us much. One challenge we do have is responding to the occasional questions related to how to order or our pricing. When a customer chooses this method of questioning we can always be better at responding as quickly as possible. How do you hire and fire? I have never fired a staff member. Those who leave us tend to decide that on their own. We have a real team environment, and I think a staff member who does not do their part gets the message quickly that they either get on board with that or move on. Regarding hiring, I have always tried to hire people better than myself, whether that is in certain skills, attitudes, or efforts. I believe diversity is important and understand that we all bring different strengths to the table. How do you train and retain? I train and encourage my staff to train correctly the first time. Proper operational processes will get watered down otherwise and we will lose the consistency that helps us be successful. We try to provide consistent and positive feedback for all performance, good and bad. We recognize achievement and growth among the staff and celebrate their success. We put an emphasis on team-building, promote from within when able, and give raises to those who perform well, are reliable, and loyal. We try to maintain a supportive family environment with flexibility so our team members feel appreciated and understood. How do you dea l w it h problem employees? My philosophy is to stick to the facts. If the “problem” is a fact, not my opinion or feeling, there is no arguing against it. Taking a firm line on what is required to be my employee is necessary. In addition, the other staff members usually make their dissatisfaction known. Usually,

the problem resolves itself by the employee’s choice… either to fix it or move on. Fasted way into my doghouse: A failure to hold up your end of the arrangement. BOTTOM LINE Annual revenue: $1.2 million. 2019 goals: Reducing the cost of labor and goods. Hiring more staff and developing more leadership. Planning for a potential move out of a mall location. Raising our average ticket with an increase in Big Cookie Cake sales. Growth meter: How do you measure your growth? Daily, weekly, monthly, and yearly. Taking a look at YOY sales and customer counts. Looking at the bottom line after COG and COL analysis. Sometimes measuring in terms of investment in additional locations. Vision meter: Where do you want to be in 5 years? 10 years? I would like to be working for a franchisor, using my education and business experience to benefit a brand in another way. How is the economy in your region affecting you, your employees, your customers? We have not seen a direct correlation between the increase in minimum wage/income and spending. In addition, the state of retail in mall locations in general has been deteriorating for some time. In all of our mall locations customers express concern and frustration at the loss of retail, but do not understand how they might play a role in it, often stating that they haven’t been to the mall in months or a year! We are beginning to see a change in our employees as well. While they have tried to keep a positive outlook, it is hard to maintain in a failing mall with negativity on the other side of the counter. I feel we have recently lost many employees because of the impression they are in a position that might

not last because “the mall may close.” Meanwhile, our costs are rising with minimum wage increases and commodity increases and a decline in sales. A re you ex per iencing economic growth in your market? No. How do changes in the economy affect the way you do business? We avoid price increases. Our costs are rising. We are negotiating with landlords for rent reduction. We are considering producing less and customizing baking orders to reduce waste, and look for solutions every day. However, we remain firm in our belief that we can have a positive impact on our customers, that we provide the best product out there, and that we will survive these new challenges. Putting our best foot forward is a priority. How do you forecast for your business? We look at YOY data and current trends in traffic. We keep our inventory under control and costs down. We shift our focus to higher-ticket items to increase sales. What are the best sources for capital expansion? Unknown, not looking to expand at the present time. Experience with private equity, local banks, national banks, other institutions? Why/why not? We were able to secure lines of credit with two national chains and a business loan with a small-town local bank. However, this was not easy. It was only in the past couple of years that these banks considered us worthy of risk, mirroring that of most lenders at the time. What are you doing to take care of your employees? I work alongside them. I do not ask them to do anything that I would not do. We offer them competitive pay, when possible, and bonuses at holiday. We also create incentives from time to time. We offer

Multi-Unit Franchisee

scheduling flexibility, unlike many businesses. However, I believe our strongest attribute is creating an environment of support and care, one of family and team. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? It is a real struggle, for sure. I am working more in my stores again because staffing is challenging. Our minimum wage in Michigan is rising and unemployment is low, so businesses are offering even more to capture the applicants, and I cannot. I do not have to worry about healthcare costs with only two full-time employees. We cut our expenses in every other way possible. We are offering fewer raises, less often. We have cut our labor to the bare minimum and employees are expected to do more with less. How do you reward/recog n iz e top -per for m i n g employees? All of our stores have adopted a system of peer complimenting. We post our positive and appreciative thoughts about our co-workers. We thank each other. As owners, we take ever y opportunity to recognize exceptional behavior, successful moments, and unique achievements. We share individual and group success through email and posting in-store. We recognize each employee’s birthday with a personalized card from us as employers, and one signed by the entire team. In our business, it literally takes “a village” and the “top performer” is not necessarily known unless we are competing under some incentive. What kind of exit strategy do you have in place? An exit strategy is something we have just begun discussing for our future. Being that we have been in franchising for only 10 years, our focus has been on growth until recently. T

ISSUE 3, 2019

2019 MVP - Jeff Burroughs

MOVIN’ ON UP Two Men and a Truck duo think big! Written By KERRY PIPES

he moving business has been good to Brooke Wilson and her husband and business partner Les. Together the couple have built a company with multiple Two Men and a Truck territories that generate annual revenue of more than $12 million. When we first interviewed Brooke in 2016, she and Les had just been recognized with Multi-Unit Franchisee magazine’s MVP Influencer Award for a Husband & Wife Team. At the time, she spoke of how she and Les were successful in business because they divided and conquered with well-defined boundaries and responsibilities and formalized

business strategies. It was clear they had a plan and were executing it well. Brooke says they have continued to be active in their business over the past three years. During that time, she says, they invested in the advancement of two of their managers through a sweat equity ownership arrangement in their Greenville, North Carolina market. The buyout was completed and today the two managers are full owners of that market. Elsewhere, they made a strategic decision to sell their franchises in the Maryland/ Washington, D.C. market, where they were first in the

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territory with Two Men and a Truck. “As the brand opened more franchise facilities in the area, the decision was made in recognition that the further growth and domination of the market was dependent upon a single area developer, rather than various independent operators,” she says. Today, the couple control the Raleigh-Durham Research Triangle market and the South Atlanta market with 5 franchise operations across the two states. They have also built an internal leadership team designed to support higher volumes. As a result, she says, they have made their team available to outsource to other Two Men and a Truck franchisees. “In 2018, our team was hired to aid a franchise unit experiencing subpar performance,” she says. “We completed a thorough evaluation of the business to analyze and understand its unique challenges and opportunities, then implemented positive changes in business operations and process to more favorably position the business. The result was higher values for the franchisee.” She says they plan to continue offering this resource to other franchisees while focusing on the strategic growth of their own business. “This year, we aim to add two new markets, increasing our annual revenue number to $18 million,” she says. “We also aim to diversify business, adding more opportunity to build revenue.” We’ll check back with them in another three years to see how it went.

PERSONAL First job: I made sno-cones and milkshakes at a small family-owned roadside country stand. Formative influences/events: My mother has been a huge inf luence on my business style and work ethic. While she wasn’t always the greatest mother in my youth, we have grown to be best friends. I better understand the sacrifices she made as a pioneering female in a male-dominated business world. Key accomplishments: #1 in Operations among Two Men and a Truck franchise peers; 13- time Leader in Excellence Award winner; Safety Award winner; 2010 Franchisee of the Year; 2016 Husband & Wife Multi-Unit Franchisee of the Year. Next big goal: Diversification. We are always looking for new business concepts to broaden our investments. Best business decision: To surround myself with diversity. The most successful business leaders are those who build a team of varied perspectives, experiences, culture, and education. Hardest lesson learned: It’s important to balance friendships and business partnerships. In a small franchised business environment, this can be difficult. Work week: As a business owner, I’m available at all times! However, I enjoy the f lexibility of working from home often after several years of team-building focus.

Brooke & Les Wilson — Reconnect

Brooke Wilson, 39 Multi-Unit Franchise Owner, President Lead Dog Ventures

Company: Two Men and a Truck & Lead Dog Ventures No. of units: 5 (though the nature of Two Men and a Truck “units” are different than most franchise systems) Family: Les Wilson, husband and business partner, 3 dogs, 1 cat Years in franchising: 17 Years in current position: 15

Exercise/workout: I do my best to stay active, but man… food is great! I work out with a trainer twice a week in an effort to stay healthy and still enjoy the indulgences of life. Dog walks are also a great indulgence I absolutely love! Best advice you ever got: The best advice I have ever gotten is to always go with your heart but lead with your head. You can only fake it for so long in an industry you don’t enjoy, but if your heart is in it you will never truly work a day in your life. What’s your passion in business? Moving people forward. Our team is the backbone of our business and we want to make sure that everyone at all levels has the opportunity to spread their proverbial wings. How do you balance life and work? This has always been a huge task because my husband and I work together and have done so for almost 18 years. We have a rule that no work is discussed at home and for the most part, we succeed in that endeavor. Guilty pleasure: Desserts! Who doesn’t love a good piece of cake? Favorite book: Rules for a Knight by Ethan Hawke. This small book of short stories reminds me of my grandfather, a constant gentleman in my life. Favorite movie: I love a wide variety of genres.

What do most people not know about you? I love to garden and I love cooking. I was also a cheerleader and basketball player in high school and used to love college football before my husband ruined it for me. Pet peeve: Dishonesty. What did you want to be when you grew up? A creative director. Last vacation: Jost Van Dyke, BVI. Person I’d most like to have lunch with: My great grandfather, CC Dickson. A true inspiration to my mother and my entire family for his endeavors and tremendous character. MANAGEMENT Business philosophy: Like Teddy Roosevelt said, “Walk softly and carry a big stick, you will go far.” Management method or style: Communicate your goals and hold your team accountable to those standards. Greatest challenge: Dealing with my husband and all of his quirks. The entire business world is also becoming much more challenging as customer expectations continue to increase while tolerance decreases. How do others describe you? Tough, driven, smart. One thing I’m looking to do better: I’m always looking to do everything better.

How I give my team room to innovate and experiment: When my team comes to me with questions, I lead a conversation. I ask their insight. Whenever possible, I avoid giving a quick answer. How close are you to operations? In our industr y, operations and sales are the two customer-facing aspects that are crucial to success. I stay as close to operations (and sales) as is necessary to drive our business to the next level. W hat are the t wo most important things you rely on from your franchisor? Data and process training. What I need from vendors: Speed and competence. Have you changed your marketing strategy in response to the economy? How? Our services are tailored to every customer as we try to meet their specific needs. Some want to be thrifty while others think of our industry as a luxury service. The approach is very different for these two, but both require a measure of reach on the social media front. How is social media affecting your business? Social media can make or break you. We have to meet our customers on their playing field, which means that flexibility is absolutely critical. How do you hire and fire? We hire for attitude and train for skills. On the firing side, no one should ever not see it coming when it comes to a termination; and, a business should be quick to fire and slow to hire.

Take the time to hire the right person, and when it isn’t working let them go quickly before the negative influence on your business is magnified. How do you train and retain? Build them up and make sure they know how much they mean to you once they join your team. To some extent, training starts in an interview. You set the expectations of the business, and continue to build on it throughout their employment as you develop skills and—hopefully—move people forward. How do you deal with problem employees? Coach them up or ship them out. Again, no one should ever be surprised when they are terminated. Fastest way into my doghouse: Dishonesty. BOTTOM LINE Annual revenue: $12 million. 2019 goals: We continue to expand, open, sell, and develop new markets. This year, we aim to add two new markets and increase our annual revenue to $18 million. We also aim to diversify, adding more opportunity to build revenue, and have a 97 percent referral rate. Grow th meter: How do you measure your growth? Market share growth is the true measure of sustainable longterm growth. Vision meter: Where do you want to be in 5 years? 10 years? Still moving my people and businesses forward in a positive manner while aging gracefully.

The best advice I have ever gotten is to always go with your heart but lead with your head. You can only fake it for so long in an industry you don’t enjoy, but if your heart is in it you will never truly work a day in your life.

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Brooke & Les Wilson â&#x20AC;&#x201D; Reconnect

Do you have brands in different segments? Why/why not? As of today, not really, but that is the next area we are pushing for in our group. We have built an amazing team with great talent and diversity. We are ready to take on new challenges! How is the economy in your regions affecting you, your employees, your customers? Raleigh-Durham has had the #1 economy in the U.S. for almost a decade, which means that capacity is the greatest hurdle. On the other hand, our Atlanta markets have been less stable economically, which means that our challenges are totally different as maintaining a workable staff in a seasonal industry is a constant focus. Are you experiencing econom ic g r ow t h i n you r market? Always in North

Carolina. Things seem to be on the steady incline in Georgia. How do changes in the economy affect the way you do business? While low unemployment is a staple of a strong economy, it can create significant challenges in terms of recruitment strategies. How do you forecast for your business? We always plan for growth and build our strategies to facilitate that plan. We use historical data compared to market research and financial projections to anticipate the direction of the housing environment. What are the best sources for c apit a l e x p a n sion? Reinvestment of business profit, sound investments, and SBA financing. Experience with private equity, local banks, national

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banks, other institutions? Why/why not? Staying local has been our best strategy since the change in the banking world. There is always a trusted resource that you can reach out to. We shop around and make banks work for us. What are you doing to take care of your employees? Constant development and advancement opportunities coupled with sound long-term retirement planning strategies. And, always appreciation. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? Education and expansion of services that we offer will continue to drive our business and allow rising costs to be absorbed. As with most costs, there is usually an offset in other business areas, whether

renegotiating vendor agreements or raising prices. What laws and regulations are affecting your business and how are you dealing with it? We continue to watch minimum wage policies. The decriminalization of marijuana is a rising concern and will greatly impact on our drug-free, federally regulated businesses. How do you reward/recognize top-performing employees? Public recognition, great travel opportunities, pats on the back, and of course, cash! What kind of exit strategy do you have in place? Our current plan is to build a truly self-sustained business which can potentially be sold to our employees on a co-op basis. T

Building A Southern Powerhouse One Fanatical Fan At A Time. Our beloved brand just got even better with a new long-term vision for the future. With our compelling business model, a world-class management team, a loyal following, impressive AUV, and sustained sales growth, you’ll be a Bojangles’® fan, too!

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501-263-2412 BOJANGLES.COM/FRANCHISE * April 4, 2019 Franchise Disclosure Document © 2019 Bojangles’ International, LLC. This franchise sales information does not constitute an offer to sell a franchise. The offer of a franchise can only be made through the delivery of a Franchise Disclosure Document (FDD). Currently, the following states regulate the offer and sale of franchises: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin. If you are a resident of one of these states, we will not offer you a franchise unless and until we have registered the franchise (or obtained an applicable exemption from registration) and complied with the pre-sale disclosure requirements that apply in your jurisdiction.

Making the Cut EX-MLB PITCHER FINDS SUCCESS IN FRANCHISING Written by KERRY PIPES

Athlete Profile — Kyle Sleeth

ne of the proudest moments of Kyle Sleet h’s f ra nch ising life has been seeing the employees from his six Floyd’s 99 Barbershops, along with the entire Floyd’s 99 franchise brand, unite after the Pulse nightclub shooting in Orlando in June 2016. “We raised as much money as we could for OneOrlando, a local nonprofit organization that supported Pulse victims’ families and survivors,” recalls the 37-year-old. In fact, Floyd’s 99 founders, the O’Brien family, along with corporate shops and Sleeth’s own Orlando shops, raised more than $70,000. Sleeth loved seeing his team in action. As a former major league pitcher with the Detroit Tigers organization, he understands the power of teamwork. The former All-Conference pitcher at Wa ke Forest University set a number of records on his way to the school’s Hall of Fame. He went on to become the third overall pick in the first round of the 2003 MLB draft when the Detroit Tigers selected him. He spent the next 5 years with the organ i z at ion before

retiring in March 2008. He then took a year to finish his college degree (paid for by MLB) before turning to his second career. He and his wife Sarah looked at all kinds of opportunities, from pizza to wine shops. But it was a meeting with a friend of a friend where they first heard about Floyd’s 99 Barbershop, based in his hometown of Denver. “I had never worked in an office before and I didn’t want to start,” he says. “Floyd’s 99 was a way to still be around fun people and give that same energy that I experienced in sports.” Sleeth was drawn to franchising because he saw how it could give him “a blueprint for success with a business model that works.” Now, 10 years into his franchising career, he has 6 shops open, employs 130 people, and has 3 more shops in development in his Central Florida territory. He says his goal is to finish building out his market in Central Florida, which he foresees as 10 to 12 shops. And, 10 years later, Sleeth is still excited to be working alongside his team. “Our goal is to develop some great people in the area to help us build our business and brand.”

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Kyle Sleeth, 37 Managing Partner

Company: Floyd’s 99 Barbershop No. of units: 6 open, 3 in development Family: Wife Sarah (also a managing partner of our Floyd’s 99 shops), daughter 7 who can’t wait to have her own Floyd’s 99 Barbershop, and a son, age 4 Years in franchising: 10 Years in current position: 10

PERSONAL First job: Scraped drywall mud off window sills for my father. Key accomplishments: Being inducted into the Wake Forest Sports Hall of Fame, being drafted in the fi rst round by the Detroit Tigers, and owning and operating a successful business with my wife and business partner Sarah. Biggest current challenge: Balancing being the father that I want to be while growing a successful company. Nex t big goa l: Lock in high-prof ile sites for our next two locations in Central Florida. First turning point in your career: Realizing our growth was exceeding our management manpower. Best business decision: Choosing to franchise with Floyd’s 99 Barbershop. Hardest lesson learned: Not every idea I have is a great one. Work week: Constantly interviewing barbers and stylists, too much computer time, followed by as many shop visits as we can squeeze in. Exercise/workout: Not as much as I should. I enjoy swimming, playing softball, and golf. Best advice you ever got: Don’t be afraid to fail or you will never succeed. W hat’s your passion in business? Building a team of people who want to work with and for each other.

How do you balance life and work? It’s hard because you are never technically off the clock. We do our best to have family time when the kids are home and take as many vacations as possible. Guilty pleasure: Mexican food and wine. Favorite book: Outliers: The Story of Success by Malcolm Gladwell. Favorite movie: “Goonies.” What do most people not know about you? I enjoy cooking. Pet peeve: Excuses. What did you want to be when you grew up? I always wanted to be a baseball player. I was fortunate enough to realize that dream. Last vacation: Tuscany, Italy. Person I’d most like to have lunch with: John Elway. MANAGEMENT Business philosophy: Trying to do it all by yourself is a recipe for disaster. Build great relationships and help others become successful. Management method or style: Lead by example. Greatest challenge: Hiring and having effective communications with employees. How do others describe you? Laid back and a good sense of humor. One thing sports and the locker room taught me was not to take everything so seriously and always have fun with what you’re doing.

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248.414.3300

*Results measure company-wide same store sales figures for each calendar year over the previous calendar year. The measuring period is January 1, 2010 through December 31, 2018. Excludes store sales from the State of Florida, units which are not obligated to and do not report sales to Hungry Howie’s, and units which opened and/or closed during the measuring period. Not all individual stores experienced the same results. New franchisees may have results that differ. This advertisement is not an offer of a franchise. Franchises are offered and sold only through a Franchise Disclosure Document. STATE OF CALIFORNIA: THESE FRANCHISES HAVE BEEN REGISTERED UNDER THE FRANCHISE INVESTMENT LAW OF THE STATE OF CALIFORNIA. SUCH REGISTRATION DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION, OR ENDORSEMENT BY THE COMMISSIONER OF CORPORATIONS NOR A FINDING BY THE COMMISSIONER THAT THE INFORMATION PROVIDED HEREIN IS TRUE, COMPLETE, AND NOT MISLEADING. STATE OF NEW YORK: THIS ADVERTISEMENT IS NOT AN OFFERING. AN OFFERING CAN ONLY BE MADE BY A FRANCHISE DISCLOSURE DOCUMENT FILED WITH THE DEPARTMENT OF LAW OF THE STATE OF NEW YORK. SUCH FILING DOES NOT CONSTITUTE APPROVAL BY THE DEPARTMENT OF LAW OF THE STATE OF NEW YORK. MINNESOTA STATE REGISTRATION NUMBER F-2873. †545 open stores in 21 states with an additional 19 agreements signed as of 12/18/2018.

Athlete Profile — Kyle Sleeth One thing I’m looking to do better: Time management. How I give my team room to innovate and experiment: We let them be creative and express their individuality. One thing we do not preach is conformity. We encourage each individual to be their own artist. How close are you to operations? Very. We are in constant contact with everyone on our management team. We are very involved with hiring, facilities, payroll, marketing, HR, financials, and accounting—and balance this with spending as much time in the shops as possible. W hat are the two most important things you rely on from your franchisor? Support and industry education. What I need from vendors: Timely responses, prompt shipments, and accurate orders. Have you changed your marketing strategy in response to t he economy? How? Community involvement has always been the biggest marketing tool for us. How is social media affecting your business? Social media has been a great way to showcase our shop culture and how talented our employees are. It has also been a great recruiting tool for us. How do you hire and fire? All our technical staff go through an in-person interview that I still do. If they pass, my district manager schedules a technical interview where they perform a haircut. She then hires them or gives them advice on what they need to work on. The local shop manager does the terminations after consulting with us and our district manager. How do you train and retain? We have a 6-hour new hire class for all incoming employees. We also offer continued industry education for all our employees. Education ranges from product knowledge to changing trends in the industry.

How do you deal with problem employees? We try to find out what they are motivated by. If we can get to the root of what that individual wants, we are usually able to get them going in the right direction. If they’re beyond saving, we let them know we want them to be happy so maybe we’re not the best fit. Fastest way into my doghouse: Not showing up on time. SPORTS & BUSINESS What skills/experience from sports have carried over to operating a business? Learning from mistakes and challenges and leading by example. I would never ask anyone to do something that I wouldn’t do myself. W hich do you find more competitive, sports or business? I think it is two different types of competiveness. As a pitcher, I always knew who I was competing against. He was always 60 feet, 6 inches away, and my goal was the same for every batter I faced. In business, challenges and competition pop up daily and are rarely alike. At Floyd’s 99, our biggest competition is ex-employees, so finding out what makes a quality employee tick and be motivated is crucial to keeping them. Why did you choose franchising as an investment option? Throughout my pro career, I knew it wasn’t going to last forever and always kept in the back of my head that Sarah and I would start our own business after I retired. An injury put me out for a few years, so I decided to retire early in 2008 and take the leap into entrepreneurship. We liked that franchising gave us a blueprint for success with a business model that works. How did you transition from sports to franchising? After retiring, I had a year to finish up college that the MLB paid for. While I was taking those classes, Sarah and I started

Multi-Unit Franchisee

ISSUE 3, 2019

As a pitcher, I always knew who I was competing against. He was always 60 feet, 6 inches away, and my goal was the same for every batter I faced. In business, challenges and competition pop up daily and are rarely alike. researching different conc e pt s . We looked at pizza and wine shops, and after meeting with a friend of a friend we heard about Floyd’s 99 Barbershop, which is from my hometown of Denver. I had never worked in an office before and I didn’t want to start. Floyd’s 99 was a way to still be around fun people and give that same energy I experienced in sports. W hat was your greatest achievement in sports, and what has been your biggest accomplishment as a franchisee? In my junior year at Wake Forest I tied the NCA A record for consecutive wins with 26. The record still stands today. One of my proudest moments as a franchisee was seeing our team and the rest of the Floyd’s 99 franchise come together after the Pulse shooting to raise as much money as we could for OneOrlando, a local nonprofit organization that supported Pulse victims’ families and survivors. Within just a few months, with the support of the O’Brien family (company founders) and the corporate shops, our team was able to raise more than $70,000. The teamwork was really inspiring. BOTTOM LINE Annual revenue: $4.8 to $5 million.

2019 goals: Identify two high-profile locations for our next shops in Central Florida. Also, look deeper across our stores to identify and develop more managerial support. Growth meter: How do you measure your growth? At Floyd’s 99, the number of sits or headcount is our top metric. We want to ensure clients are continually coming in, so we look at metrics that measure year over year. Vision meter: Where do you want to be in 5 years? 10 years? Our 5-year goal is to finish building out our market here in Central Florida, which we feel is 10 to 12 shops. How is the economy in your region affecting you, your employees, your customers? Orlando is exploding with growth. There are a good deal of suburbs blossoming and new interstates to connect them into the city. Are you experiencing econom ic g row t h i n you r market? Yes, Orlando has experienced consistent growth since we opened operations in 2010. How do changes in the economy affect the way you do business? We decided to get into the hair business because no matter how bad the economy is, people still need haircuts.

Athlete Profile — Kyle Sleeth What are the best sources for capital expansion? We’ve worked with using LMAs and LOCs on our own personal investments. Now that the business is more established, we are able to secure regular commercial bank loans. The first location was paid for by cash. Experience with private equity, local banks, national banks, other institutions? Why/why not? We have an LOC for cash flow purposes and a commercial loan that was used for capital for one of our locations.

What are you doing to take care of your employees? Across our six Central Florida shops, we have 130 employees and offer health, dental, and vision coverage, life insurance, accrued paid time off, and free hair education. Managers also regularly take extensive development training courses. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? We have had a few price increases since we opened our doors in Orlando in 2010. We started out as a $19 cut and

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ISSUE 3, 2019

are currently at $25. Some of those costs we have absorbed but realize they are essential to the success of our employees and company. How do you reward/recog n i z e top - p er for m i n g employees? We f ind out how each person likes to be rewarded indiv idually. It ranges from something monetary to recognition, or in some cases a few hard-earned days off. It’s always important to let them know personally how much they are appreciated.

What kind of exit strategy do you have in place? Right now, we are in the growth phase of our business and are fully vested. I never say never to anything, but for the foreseeable future our goal is to develop some great people in the area to help us build our business and brand. T

Family Business Young entrepreneurs are well on the road to success

Written by KERRY PIPES

att and Amariah Fultz have their hands full. The young couple is overseeing three Kona Ice territories with two trucks, with a third coming this summer. They also operate a Kona Ice kiosk and are raising two children, a 15-monthold and a four-week-old. Matt was working as a CPA a few years ago when he had a realization about his career. “I saw the way businesses made money and saw that in order to make money and have some degree of flexibility in life, you needed to own your own business,” says the 29-year-old today. Around the same time, a friend told the couple about Kona Ice. They liked the concept and its low-cost entry, and four years ago signed on to become Kona Ice franchisees. The couple began cautiously with just one truck. When they saw it was successful,

they added a second truck, then a Kona Ice kiosk. They plan to keep growing, and their third truck will be up and running this summer. The duo now oversee territories in the Tri-State area of Ashland, Kentucky, Ironton, Ohio, and Huntington, West Virginia. Matt’s accounting background has come in handy for the financial part of operating a franchise business. Under his management, they tallied $300,000 in revenue last year and plan to continue generating double-digit sales growth. Matt sees Kona Ice in his future for years to come and won’t rule out adding another brand. He says that as a Kona Ice franchisee he will always work hard to make a difference in people’s lives, be involved in community fundraising, and continue building a company that will secure his family’s future.

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PERSONAL First job: Sports writer for local newspaper from 18 to 23; worked in the newsroom as a sports writer throughout college. Formative influences/events: Tracy Hillman was a former boss of mine when I worked as a CPA. I watched how the business made money and learned quickly that in order to make money and have flexibility you needed to own your own business. Key accomplishments: Passing the CPA exam on the first try. Proving that we can run multiple Konas in a very rural market. You don’t have to be in a big city to make it work. Given back $150,000 since launch in 2015. Biggest current challenge: Consistent employees, since the brand is more of a seasonal business model. I’m very

fortunate to have a couple of really reliable employees who come back year after year. Next big goal: To get the third truck up and going in July. Continuing double-digit sales. First turning point in your career: Getting the second Kona truck was a big deal for us. We did it once and wanted to see if the second truck could be equally successful. Being able to do it a second time made us believe we could continue to do it and sustain the business. Best business decision: Buying the first franchise with Kona, and doing it when we were young (25) and before we had kids. Hardest lesson learned: You can’t be everything to everybody. Trying to please everyone is impossible and it is a hard pill to swallow when you are a people pleaser. Not

We’re excited

TO WELCOME to the FOCUS Brands® family. Now we’d like to welcome you. To learn more about franchise opportunities, contact

Sheri Ferravante Prequalification Manager franchise@focusbrands.com 866-360-3801

This information is not intended as an offer to sell a franchise. We will not offer you a franchise until we have complied with disclosure and registration requirements in your jurisdiction. Contact Jamba Juice Franchisor SPV LLC, located at 5620 Glenridge Drive, NE, Atlanta, GA 30342, to request a copy of our FDD. RESIDENTS OF NEW YORK: This advertisement is not an offering. An offering can only be made by a prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the New York Department of Law. RESIDENTS OF MINNESOTA: MN Franchise Registration Numbers: Jamba Juice Franchisor SPV LLC: F-6111. © 2019 Jamba Juice Franchisor SPV LLC. All Rights Reserved.

Under 30 — Matt Fultz

Matt Fultz, 29 Co-owner

Company: Kona Ice No. of units: 3 territories Family: Wife Amariah Fultz, 2 children, 15 months and 4 weeks Years in franchising: 4 Years in current position: 4

everyone is going to like you and you have to accept it. Work week: During main season (April to early November), 50–55 hours a week; off-season 10–15 hours a week. Exercise/workout: With two children 15 months and younger, it’s hard to find time to exercise, but we try to take the kids and dog on a walk two to three times a week. Best advice you ever got: People do business with people they like. You don’t have to be the best business person or sales person, you just need to make people like you. What’s your passion in business? Making a difference in people’s lives. Fundraising for schools. Being able to build something for my family’s future. How do you balance life and work? We try to take at least two full-week vacations every year, one with the entire family (in-laws and parents) and one with just the wife and myself. Guilty pleasure: Fast food. Favorite book: Rich Dad Poor Dad by Robert T. Kiyosaki. Favorite movie: “The Italian Job.” What do most people not know about you? I care more about what people think than they realize. Pet peeve: Treating others poorly. What did you want to be when you grew up? To work at ESPN. Last vacation: Clearwater,

Florida, last November with my wife. Person I’d most like to have lunch with: Rickie Fowler, professional golfer. MANAGEMENT Business philosophy: Very conservative. We’ll expand when we can afford it. Don’t go in crazy debt when you can’t afford it. Management method or style: We are not very authoritative. We offer employees a very f lexible work schedule. We try to empower our employees, help them grow, and make sure they have a good experience. Greatest challenge: Making sure we are making the right decisions for the business. Another challenge I often face is finding a good work/ life balance. How do others describe you? People would say that I am a people pleaser and very easygoing. One thing I’m looking to do better: My organizational skills could use some help. I know where everything is, but if anyone else tried to find it they would not be able to. How I give my team room to innovate and experiment: Each of our team members manages the truck on their own. We have trained them to be able to make decisions within reason and always want them to do the right thing. Any suggestions or recommendations that our team members make will be taken to heart.

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How close are you to operations? Extremely close. We talk every day and the team is all in a very similar age range. W hat are the t wo most important things you rely on from your franchisor? Product development and leadership. Make sure the brand stays at the top. What I need from vendors: Consistency. Have you changed your marketing strategy in response to the economy? How? Yes, in the sense that businesses are much more willing to spend money on employee and corporate events, so we have started to target businesses a bit more with our marketing efforts. How is social media affecting your business? Social media is a huge part of our business. It affects us in a positive way. We receive a lot of our event requests and leads through social media, mostly through Facebook and some through Instagram. It’s a great source of unpaid advertising for us. When a guest visits the truck and posts about their experience, it helps us get more brand recognition. How do you hire and fire? Most of the people we hire we have had a relationship with, either through parents or church. We rely heavily on referrals. We haven’t really had to fire anyone. For the one or two individuals who have left, it was more a mutual agreement because we could tell the job wasn’t fulfilling for them any more.

How do you t r a in a nd retain? New Kona employees go through a week-long training process with our more seasoned employees. They help with any upcoming events we have so they can get hands-on experience. They also go through some driver training to make sure they are being safe when operating the Kona Ice truck. For retaining, we hire with a degree of flexibility and allow employees to work when it fits their schedule. Most of our employees are college students. How do you deal with problem employees? We’ve been lucky in the sense that we haven’t really had to deal with problem employees. If we do have a problem employee, we address it head-on and as quickly as possible. If an employee seems to be having personal issues, we allow them to take some time to figure it out. Fastest way into my doghouse: Showing up late. UNDER 30 How did you get into franchising at such a young age? One night my friend’s wife, whose dad is a pastor in Florence, Kentucky, where Kona Ice is based, brought up the idea of us owning a Kona Ice truck. I had just passed the CPA exam 10 months before and said I wasn’t really interested. After thinking about it more, I thought it might be a great opportunity. The fees weren’t crazy and you didn’t have to go into major debt. I also knew someone familiar

People do business with people they like. You don’t have to be the best business person or sales person, you just need to make people like you.

Under 30 — Matt Fultz

with the concept, so I thought we would give it a shot. Was becoming a franchisee something you’d planned on? I knew I wanted to own a business, and owning a franchise was a safer way of owning a business. I didn’t plan on it, but knew it was an option. Did you have a mentor or inspiration for getting into franchising? No. What jobs, skills, and experience have helped you operate a franchise business? My experience as a CPA. Seeing how others ran their business provided me with an inside scoop on running a business. I also knew what licenses were needed and had a firm grasp on the finances. While working at the local newspaper, I had made some connections and learned how to manage relationships. W hat kinds of obstacles did you face in franchising at such a young age? People didn’t take us seriously at first because we were young and purchasing a shaved ice truck business. Also at the time,

our banking situation wasn’t ideal. If Kona didn’t have such a great financing program, it would have been very difficult to buy a business at such a young age. How would you describe your generation? We work hard for things that matter to us. We don’t work hard just for the sake of working hard. We are driven by social causes and are always looking to contribute to the greater good. Do you see franchising as a stepping-stone or a career for you? There is always a possibility for us to add another brand to our portfolio, but I can never see us selling our Kona Ice business. No matter what, we will always be involved to a certain degree. BOTTOM LINE Annual revenue: $300,000. 2019 goals: Getting the new franchise up and running and continuing double-digit sales growth. Grow th meter: How do you measure your growth? Comparing year-over-year

numbers and unit-over-unit numbers. Vision meter: W here do you want to be in 5 years? 10 years? In 5 years, I want at least one more unit, kiosk, or truck. In 10 years, less day-to-day involvement, as well as being able to create bandwidth as an organization and a business and spend more time with my family. Do you have brands in different segments? Why/why not? No. How is the economy in your region affecting you, your employees, your customers? About a year or so ago, our community lost a lot of blue-collar jobs. Businesses had to relocate and our steel mills closed. It didn’t affect our business too much because our prices are low and children will always want shaved ice. Are you experiencing econom ic g row t h i n you r m a r ke t? O u r e conom ic growth is rebounding. We’ve seen some replacement industries coming in, and things are looking more positive than they have in a long while. How do changes in the economy affect the way you do business? We maintain a lowcost option for people to be able to afford our treats. Kids will buy shaved ice no matter what the economy is like because we are not highly priced. How do you forecast for your business? Year over year, we keep detailed records. We have documents of every event we’ve ever done and we experience a lot of repeat events every month. We fill out forecast documents with what we know and use historical data to help us project what we will make. What are the best sources for capital expansion? Kona Ice has financing options, which is very helpful when you want to expand but may not have all the funds you need.

Multi-Unit Franchisee

Experience with private equity, local banks, national banks, other institutions? Why/why not? Local banks are much easier to deal with when your business is a cashheavy concept. It is easier to deposit large sums of money without having large cash handling fees added on. What are you doing to take care of your employees? When employees turn in a referral for a possible event, they get a bonus. We give gift cards to local restaurants and show them that they are truly appreciated for all of their work. We also give our employees a lot of job flexibility. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? This doesn’t affect us as much because we do not have full-time employees since we are a seasonal and more eventbased business. What laws and regulations are affecting your business and how are you dealing with it? Regionally, we had some foodborne illness scares last year and our local government has increased scrutiny of companies handling consumable products. They have required a lot more city training and immunization records to make sure people are handling the food properly. How do you reward/recog n iz e top -per for m i n g employees? We prov ide top-performing employees with bonuses and more tangible items. What kind of exit strategy do you have in place? We invested in Kona Ice so we would be able to pass it down to our children. This way they have a debt-free start. T

ISSUE 3, 2019

THE 2019 MULTI-UNIT 50

Top 50 Brands by Number of Multi-Unit Franchisees RANK

BRAND

MULTI-UNIT FRANCHISEES

SINGLE-UNIT FRANCHISEES

TOTAL FRANCHISEES

SUBWAY

3,999

3,720

7,719

MCDONALD’S

1,984

384

2,368

DUNKIN’

1,023

493

1,516

THE UPS STORE

841

2,274

3,115

AFC

749

1,813

2,562

LITTLE CAESARS

708

792

HISSHO SUSHI

632

652

H&R BLOCK

621

744

1,365

LIBERTY TAX SERVICE

619

859

1,478

GREAT CLIPS

594

300

894

HEALTH MART PHARMACY

565

3,188

3,753

DOMINO’S PIZZA

533

259

792

ACE HARDWARE

531

2,536

3,067

FIREHOUSE SUBS

485

504

BASKIN-ROBBINS

460

779

1,239

BURGER KING

438

355

793

JIMMY JOHN’S

437

315

752

VISION SOURCE

436

2,194

2,630

DQ GRILL & CHILL

400

1,137

1,537

JACKSON HEWITT TAX SERVICE

394

160

554

CENTURY 21

350

736

1,086

TACO BELL

343

344

687

ANYTIME FITNESS

330

1,663

1,993

SPORT CLIPS

290

119

409

Multi-Unit Franchisee

ISSUE 3, 2019

RANKING THE MOST MULTI-FRIENDLY BRANDS

KFC

280

421

701

PAPA JOHN’S

264

410

674

EDIBLE ARRANGEMENTS

259

316

575

WENDY’S

253

143

396

JERSEY MIKE’S SUBS

250

209

459

CHICK-FIL-A

248

1,408

1,656

SUPERCUTS

245

142

387

PAPA MURPHY’S

237

251

488

COLDWELL BANKER

221

485

706

FANTASTIC SAMS

210

301

511

GNC

197

239

436

SONIC DRIVE-IN

187

269

456

ZAXBY’S

187

200

AUNTIE ANNE’S

175

314

489

SMOOTHIE KING

174

224

398

COLD STONE CREAMERY

173

409

582

HUNTINGTON LEARNING CENTER

171

202

DQ TREAT

171

795

966

PIZZA HUT

170

120

290

WINGSTOP

169

120

289

MIDAS

166

276

442

ARBY’S

164

276

440

EUROPEAN WAX CENTER

164

112

276

CULVER’S

155

274

429

KELLER WILLIAMS

154

723

877

POPEYES LOUISIANA KITCHEN

147

606

753

Multi-Unit Franchisee

ISSUE 3, 2019

THE 2019 MULTI-UNIT 50

Top 50 Brands by Percentage of Multi-Unit Franchisees RANK

BRAND

% MULTI-UNIT FRANCHISEES

MULTI-UNIT FRANCHISEES

SINGLE-UNIT FRANCHISEES

TOTAL FRANCHISEES

GATEWAY NEWSTANDS

100.00%

PANCHERO’S

100.00%

FIVE GUYS BURGERS AND FRIES

98.25%

112

114

HISSHO SUSHI

96.93%

632

652

PANERA BREAD

96.43%

FIREHOUSE SUBS

96.23%

485

504

CAPTAIN D’S

95.71%

SMARTSTYLE

94.90%

ZAXBY’S

93.50%

187

200

JACK IN THE BOX

92.31%

104

LITTLE CAESARS

89.39%

708

792

PALM BEACH TAN

89.29%

HWY 55 BURGERS SHAKES & FRIES

88.52%

MIRACLE-EAR

88.34%

144

163

FRESHII

87.69%

HUNTINGTON LEARNING CENTER

84.65%

171

202

MCDONALD’S

83.78%

1,984

384

2,368

DEL’S LEMONADE

83.33%

PASSPORT HEALTH

82.93%

DUTCH BROS.

81.69%

APPLEBEE’S

80.49%

FRONTIER ADJUSTERS

77.18%

115

149

CARL’S JR.

74.38%

121

PLANET FITNESS

71.89%

133

185

Multi-Unit Franchisee

ISSUE 3, 2019

FRESHLY BREWED OPPORTUNITIES AWAIT

Become a part of the oldest privately held specialty coffee company in the country. Select territories available for franchising immediately.

Want to Learn More? (310) 436-5152 www.coffeebean.com

We’re proud to be an exhibitor at the Multi-Unit Franchising Conference in Las Vegas, NV!

Stores Domestically See you in 2020!

300

1200

LOCATIONS WORLDWIDE

300

LOCATIONS

1968

DOMESTICALLY

This advertisement does not constitute an offer to sell any “The Coffee Bean & Tea Leaf®” franchise in, nor is this intended to be directed to the residents of any jurisdiction requiring registration of the franchise before it is offered and sold in that jurisdiction. No ““The The Coffee Bean & Tea Leaf®” franchises will be sold to any resident of any such jurisdiction until the offering has been exempted from the requirements of, or duly registered in and declared effective by, such jurisdiction and the required Franchise Disclosure Document (if applicable) has been delivered to the prospective franchisee before the sale in compliance with applicable law.

TOP 50 BRANDS BY PERCENTAGE OF MULTI-UNIT FRANCHISEES

RANK

BRAND

% MULTI-UNIT FRANCHISEES

MULTI-UNIT FRANCHISEES

SINGLE-UNIT FRANCHISEES

TOTAL FRANCHISEES

JACKSON HEWITT TAX SERVICE

71.12%

394

160

554

BOJANGLES’

71.05%

SPORT CLIPS

70.90%

290

119

409

GODFATHER’S PIZZA

70.86%

124

175

PENN STATION EAST COAST SUBS

70.24%

VALVOLINE INSTANT OIL CHANGE

69.23%

PACLEASE

68.85%

BARBERITOS

67.74%

DUNKIN’

67.48%

1,023

493

1,516

DOMINO’S PIZZA

67.30%

533

259

792

GREAT CLIPS

66.44%

594

300

894

SOTHEBY’S INTERNATIONAL REALTY

66.42%

134

HARDEE’S

65.63%

128

COST CUTTERS FAMILY HAIR SALON

64.29%

WENDY’S

63.89%

253

143

396

SUPERCUTS

63.31%

245

142

387

ARMSTRONG MCCALL

62.50%

FREEDOM BOAT CLUB

62.22%

AVIS

61.90%

TWO MEN AND A TRUCK

60.58%

137

RALLY’S

60.53%

EUROPEAN WAX CENTER

59.42%

164

112

276

RNR TIRE EXPRESS

59.26%

MICHELIN COMMERCIAL SERVICE NETWORK

59.09%

PIEOLOGY

58.82%

PIZZA HUT

58.62%

170

120

290

SOURCE: FRANdata. Brands with 25 or fewer units excluded.

Multi-Unit Franchisee

ISSUE 3, 2019

O w n THE PIZZA THAT MADE THE BROOKLYN BRIDGE FAMOUS.

JUST ANNOUNCED! FRANCHISE DEVELOPMENT OPPORTUNITIES NOW AVAILABLE. INFO: franchising@grimaldispizzeria.com

BUILT TO

SCALE

How 5 top operators do it Written By

HELEN BOND

Multi-Unit Franchisee

ISSUE 3, 2019

Feature — Scaling for Growth

aj Patel’s family-owned multi-brand franchise company, The Hari Group, is at a crossroads.

Founded in 2011 with eight Dunkin’ Donuts owned by Patel’s father, the Naperville, Illinois-based business has aggressively expanded into a diversified portfolio of 60 locations in three states. While Dunkin’ is Patel’s biggest brand, he also owns BaskinRobbins, Tide Dry Cleaners, and McAlister’s Deli locations. “The first 10 years, our goal was to get to $50 million, and we did it through growth and acquisition,” says Patel. “Now we are taking a step back and analyzing what our next step will be. We are at an interesting spot where most of our debt rolls off in the next few years. The question is: Do we want to go over $60 million now? $100 million? Or are we happy where we are and just go with the flow?” For multi-brand franchisees like Patel, scaling a business to get to the next level isn’t just about getting bigger. It’s about getting better. “You want to make sure you are staying at the top of your game all the way through,” he says. Franchising is built for scale. It’s why any plan for growth starts by choosing a franchisor with a proven track record of success. “A good partnership with the franchisor is key,” says Kyle Norcutt, a longtime franchisee of Two Men and a Truck. “Your vision has to align with their vision because you are really managing assets for them in the end, and you have to make sure you are on the same page.” Strong franchise support, training, and simplified operations allow franchisees to scale up and stay dialed in on costs, company culture, and—most of all—cash for sustainable growth. “For me, the time to diversify is when one of my brands is doing exceptionally well,” says veteran franchisee Bob Middleton. “You need a lot of cash to grow, and having a really strong cash flow company can be a catalyst to making that happen. Trying to diversify because your company is losing a lot of money could end up bad if that new company you decided to add to your portfolio does not work out.” Middleton, a multi-brand operator of Little Caesars, Jersey Mike’s Subs, Sonic Drive-In, and Del Taco, has built his business heeding advice received long ago: focus on one thing and do it well to build wealth—and preserve that wealth by diversifying. Middleton, who has spent his career in the restaurant industry, chose to diversify so one brand didn’t determine his success. And once you do choose a brand, he says, focus on executing the business model, not changing it. “One of the things I learned, and still remember, is that you cannot be an expert in everything. Every brand has its own DNA, culture, personality, and point of difference, and that is why you do not want to have the same person running two different brands,” says Middleton. “I have an equity partner in every brand and keep the operations people completely separate from my other businesses. I use the same attorney, accountant, and all report to me, but basically, my equity partners are the real experts in their brand and run the operational side of the business.”

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One of the things I learned, and still remember, is that you cannot be an expert in everything. Every brand has its own DNA, culture, personality, and point of difference, and that is why you do not want to have the same person running two different brands”

STAY AHEAD OF THE CURVE Building infrastructure for growth doesn’t mean the business has to be overloaded with hierarchy. Franchisee organizations are increasingly coming up with creative ways to simplify their structures through smaller, well-coordinated teams, a regional focus, or developing org charts based on geography and the complexity of the business. Seasoned multi-unit franchisees also emphasize the need to stay ahead of growth. Putting systems and procedures in place earlier can avoid fixing problems later, says David Blackburn, CEO and COO of Southern Rock Restaurants, McAlister’s Deli’s largest franchisee. “Plan for the worst and the odds will be in your favor,” says Blackburn. “Chance favors the prepared mind.” Building the right team is critical to scale up successfully. Norcutt, who joined Two Men and a Truck in 1997, admits he enjoys the challenge of opening new locations more than maintaining them. Over the years, he has acquired 22 franchise markets and operated as many as 16 territories at once. Currently, he has 11 markets with locations in Michigan, Washington, Colorado, and Texas. As his moving brand business grew, the longtime operator learned to surround himself with people who provided complementary skill sets. He has also become more nimble, while still remaining future-focused. “We set one, three, and 10-year goals,” says Norcutt. “We know where we want to go long term, and if there is a little step back, if we know it is a for a long-term gain of getting to where we want to be, we are fine with that. If we sell a location, we don’t get hung up on whether it is a win or loss for us. Sometimes it’s just a better fit.” Multi-Unit Franchisee

ISSUE 3, 2019

Feature — Scaling for Growth As the largest franchisee of McAlister’s Deli, Blackburn is no stranger to scale. With more than 80 locations open and 7 more under development for 2019, Blackburn developed a flair for solid operating principles and disciplined execution during his 15-year run with O’Charley’s. As regional vice president of operations and vice president of business development, he led a 70-unit region to company-leading sales and profit improvements for 11 years. In 2011, he founded Southern Rock with the acquisition of 23 McAlister’s. He is looking to add another 35 locations to his fast-casual brand, spread across Tennessee, Mississippi, Missouri, Kentucky, Illinois, Indiana, and Ohio. His team is led by AJ Baird, president of operations and a 21-year veteran of McAlister’s; two vice presidents “competing for best results,” he says; and 13 area directors with two more set to come on board. “They are our heartbeat, and they tune into their stores daily with the highest level of commitment to communicate and assist their stores in their weak areas to be both effective and efficient,” Blackburn says. “We have 83 general managers, and all of our stores have in-house leaders While it is difficult to find the right talent to staff our stores, it isn’t impossible. Remember to recruit harder, train harder, and build the bridges with those new relationships quicker, while always hoping for the best outcome.” Blackburn considers himself an “old school” operator who has used a lifetime of experience to understand the right time to grow and how to best approach his company’s growth. “You have to research each local market, understand your brand, and determine the best location to

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Remember to recruit harder, train harder, and build the bridges with those new relationships quicker, while always hoping for the best outcome.”

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Don’t take unnecessary risks. I like to think of it as a race car: You want to go fast, but you also have to use your clutch to shift gears into the turns, brake for trouble, and be wide open in the straightaways.”

develop,” he says. “Then, it’s absolutely essential that you’ve identified the right building blocks to help each location succeed. And, as you grow, you’ll need to create a business and staffing plan that will help develop a smooth-running operation.” When Blackburn weighs whether to grow or grow rapidly, the economy, interest rates, his team’s appetite, and their ability to grow a leadership bench also come into play. “Don’t take unnecessary risks. I like to think of it as a race car: You want to go fast, but you also have to use your clutch to shift gears into the turns, brake for trouble, and be wide open in the straightaways.” Patel, at the Hari Group, agrees. He learned early that there is no such thing as perfect growth. To weather the bumps in the road, he says, avoid growth for growth’s sake. When your current operations are tight, humming, and profitable, it makes life as a multi-unit franchisee much easier, he says. “The mistakes I continually see is when someone signs a multiunit development and makes the wrong move, or opens in the wrong location because of a time crunch,” he says. “Obviously, franchisors want to get their locations open, but more so, they want successful franchisees.” When franchisees are ready to scale, adding new brands serves up both new opportunities and new challenges. Patel estimates that with every new concept it has taken his company about a year to learn the system, operations, how to make money, and identify the right type of hire to ensure success before he ramps up growth. He uses a two-pronged back and front of the house approach to infrastructure for each brand, without touching his other people, he says. With an infrastructure in place built to handle 100 stores, Patel has turned his focus to beefing up the front of the house, growing from within with the right people.

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Feature — Scaling for Growth “We have a lot of good single-store managers, and they aren’t going to be with us forever if we can’t figure out how to increase their earnings,” he says. “Our focus is on how we can take a single-store manager and help grow them to get to two, five, or maybe even seven to 10 stores one day. That is how we are able to retain employees, by showing them a path. We can’t do it all at once, but that is the people piece.” Jesse Keyser, whose brands include Sport Clips, Little Caesars, and Oxi Fresh Carpet Cleaning, meets the challenge to grow bigger and better head-on, linking management compensation to productivity and sales growth. “It’s simple: we explain to them that our goal is everyone makes more every year!” Keyser says. “To do this, we determine what key business indicators affect those two things the most, and then we dial in on those. We have a store report card that comes out every four weeks. They have to identify two things that are working really well and two things that can be improved. Four weeks is long enough to see a change, but not too long to lose momentum.” DEVELOP A WINNING CULTURE No matter how you choose to scale, through organic growth, acquisition, or diversification, franchising pros say don’t forget about the internal needs of the business that may require a shift in mindset. “You cannot build a steady infrastructure that incorporates the right people, processes, and systems unless you have a culture that is rock-solid,” says Blackburn. This can be accomplished in a multitude of ways. Southern Rock created “Rock Stars” to engage with the team. The best performers get autographed electric guitars, and rock bands often accompany meetings, says Blackburn. Last year, Southern Rock’s general managers, above-store leadership, and the entire corporate support team took a trip to Disney and Universal Studios. “We called it a meeting, but it was mostly just having fun and celebrating our progress,” says Blackburn, “something that we need to do. After all, building restaurants is fun.” He also travels to his restaurants as often as possible. It is important, he says, to thank the team for their hard work, validate the standards they have achieved, and honor a key operating principle of the company: “Must Be Present To Win.” Blackburn, who considers himself a second-generation operator, strives to lead by the examples set by people he calls “great first-generation operators” he has worked with in the past at O’Charley’s: Dave Wachtel, Phil Hickey, and Steve Hislop. “They all had something in common—a relentless pursuit to visit stores and to give the team something to believe in,” says Blackburn. “It seems these days, at the root cause of each failing concept is a lack of belief in the company and concept. This industry craves involvement and engagement from its leaders, and that’s what we must give them. We have to be involved every step of the way.” To form the culture of your team, Keyser, who has served on the advisory councils for all three of his brands, believes in the practice of gratitude in the workplace. He says a team that operates from a position of gratitude toward their customers and fellow

Multi-Unit Franchisee

ISSUE 3, 2019

team members and has an appreciation for the structure and reliability of a solid organization is happy and has a strong culture. Sustained growth and scaling to make it work requires constant planning. Middleton, after more than three decades of building businesses, is now hard at work on learning how to create a succession plan for his equity partners and family—and “hopefully, showing them what it takes to become successful in this business,” he says. “With success comes more confidence to grow and get bigger— and less control. That is the number-one reason, in my opinion, that some people can never get to the multi-unit level, because it is so hard to give up control,” says Middleton. “To grow you must go from managing to leading. Leading means mentoring and developing more people, trusting people more, believing in others more. You have to inspire others to do the job, not because they have to, but because they want to. You have to have a vision that helps others advance and win with you. Why else should they follow you? Sharing success is what leadership is really about.” T

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With success comes more confidence to grow and get bigger—and less control. That is the number-one reason, in my opinion, that some people can never get to the multi-unit level, because it is so hard to give up control."

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Hire, Train, Retain, Repeat

ot since 1969 have so few people been unemployed in the United States. Evidence of a strong economy, but that doesn’t mean franchisees can relax. On the contrary, today’s record low unemployment rate means they must work harder than ever to hire and keep the kinds of employees whose work sustains a successful business. “It’s the hot topic of the day,” says PuroClean franchisee Keegan Trudgen. “We’re at full employment and everyone is looking for qualified workers.” Add in the high turnover typical of certain industries (think restaurants), and that makes good solutions for effective hiring, training, and retention essential. Some of those solutions are right at hand. “It’s not in the least bit sexy,” says Trudgen, “but we’ve had success with a friends and family approach, combined with word of mouth.” He has also begun reaching out to local high school and community colleges and counselors at career centers to showcase the professional options PuroClean offers. “We’re giving people a path,” he says.

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Offering a future that’s more than short-term is an effective strategy, says Lance Vaught, vice president of operations for Penn Station East Coast Subs. “Competing for employees on starting wage alone is not effective in today’s ultra-competitive hiring environment. We have always felt the type of employee our franchisees are looking to recruit is someone who wants to work their way up the ladder from day one.” With that in mind, Vaught says, “We developed the My Penn Path development aid, which allows franchisees who are recruiting job candidates to more clearly articulate a candidate’s career path. It engages them in the process from the start and allows franchisees to compete on opportunity as much as wage.” Technology is a popular solution for initial outreach. “Our franchisees use various online recruiting platforms, in-person restaurant recruiters, and traditional employee referrals from their crew,” says Vaught. Candidates are also asked to complete personality profiles. “These profiles help ensure that the candidate is a good fit culturally and emotionally. They also help assess

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Feature — Hiring and Retaining which candidates stand out—those we want to quickly move on to a fast-pace promotional track.” TJ Schier, founder and president of SMART Restaurant Group and owner of 14 franchised Which Wich sandwich locations, likes a broad spread to attract prospects. “It’s like fishing. You need to have a presence, many hooks in the water—job boards, ads, in-store, social media—with the right bait, like catchy ads.” If prospective employees nibble, they are directed to a “Day in the Life” web page where they can see what the actual workplace looks like. Wisconsin-based BrightStar Care multi-unit franchisee Susan Rather respects in-house recommendations for recruits, but she’s doing more than just putting up posters or distributing flyers. “We are also doing mock interviews at job centers, and we’re on the boards of organizations such as Centro Hispano, which supports the Hispanic population in Madison with job coaching and resource navigation,” she says. Also helpful, she says, is that BrightStar corporate has recorded videos of its caregivers working with simulated clients. When it comes to fi nding potential employees, Rather has adapted to today’s job seekers. “I’ve changed my stance on communicating with applicants by text. Previously, I thought it wouldn’t help us make a connection, but I see now that we have to communicate in the way they’re accustomed to. After we get them onboarded, we do stress the importance of having face-toface and voice-to-voice conversations.” Jeff Meyer, president of Meyer Foods, a franchisee of eight Culver’s restaurants in Indiana, looks for something that can be hard to find. “We believe we can teach any skills within the restaurant, but we cannot teach drive, passion, and motivation for success,” he says. “Those are key skills that we keep top of mind during our interview process.” He also keeps a close eye on his customers. “We view everyone as a potential team member. Many of our current team members were guests in our restaurants and liked the environment so much that they inquired about job opportunities.” Jeremiah Bowe, another Culver’s franchisee, also looks close to home. “I would say greater than 50 percent of all the people employed in our restaurants are there through word of mouth from our employees—brothers and sisters and friends,” he says. And with a workforce that’s 70 percent part-time, he works extra hard to keep those employees coming back, despite the temptation of other seasonal jobs. He offers comeback bonuses and, something quite remarkable for part-timers, paid time off and affordable health insurance. TRAIN ’EM With each successful hire, training begins—or should. “We’ve all worked in jobs where we were hired, then been thrown in to sink or swim,” says Todd Jackson, a longtime Newk’s Eatery franchisee. “A proper orientation that puts your culture at the forefront sets the standard for every new hire,” he says. “Having someone in charge of training who does not have the mindset, or who does not exhibit the restaurant’s desired culture hurts you in the long run. Commit the dollars to training. You will benefit in the end with lower turnover and lower training wages.”

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Jackson is using whatever technology supports the communication of that training. “In our organization we are relying more and more on technology and video-based training. This allows us to give consistent messages to each new hire, whether it is about culture, how to properly make a dressing, or how to set up our restaurants,” he says. “Our hourly partner demographic is shifting to a group that embraces technology. We must do the same. The key is to blend that technology with motivated and qualified trainers and with tracking that reduces the odds that someone will fall through the cracks.” To accomplish that, Jackson and his team use HotSchedules for communication and scheduling, and Schoox for online digital training. “We’re using Schoox more and more with all of our training now being done on tablets, pads, or phones,” Jackson says. “Interactive versions of register training, line builds, and other items are made in a way that the new generation enjoys interacting with, and in a way they are familiar with. We are also able to continue culture building by using this vehicle to

“I’ve changed my stance on communicating with applicants by text. Previously, I thought it wouldn’t help us make a connection, but I see now that we have to communicate in the way they’re accustomed to."

have employees watch videos of their peers explaining what the culture means to them and how the new hire can live our values.” Schoox also can be used to monitor whether training is taking place and to ensure new hires are being cared for properly. At Penn Station East Coast Subs, training starts right away, with a tool called “My Penn Path,” says Don Robinson. His 18 locations make him the brand’s largest multi-unit franchisee. “We have incorporated My Penn Path into a local training program that we have had in place for many years. This has allowed us the opportunity to have a clear and precise outline of expectations for both the employee and our management team. We let them know on day one how the training process will go and exactly how they can earn raises as fast as they can master each station. Some may earn 50 cent increases as fast as two weeks and some may take six months.” Before any employee is allowed to work a shift, they must attend an orientation from one of Penn Station’s operations directors—supervisors who oversee multiple locations. “This orientation allows us the opportunity to have a high-level supervisor be the voice of the company and outline the training process,

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Feature — Hiring and Retaining our culture, and how the employee can move up or earn raises,” he says. “These are performed a few times every week in our regional office or at the store level on occasion. It is another huge commitment of time, but worth every minute.”

then, as now, is “to show them we care about their development and their time here with the company.” It also allows him to identify future leaders he can start training to become assistant managers and eventually GMs or higher. “This also allows me to develop relationships with our newly promoted team leaders and give them a comfort level of reaching out if they feel something isn’t right within the store.”

For the past 3 years, says Vaught, Penn Station’s training program has made Training magazine’s Top 125 list for organizations with the most successful learning and development programs in the world. For his Which Wich stores, Schier has found employee development can be guided with an assessment that fi nds what he calls right-fit talent. “We lay out the development ladder on their fi rst day of employment and have a philosophy of ‘Train until they can’t get it wrong.’ We help guide the employee up the ladder.” The materials are a mix of e-learning modules, books on management, on-the-job training, and interactive exercises. Meyer likes employee training for his Culver’s employees to be available on a consistent basis. “We feel that we must continue to invest in our team members, and a large part of that is providing them with a best-in-class training team. We provide monthly workshops that allow team members from different locations to come to our central office and participate in a learning environment while sharing best practices,” he says. “We actively coach and train to emotional intelligence and leadership-style coaching.” KEEP ’EM A few years ago, Robinson changed up his hiring process. “I decided to do a fi nal interview for every single hourly manager before they are promoted,” he says. “With 20 locations this was a huge commitment of time, but worth every moment.” His goal

For Trudgen and his PuroClean team, one new change has had tremendous effect. “Just about a year ago we really started stressing culture, the idea that we want to be the best, pushing the culture of who we are and what we do—our mission, our values, our anchors,” he says. “When we did that, all of a sudden people’s mindsets started to change. We started holding each other accountable. When we did that, our turnover dramatically decreased—by at least half. I really think it’s about people feeling as though they belong to a team where everyone is holding everyone accountable, that they have a purpose, and that gives them some satisfaction.” As others have learned, Meyer knows that flexible scheduling is a useful perk, but so are other incentives. “Our teams really like our ongoing monthly team contests where they can win different prizes and recognition across our group of restaurants,” he says. More than that, he adds, the monthly meetings create a platform for team members to bring up ideas for discussion on how to improve operations and the working environment. He says this gives team members an opportunity to have a larger impact on their jobs and feel a greater part of the company. Robinson says he discovered that once a person was promoted to general manager, training and development diminished.

“Just about a year ago we really started stressing culture, the idea that we want to be the best, pushing the culture of who we are and what we do—our mission, our values, our anchors,” he says. “When we did that, all of a sudden people’s mindsets started to change. We started holding each other accountable. When we did that, our turnover dramatically decreased—by at least half. I really think it’s about people feeling as though they belong to a team where everyone is holding everyone accountable, that they have a purpose, and that gives them some satisfaction.”

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Feature — Hiring and Retaining To remedy this, he added several continuing education classes that assistant managers and GMs must attend throughout the year. He and his operations directors teach these classes, which cover hiring, interviewing, coaching, profitability, inventory, point-of-sale features, and more. “This has been a great addition for our company that I believe will be a big step in increasing profits and reducing turnover,” he says. Schier’s tactics for Which Wich include considering some unusual approaches to retain employees. “We are looking into gig economy sites that have popped up as a way to keep a solid, well-paid core, instead of having a merry-go-round of turnover. We are also looking at supplementing when needed with people hired on gig sites—Qwick.com is an example. We are also going to start testing a pay-as-you-go option that an employee can select to get paid the next day, similar to how Uber works. If that is well-received, it’s another message we can recruit with—getting paid quickly.” Tom Baber, an IHOP and Money Mailer franchisee, is also thinking creatively with meaningful rewards for work well done. “We keep the environment positive with small extra bonuses, for example. We recently raised all pay $1 per hour. Sales and customer satisfaction were strong so it was earned,” he says. “We have a mandated dollar increase in the minimum wage coming soon, and our goal is to be a certain amount above that to start, as we are today, and to keep that space at all levels in the organization. This will mean another pay rise coming soon, but this last one was proactive and very much appreciated. Again, it was earned. Our managers and team have done a very good job.” He also offers other benefits, including partially paid Aflac insurance. “We also offer a telephone and online medical service for every employee and their families. It is not very pricey and does not replace health insurance, but is very handy and has been very well-received. Both of these have led to higher satisfaction and retention.”

as hard as I am able. I know how rough those days are. It never goes unnoticed, plus it is a teaching opportunity for how to handle the toughest days, both from an attitude and a customer service perspective.” At Newk’s Eatery, Jackson has figured out that retention is all about treating people right. “All of this is in the culture or environment. If an hourly partner or manager feels valued, they will stay. Everyone talks about this, and it is true. You make someone feel valued by doing the little things—saying hello, good-bye, and thank-you every shift,” he says. “You also do this by providing an environment that is disciplined where everyone knows what is expected. Good people want to stay working with good people. If the environment starts to change because people are slacking off, the good people are the first to go.`” says Jackson. “If turnover is too high, culture is most likely to be the culprit, and it starts with the leadership.” That leadership, he says, can be the GM, the area director, or the franchisee. Jackson agrees that employees need to know that they have longer-term career options. “It is important for people to feel like they are working toward a goal. If advancement is possible and demonstrated, they work harder. For us, the most effective tool has been promotion from within. We’ve had great success taking hourly partners from starting in a position, moving to a certified trainer, then to an hourly shift leader, and finally into management. When others see this progression is possible, it inspires them to strive for the next position as well. When everyone is trying to get to the next level, it is great for quality of operations as well as morale.” That helps with recruitment, too, he says. “In our organization, we have approximately a 1-to-1 ratio of internal promotions to external hires—and that’s attractive to people coming from the outside.” At Culver’s, keeping things simple is working for Bowe. “We ask people to show up when scheduled, to respect others, and to show up with a good attitude for work. If people do those three things, I tell them they can work for us forever.” T

Baber understands that kindness and respect for employees is not always about money. “Whether it be a normal greeting when we meet, a more difficult conversation like a discipline issue, or the aforementioned pay raises and other benefits, we treat it all like the employee is our customer and we will do all that we can within reason to make them feel welcomed, appreciated, valuable, and needed,” he says. “While there is no doubt we and the brand create high expectations, we also treat our employees just as we would like our customers to be treated.” He does one more thing that he sees as a way to communicate his dedication to his employees. “I work personally at a store on Mother’s Day and Father’s Day. I am not part of any regular schedule at any location, but on those days I work up front and Multi-Unit Franchisee

ISSUE 3, 2019

Customer Service

Ace Every Interview 3 ways to make your process ungameable

Written By JOHN DIJULIUS

arely does a company go through rapid growth without having their customer experience suffer significantly. Imagine your company growing, expanding, and needing more employees—a lot more, maybe hundreds more. How picky can you be when you need 400 new employees within the next few months? Demand for your product and services is exploding. Locations must be opened. The pressure is on to get people hired and trained. This is where most companies start compromising on whom they hire. Even worse, they may start fast-tracking new employees through training. That’s a mistake. What has always made you unique are the people you hired, how well they were trained, and the great customer experience your company delivered. If you give in to compromises, you will have high turnover, low morale, and your customer experience will be so inconsistent it will become a liability instead of your strongest competitive advantage. Growth is great when done right. But don’t succumb to the growth trap. You can’t compromise your hiring, training, and the customer experience your company delivers.

Getting hired at your company should be extremely hard. It is only fair to your existing employees that you stay extremely selective on whom you let in. People need to earn the right to be a part of your culture and legacy. Your goal should be that every long-term employee considers their decision to join this company one of the best decisions of their life. The biggest problem with the typical interview process is that most intelligent candidates can game it. Everyone knows they are going to get asked, “Tell me two negatives about yourself.” A well-prepared candidate will respond, “I am a perfectionist and workaholic.” The companies that hire the best employees have the best screening processes that are “ungameable.” The following are three best practices for the interview/screening process. 1. PUT THEM IN DISTRESS A great way to test out someone’s character is to observe how they react when things don’t go according to plan. Walt Bettinger, CEO of Charles Schwab, takes every candidate out for a breakfast interview. The potential employee is not aware that Bettinger has asked the restaurant to purposefully mess up the candidate’s order. As Bettinger sees it, character is everything, and the “wrong order” test is meant to gauge how a potential hire deals with adversity. “It’s just another way to look inside their heart rather than their head,” says Bettinger. 2. THE ENGAGEMENT INDICATOR If you are looking for people who have the potential to be customer-centric service providers, evaluating their “5 E’s” might be your most powerful tool. Many of our consulting clients have incorporated the 5 E’s into their interview

process, literally counting the times a candidate demonstrates each one. For example, they record the number of times during the interview that: • Eye contact was made • Ear-to-ear smiles took place • Enthusiasm was displayed • Engagement with the interviewer occurred naturally • Educated answers were given to interview questions While I believe most employee candidates have the potential to provide excellent customer service, not all do. The 5 E’s can help you identify candidates who are able to achieve a high service aptitude with rigorous training. During the interview process, if candidates are not smiling, making eye contact, and showing enthusiasm—then pass. No amount of customer-service training will change them. As for the engagement indicator, the key to that is having an interviewer who constantly displays all 5 E’s. 3. GROUP INTERVIEWS In our businesses, John Robert’s Spa and The DiJulius Group, we have found group interviews are extremely productive and telling. First-round interviews are always with a group of candidates. This reduces the time from six hours with each candidate to one hour. This initial interview focuses on what the company is about, what the position is about, and what it takes to be successful at both. We then ask the candidates questions that each has to take turns answering. The potential hire thinks they are being judged on who has the best answer. What we are really observing is what the other candidates are doing when it is not their turn to answer. Are they disengaged, fidgety? Or are they listening, nodding, and smiling while the other person is answering the question? That is the one we want. T John R. DiJulius III, author of The Customer Service Revolution, is president of The DiJulius Group, a customer service consulting firm that works with companies including Starbucks, Chick-fil-A, Ritz-Carlton, Nestle, PwC, Lexus, and many more. Contact him at 216-839-1430 or info@thedijuliusgroup.com.

Multi-Unit Franchisee

ISSUE 3, 2019

SAVE THE

DATE January 28-29, 2020 Hotel Savoyen, Vienna Austria

People

Hiring, Anyone?

5 ways to win the war for hourly talent

Written By MATHIEU STEVENSON

oday, unemployment is at 3.6 workers from other stores the chance to pick up additional shifts. You can also percent—the lowest in nearly 50 years—according to the U.S. Bureau access on-demand worker pools like Snag of Labor Statistics. In fact, unemployment Work to fill open shifts. has been on the decline for more than Technology will continue to change 100 consecutive months. As a result, the and improve how businesses approach demand for hourly employees is at an all- hiring. In the near future, we expect to time high, making recruiting and retaining see automated responses through chatworkers more challenging than ever. bots such as Alexa or Siri, automated In the food service industry, the annual screening using enhanced worker profiles, turnover rate for hourly workers is 124 per- in-flow questions and aptitude tests that cent. As you know, continually filling open will prescreen applicants in minutes, and positions is both time-consuming and automated candidate ranking and interexpensive. A franchise restaurant loca- view scheduling. tion spends an average of $109,000 each MAKE HIRING MOBILE-FIRST year to replace hourly workers. In fact, in most, if not all sectors employing hourly Mobile has changed the way most people navigate and manage their lives. Seventyworkers, the competition is great, demand is high, and technology has changed how five percent of hourly workers use mobile to search for jobs, up three times from everyone communicates. Business owners 2012. Eighty-two percent of Gen Z workand managers can’t afford to get behind. ers use their phones to apply for jobs. Here are five simple tips to help you win The hiring experience should not be the hourly talent war. “mobile-friendly” but rather “mobile-first.” PRIORITIZE APPLICATION Hiring sites should be designed first for RESPONSES mobile, allowing job seekers to navigate Google job searches are down 5 percent the entire hiring process on their phone. from 2017, a leading indicator that the Additionally, marketing your business and pool of available talent is shrinking. And job postings on mobile channels such as hourly workers have more options than search and social is key to reaching Gen Z. ever from traditional competitors, the proliferation of new QSRs, and gig plat- SPEAK GEN Z’S LANGUAGE forms like Uber, DoorDash, and Instacart. By 2022, Gen Z will represent 50 percent of hourly workers. As the first generaWith fewer workers seeking jobs, it’s vital to stand out among the competition of truly digital natives, this group was born expecting the availability and tion. Workers consistently tell us that the most frustrating and discouraging part of immediacy of information and communication. Adapting to Gen Z’s preferences the job search is a delayed response from and understanding what motivates them employers. In the war for talent, don’t lose is vital in hiring from this pool of hourly a promising candidate by not replying workers. They want—and expect—near soon enough. real-time responses. They are twice as EMBRACE TECHNOLOGY likely to open a social media app than a Technology has changed what is possi- text or email. Yet, they still value in-perble in hiring. Opportunities like Amazon son communication. Retaining Gen Z Flex help local franchise businesses give workers is the next battle. They require

Multi-Unit Franchisee

ISSUE 3, 2019

a more explicit understanding and communication about the path to full-time work, as well as training and development opportunities. They also tell us they are motivated by how technology can enhance the customer’s experience. DON’T OVERLOOK THE UNDEREMPLOYED W h i le u nemploy ment t rends a re encouraging, underemployment is real. Thirty-eight percent of hourly workers are considered underemployed (defined as those not receiving enough hours to maintain a reasonable lifestyle). An alarming 73 percent of hourly workers struggle to make ends meet and are two times more likely to accumulate debt. Fifty-four percent of underemployed workers are actively seeking other employment. One in two part-time, underemployed workers shared that they have a “side hustle,” with many using gig platforms like Lyft or Postmates to gain additional hours to supplement their income. However, of the part-time underemployed workers, 74 percent would prefer a single full-time job. HOW WE KNOW Data gathered over nearly 20 years—from more than 470,000 employer locations and a network of more than 95 million workers—gives us a powerful understanding of the hourly work space and allows us to generate massive data sets that provide insights and trend information on such topics as specific hourly positions, targeted local markets, and Gen Z communication preferences and device usage. This data, coupled with macro trends such as national underemployment, allows us to understand the changing ways hourly job seekers and employers connect. T Mathieu Stevenson is CEO at Snag. For more information, visit snagajob.com.

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Marketing Technology

Keep Your Customers Satisfied Pair technology with a human touch

Written By KURT KRAKE

ew digital and social technologies may tempt marketers to jump on the latest bandwagon to win new customers. Yet the greatest chance for success still comes down to the ability to build deeper, more meaningul relationships with committed customers. Here are a few steps and tools to help strengthen relationships with existing customers, partners, and stakeholders… while leading to new audience development. DO YOUR HOMEWORK Email databases, web analytics, and CRM performance can reveal more than data about sales. They also offer insights to inform marketing strategies and, more importantly, help you better understand your customers. A good place to start is with website analytics tools like Google Analytics. These basic tools can help develop an understanding of how audiences are finding your company, what pages get the most attention, and where and when users abandon your site. Google Analytics can also reveal a lot about customer engagement: how frequently they visit, what devices they use, and even demographic information such as age, gender, and location. Inexpensive heat map and user recording tools like Hotjar can reveal a deeper perspective on website engagement. This tool shows where users are clicking and how far they’re scrolling down pages. This is especially relevant when considering where to place specific calls to action. Newsletter sign-ups should also be prominent. If they are at the bottom of your landing page, many users may not see them at all.

it costs significantly more to attract new customers than to retain the ones you have. Reward your best customers and they will not only sing your praises, they will share their experience with friends. That reward doesn’t always have to be financial; it could be emotional or intellectual. Build a relationship with customers by being approachable, helpful, and efficient. This is particularly important when communicating with Millennial and Gen Z consumers, who absorb information instantaneously and lose interest just as quickly. These audiences want a more open, authentic dialogue with brands through all forms of media. Quick, on-site surveys are a great way to allow your audience to provide feedback. Google Surveys and Hotjar are good options to provide short, unobtrusive polls. Try keeping your poll to one or two questions to maximize responses. COMMUNICATE ON THEIR LEVEL There is a wealth of industry data available about target audiences and respective media consumption. For example, more than 90 percent of Millennials, 77 percent of Gen X, and 48 percent of Baby Boomers are active social media users, according to eMarketer. YouTube and Facebook are the most widely used social platforms. In fact, YouTube reaches more U.S. 18- to 34-yearolds than any TV network. Remember that each generation gravitates to particular platforms. And never underestimate the power of peers. Younger consumers are more likely to explore content that is “endorsed” by their peers. Based on a study conducted by Collective Bias, 70 percent of Millennial consumers are inf luenced by the recommendations of their peers in buying

INVEST IN LOYAL CUSTOMERS One universal truth we all know is that

Multi-Unit Franchisee

ISSUE 3, 2019

decisions. Similarly, 78 percent of Gen Z have read a review when buying a product in the past 30 days. Chances are that the first point of contact with your brand is a Google search. If the user is on a mobile device (more than half of searches are), Google My Business listings will likely be the first thing they see about your business. Since this is your first chance to make an impression, these reviews must be solid. Take the time to ask customers to write a review on Google. MAKE YOURSELF EASY TO FIND Social media and content marketing are ideal for keeping brands top of mind for loyal customers and for boosting the chances new customers will find you organically. If you own a website, verify the site on Google Search Console and see all the keywords people are using to find the site. You’ll also see your rank position from those keywords, which you can use to prioritize for SEO. For example, if the site is not in positions 1 to 5 for the most important keywords, you may want to build out a content strategy to target those keywords specifically and improve your ranking over time. CONCLUSION New technologies are making it easier to gain direct access to and understand customers. They don’t replace personal interaction. In fact, quite the opposite is true. Today, tomorrow, and into the future, you can use technology to enhance your relationship with your customers. T Kurt Krake is president of MetricsEdge, a datadriven marketing agency and a joint venture with Riester Advertising, a Google Premier Partner. Services include data-centric marketing analytics and strategy, performance media, conversion optimization, and data activation. Learn more at metricsedge.com.

GT&S Executive Search to Focus Exclusively on Franchising

Three franchise veterans team up in new executive search venture Senior executives from three of the most respected entities in franchising have come together to launch GT&S Franchise Executive Search, LLC. The new company will focus exclusively on placing senior-level executives with franchise companies nationwide. The three founder-partners are Gary Gardner, Chairman of Franchise Update Media; Tom Portesy, President and CEO of MFV Expositions; and Scott Lehr, who recently left his position at the International Franchise Association (IFA) as Executive Vice President of Development, Marketing, & Conferences, where he’d worked since 1990. Officially retired, Lehr now serves as a consultant to the IFA. SCOTT LEHR GT&S Partner & CEO

“Each of us has been helping franchisors find the right people for years,” said Lehr, who will serve as the managing partner following the wrap-up of his IFA consultancy. “We’ve all been informally helping franchisors find the right franchise executives and assist executives to find their next opportunity. It was a natural activity for Gary, Tom and me to do.” Lehr met Gardner at the first event he attended after joining the IFA, and the IFA has been a partner with MFV for more than 25 years. Collectively, the partners bring 90 years of franchising experience and their networks of contacts to the new venture. “Over the past 30 years, the three of us have probably placed hundreds of people in positions in franchising,” said Portesy. “We saw how important the quality and talent of people at the senior level are to the success of a franchise company.” “Tom and I can’t run it because we’re still in our full-time jobs,” said Gardner. “Scott is in the perfect position to take this idea and run with it. He’ll be a great operating partner.”

GARY GARDNER GT&S Partner

The network of contacts and connections the three partners bring to the new venture, with both franchise companies and individual franchise executives, will give GT&S a leg up in matching qualified candidates with franchise companies. “Franchisors are facing new challenges finding talent in today’s robust economy, with nearly full employment making it tougher to find qualified candidates for CEO, president, COO, and head of franchise development positions,” said Lehr. The economy is placing additional pressure on franchise executives in a market where brands in many sectors are fighting for a larger slice of a shrinking pie. Another challenge involves finding candidates who possess two skill sets that are more important today than in past years: finance and technology. “Their bosses now are the private equity firms, and C-suite executives today must speak their language and understand what drives value for them,” said Lehr. “And with the continued M&A activity of smaller brands being acquired by larger entities seeking economies of scale, C-suite executives today must manage a more diverse portfolio of multiple brands.”

TOM PORTESY GT&S Partner

CONTACT Scott Lehr

ABOUT GT&S EXECUTIVE SEARCH To learn more about GT&S call Scott Lehr for a private and confidential consultation.

EMAIL scottlehr@franchiseexecutivesearch.com

PHONE 443.414.6131

Investment Insights

Buckle Up! What’s not to like about a little volatility?

Written By CAROL M. SCHLEIF

olatility isn’t necessarily a bad thing. Sharp short-term market moves have historically been the norm. While extreme volatility (either up or down) can be unsettling, the ability to take a deep breath and carefully consider underlying fundamentals amidst such disruption can lead to thoughtful tactical decisions that positively influence longterm financial returns, though “love” may be too strong a sentiment to apply here! Over the very long term, the bias to equity markets has been upward, given that component companies typically ref lect the best and brightest among publicly held companies, tracking the overall upward trajectory of long-term GDP. Staying focused on the true direction that underlying fundamentals are likely heading can promote fewer and better long-term decisions, theoretically reducing transaction and potential tax/ cost drags in the execution of a long-term investment plan. Volatility can also be a useful litmus test relative to individual long-term goals and staying power. If recent market action caused undue heartburn, perhaps it is time to rethink your asset allocation. Amidst the increased attention to trade issues in recent days, we note several additional factors that could prompt increased volatility ahead, if or when market participants choose to focus in on them. While these issues are often not new news, when market sentiment swings to one extreme or another participants can take singular issues and aggregate them to make events seem better or worse than underlying fundamentals would indicate. Here are a few additional issues to keep in sight as the year proceeds. U.S. Federal Reserve rate and balance sheet decisions. Headlines seem to imply that the Fed has only two gears— raise or lower—with Fed Funds futures rapidly shifting from the assumption of a rate increase earlier this year to discounting a higher likelihood of a cut by

Multi-Unit Franchisee

summer. Further, judging from headlines and trader commentary, it seems many expect them to have a third mandate of “salving market volatility” in addition to their two oft-stated mandates of supporting full employment and reasonable levels of inflation. So far, economic data—with solid moderate continued growth, high employment, and positively biased consumer and business sentiment—augurs for the Fed’s current “patient and data dependent” stance to be prolonged. We do acknowledge, and are watching carefully, important metrics of business sentiment. The longer the trade war carries on, the greater the potential for companies to begin to pass along more price increases to consumers. As noted by the New York Fed, virtually all tariffs assessed to date have fallen on U.S. consumers and export businesses. Although a number of affected companies noted (in their quarterly earnings release commentaries) that they had already planned for the imposition of additional tariffs, margin pressure is mounting and price increases may not be far behind. A general bias toward firming pricing power would translate through to firming inflationary pressures throughout the pipeline. We suspect the Fed will remain patiently on the sidelines watching for confirmation of inflation or economic slowing, which may disappoint some market participants who are presuming a cut to smooth volatility. More trade issues. The longer the current tariffs are left in place, the more pressure specific industries face, both from input costs and retaliatory tariffs assessed by affected countries. The economy has proven resilient thus far, but the longer these are left in place the harder it will become for those affected to maneuver. Should additional tariffs be assessed there will likely be broader implications for the U.S. economy and business sentiment. Eventually, higher prices will likely make their way to consumers, who could swoon under the pressure. The key nearterm impact is likely to continue to weigh on business sentiment, which could lead to delayed initiatives, from new marketing campaigns to R&D and capital spending. Market technicals/dynamics. Similar to what happened during late 2018’s trading, when passive and algorithmically driven funds exacerbated downside momentum, such asset pools are at it again. A Wall Street Journal article in May, for example, noted that equity exposure ISSUE 3, 2019

among low-volatility funds had increased to its highest level since late October and was likely adding to the downward momentum as many rushed to sell. Many of these funds are momentum-biased, meaning they’re “wired” to jump on whatever trend is in place, helping propel the pendulum further and faster than fundamentals would theoretically support. WRAPPING IT ALL UP Again, none of what we outlined here is new news. They all are worth keeping on the radar, however, mostly for the potential to disrupt business or consumer confidence in the long run. If decisions from these two important constituencies get delayed, the resultant lethargy in economic numbers could derail the longest expansion on record. We do not currently believe this will be the case—which is why we are opting to patiently monitor developments at this point. We retain our neutral (versus underweight) domestic and emerging market equity stance, with an emphasis on high-quality growth (versus value) assets. In the interim, the ride is liable to be bumpier than it has been, so we suggest investors buckle up for the ride to come. T Carol Schleif, CFA, is deputy chief investment officer at Abbot Downing, which provides products and services through Wells Fargo Bank and its affiliates and subsidiaries. She welcomes your questions and comments at carol.schleif@ abbotdowning.com.

Training the next generation The Titus Center for Franchising at Palm Beach Atlantic University is the only comprehensive franchise education program in the U.S.A. The Center’s distinctive features include:

•

Four college courses with a franchise internship lead to a Concentration in Franchising

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Franchise professionals visit campus frequently to speak with students

•

Titus Center’s 40-member Advisory Board provides ongoing student coaching

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The Don Dwyer Franchise Scholarship available starting Spring 2020

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Substantial funds available through the Kobel Challenge to help graduates buy franchises

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TitusCenterforFranchising.com LEFT: DAVID WILD, DIRECTOR OF FRANCHISING, SLOAN’S ICE CREAM RIGHT: MICHAEL SCALIA, FRANCHISING INTERN

Finance

Financial Training

notice to find an organization where he felt he could actually grow as a manager.

THE WORST OF THE WORST The next morning we presented a program on Breakeven Plus, knowing your fixed and variable costs, understanding Let your staff in on your contribution margin, and why it is the numbers! such a valuable financial tool for driving up profitability. Afterwards, another general manager came up to me and said, “Last year my unit made $300,000 profit. Written By I got $28,000, work 50-hour weeks, and ROD BRISTOL got no OT. %&@# them, I’m gone.” In both cases there is a clear lack of discerny colleagues and I recently com- ment on the part of the multi-unit owner pleted a series of 10 one-hour as to how, what, and when to communifinancial training programs over cate to staff the financial status of their 3 days for a client’s conference. In atten- operation—and in this unbelievably tight labor market, how to motivate critically dance were many multi-unit owners and general managers. I experienced what I important general managers to stay with the organization. can only call the worst of the worst in how business owners communicate financial MEASURE THE PARANOIA information to their staff. Why don’t owners share financial informa-

THE FIRST WORST After one of our programs where we had taught the value of understanding your income statement and balance sheet and how they interact together, a general manager came up to me and said, “All I know about my unit is my daily sales that I see from our POS system. I know that I’m running about a $3 million operation, but I have absolutely no idea if we’re making any money. How can I help my owner if he doesn’t share any financial information with me?” Further conversation revealed that he had no access to any of the accounts payable, accounts receivable, or payroll information, and that he was giving his

tion with staff? Typically, it’s because they don’t want staff to know how much money they’re making and consider that information to be very private. This leads to the kind of disenfranchisement that the first general manager experienced. In the second instance, the owner shared complete financial information without educating the general manager to the necessity of profits and how critical they are for the growth of the business. He also provided no incentive for the manager to create the profits and no reward when he did.

WHAT SHOULD YOU SHARE? In our experience, your staff wants to know about the financial things in the

organization that they can control. In almost every organization this revolves around your variable costs, those things that are directly caused by your sales. Typically, these are your cost of goods sold, direct labor, sales commissions, bank credit card processing fees, bad debts, any franchise fees, and any other costs that are directly resulting from a sale. When these costs have been identified and understood, your staff can then calculate the single most important number that every owner and manager needs to know, their contribution margin percentage. When I owned my company, this is the number that my managers were bonused on, because it was the one they could actually have direct control over through their managerial expertise. When contribution margin is divided into a dollar, we create their “magic number” that lets them know how much in additional sales they need for every dollar of increased fixed costs. When my managers learned this number, they became partners with me in creating profits in their units. They knew that if their contribution margin was 30 percent and they added a $1,500/month new fixed cost in the form of a lease payment, that new purchase (whatever it was) had to create $5,000 in new sales per month to be profitable. It helped us plan for profit, hire staff, buy assets, assess a wage increase, plan a price increase, avoid a price decrease, and promote upselling. It changed the culture of my company, and I believe it will change the culture of yours. SO HOW DO YOU GET THERE? It requires the financial education of your staff to a level of financial acumen that gives them the ability to understand the financial structure of their unit and how they can affect it in a positive manner. Understanding their breakeven and contribution margin for their unit is critical to their ability to assist you in driving up profitability. That’s what we do at Profit Soup. Our financial education programs enable your staff to measure their units’ financial status, understand where the numbers come from, and begin improving them. We would be happy to help you get them there, and I promise, it will drive up the success of your entire network. T Rod Bristol is the director of business development and a presenter at Profit Soup, a financial education organization specializing in franchised companies. He can be reached at rod.bristol@ profitsoup.com or at 206-427-5333.

Multi-Unit Franchisee

ISSUE 3, 2019

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Franchise Finance

What’s Your Brand’s FUND Score? How it affects your lending terms

Written By EDITH WISEMAN

ou have been conducting your due diligence on a brand and like what you see. Do lenders share your opinion? You have a way of finding out: Ask the franchisor what the brand’s FUND Score is. Why? The higher the FUND Score, the greater the access to lenders and the more favorable the lending terms.

In other words, the better a lender’s perception of a brand, the lower the cost of a loan. For decades, consumer lenders have used FICO scores to differentiate better borrowers from weaker borrowers. Over time, lenders stratified types of borrowers by FICO ranges. Lenders seeking lower-risk loans migrated to borrowers with higher FICO scores and offered them the best terms. Lenders willing to accept higher-risk loans pursued borrowers with lower FICO scores and charged more through loan fees, interest rates, and other credit terms for the additional risks they were assuming with such borrowers. In a similar way, lenders know that some franchise brands have better performance from a credit risk perspective than other brands. The challenge has been to develop a FICO-like model that reflects a franchise system’s credit profile. Over the past decade, FRANdata has worked with business lenders to evaluate credit risk profiles of franchise brands. This has evolved into a credit risk scoring model (FUND Scores) that banks,

collectively representing more than a trillion dollars of assets, have been using to make credit decisions about which brands to include in their lending programs and the kinds of credit terms they should offer. Brands with higher FUND Scores will lower your cost of capital, just as borrowers with higher FICO scores enjoy more favorable borrowing terms. Unlike prospective franchisees, who have many reasons to consider a brand, lenders have one: What is the likelihood they will get their money back on the agreed-upon terms? The FUND scoring model is designed to answer that question on a relative brand comparative basis. The predictive model looks at 12 credit risk categories designed to inform lenders on franchise system factors that are indicators of future loan performance, from historical unit success rates to system support. The result is a cumulative score from 350 to 950. T Edith Wiseman is president of FRANdata, an independent research company supplying information and analysis for the franchising sector since 1989. She can be reached at 703-740-4700.

FUND Scores and Loan Performance A LENDER'S RISK ASSESSMENT Low Default Risk Moderate Default Risk

FUND Score Range

WHAT DOES THIS MEAN FOR FRANCHISEES?

750 – 950

Access to the best credit terms (fixed rate financing, low equity payments, easier process)

650 – 750

Favorable terms, but not the best terms

At Risk

550 – 650

Need strong borrower to overcume franchisor credit concerns—reduced access to capital

High Default Risk

550 Below

High borrowing costs or loan denials

Multi-Unit Franchisee

ISSUE 3, 2019

Ed Rensi Franchise CEO Summit Guest Speaker and Program Leader: Ed Rensi, retired President and CEO of McDonald’s USA and Chairman of the Board of FAT Brands.

John Isbell

Julius “Dr. J” Erving

Challenge Session Speaker: John Isbell has held executive positions with Improv Comedy Clubs, Logan’s Roadhouse, O’Charley’s, IHOP and the Council of Hotel And Restaurant Trainers (CHART).

Opening Keynote Speaker: Legendary NBA Hall of Famer “Dr. J” brings audiences along on his journey to becoming an American legend.

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Capital Ideas

Capital Alternatives Understanding your options

Written By CARTY DAVIS

inancing and capitalization alternatives for established franchisees have become more varied and complicated over the past several years. Traditional capital using straight senior financing and embedded equity or external equity capital has evolved to become only one of many alternatives for companies looking to grow. Before considering alternatives, owners should have a firm understanding of their businessâ&#x20AC;&#x2122;s goals and growth strategies, including generic growth plans, remodeling projects (required and elective), and opportunities to expand through acquisitions. Understanding the differences between the various types of lenders and capital providers can help borrowers pinpoint which alternatives might be best for their business. It is also important for borrowers to perform their own due diligence on prospective lenders and capital providers. Industry experience, franchisor recommendations, and fellow operator references are all critical when evaluating funding sources. Regulated senior lenders are still the most common type of capital provider among tier-one franchisees and established brands. While pricing is attractive, underwriting standards are tight with minimal flexibility on pro forma adjustments outside of the normal course of business. Lease adjusted leverage (LAL) is the primary financial indicator used to measure borrowers, and clients must tightly manage covenant compliance. The maximum LAL is typically set at 6x leverage for accredited borrowers, with tighter requirements as size and credit risk change. Underwriting conditions also can change based on portfolio stress within the bank. This can cause lenders

Multi-Unit Franchisee

to tighten their underwriting standards, which leads to more onerous diligence requests and extended timetables for approvals and amendments. Amortization with a regulated senior lender can range anywhere from 7 to 20 years depending on the mix of owned and leased real estate assets. Most traditional senior loan facilities also include a development line of credit typically used to access capital for remodeling and new development. A hedging instrument, such as an interest rate swap, is also generally required to fix part of the rate for variable rate loans. A regulated senior credit facility may be the right choice for franchisees with modest leverage and growth plans and no major anticipated changes in the business. Unitranche lenders can provide some attractive features such as limited amortization and a larger advance rate, but at a cost. From a leverage perspective, borrowers are generally measured on straight leverage basis (debt/EBITDA) rather than an LAL, and advance rates on EBITDA are between a half and one turn higher. As mentioned, pricing is significantly higher in comparison with senior lenders, but given the lower amortization total debt service in most cases approximates regulated senior debt. Unitranche lenders are typically most appropriate for franchisees in a rapid growth mode, who are experiencing challenges in their business, or who are having trouble maintaining compliance with their existing senior lender. Unitranche debt is significantly less expensive than equity and can provide a great bridge for companies with a higher leverage profile. Mezzanine debt lenders can fill a gap if there is a difference between the level of equity and the level of debt a senior lender is willing to advance. Typically, mezzanine lenders have a minimum loan requirement of $10 million and expect a low to mid double-digit return. Warrants are also sometimes included. Mezzanine facilities have become less relevant as unitranche lenders can typically provide a less expensive and simpler alternative by combining senior and mezzanine facilities. Real estate alternatives. The sale/ leaseback market is another financing alternative for franchisees in need of short-term liquidity. In the long run, most franchisees would be better off owning their real estate to hedge against changing business conditions, but the sale/

ISSUE 3, 2019

leaseback market can be an effective tool if needed. Companies should, however, be cautious about selling all their real estate on the sale/leaseback market. It is generally best to look at this as part of a capitalization strategy, not a sole solution. Over time, burdening the operating business with escalated rents can put pressure on covenants like LAL with regulated senior lenders, especially with a brand downturn. Also, lenders will also provide better credit terms when real estate is included in the collateral package. Family offices and private equity. High-growth opportunities, acquisitions, and new brands often require additional equity to strengthen the balance sheet. The two primary equity sources supporting franchising are family offices and PE firms. Generally, the primary difference between family offices and PE groups is their investment horizons. Family offices typically invest in businesses for the long run, whereas PE firms generally have a more limited time frame of 5 to 7 years. For this reason, franchisors typically favor family office investors as they provide more stability over a longer period than their PE counterparts. While franchisors may prefer family offices over PE firms, PE investors are still the most prevalent equity investor in both independent brands and large franchisee businesses. It is important to note that PE firms come in all shapes and sizes. Companies should look for PE firms that invest in people and businesses and are not just out for short-term financial returns. There are more PE firms looking for franchise opportunities than ever before. Do your homework and make sure an equity firm is a good fit before bringing them on. CONCLUSION Choosing a capital structure can be as important as choosing the right brand. It is often helpful to engage with a knowledgeable third party to help wade through the options and secure the capital your business needs. T Carty Davis is a partner with C Squared Advisors, a boutique investment bank that has completed hundreds of transactions in the multi-unit franchise and restaurant space. Since 2004 heâ&#x20AC;&#x2122;s been an area developer for Sport Clips in North Carolina with more than 70 units. Contact him at 910-528-1931 or carty@c2advisorygroup.com.

Franchise Market Update

Tiered Royalties?

Linking support to a brand’s performance

Written By DARRELL JOHNSON

ranchise royalties are primarily associated with two purposes. The first is rights to a franchisor’s proprietary assets and trademarks. The second is covering the costs of support to franchisees and compliance to ensure all franchisees follow the practices and procedures established by the franchisor. No royalty rate distinction between those two purposes is ever made. Over time, royalty rates have normalized within sectors, the result of competitive pressures to attract franchisee prospects. While some brands change their royalty rates on occasion for various business reasons, the vast majority of brands have kept royalty rates the same. Additionally, with many franchisors pushing some of the support to third parties that franchisees must pay separately for, it raises an obvious and understandable question about royalty rates. In the past few years, we have had two dramatic (some would argue traumatic) events that may affect how royalty rates are established and shine more clarity on what they represent. Those events, in order of impact, are joint employer and FASB revenue recognition rule changes. FASB clearly is affecting emerging and younger brands, but for all brands it draws a lot of attention to the franchisor’s fi nancials. Increasingly, we are asked to conduct research to evaluate how much

franchisors spend on support relative to the amount and types of support they provide, and measured against the outcomes they achieve. New FASB revenue recognition rules likely will bring further attention to that relationship as an indirect consequence of the focus on franchisor revenues. In a purely economic sense, a brand that can demonstrate a higher risk-adjusted fi nancial return at the unit level should be able to command a higher royalty rate. In essence, a franchisor with a better-performing brand should be able to share some of the higher return expectations with the franchisee. Perhaps joint employer and FASB will be the tipping point in the evolution of the franchise business model that will change the depth of information franchisors share with prospective franchisees. To be clear, I think those two factors may push the business model into a new era, but they are far from the underlying reasons this may happen. The bigger factors are the trend in transparency driven by the availability of so much more information on just about everything related to franchising; and the influence on the business model over the past 20 years of a generation of ever-expanding multi-unit and multi-brand franchise operators. Regarding transparency, requests for research on specific topics give FRANdata a barometer of how franchisors are thinking, with the resultant understanding of how the business model is evolving. Better brands are finding ways to show how their performance stands out. It’s not just about more detail in Item 19 disclosures, although that trend is clearly showing greater transparency. It’s also about showing better performance than competitors across functional areas, often outside the FDD. We have been more involved in assessing and validating support in specific areas such as marketing, technology, and field operations.

While one of the purposes is aimed at understanding best practices in a world of constant pressures on operating efficiencies, it often has an additional purpose. Increasingly, research requests are also aimed at validating better performance across functional areas, with the purpose of being able to convey that information to franchisees and prospects. TIERED ROYALTY STRUCTURE? I believe the generational trend in multiunit expansion will lead franchisors to differentiate the level of support they provide. We are already beginning to see this happen. If an experienced multi-unit operator needs less support, in theory it should cost a franchisor less for units associated with that operator. Will that lead to a tiered royalty structure? It seems logical to me that this discussion will start happening, and we have some evidence it already has. The next logical step with that type of validation in hand is consideration of the relationship between support and royalty rates. Legal advisors did their jobs by saying less is more as it relates to legal disclosure. The result makes it very hard for anyone other than experts like us to differentiate support among brands, which is why we often are involved in that research. High-performing franchisors are recognizing that they are missing marketing opportunities when they can have various types of support validated. A brand with a good track record should command a higher royalty rate than an emerging brand lacking a performance history to judge returns and the difficulty of achieving them. A young brand in theory should have more support to compensate for less-proven performance. Otherwise, the risk burden falls more on franchisees, and that should be reflected in a lower royalty rate. You have a big influence on franchisor behavior. Will you influence the brands you’re associated with to start changing royalty rates based on performance outcomes and/or franchisee experience? Said another way, if a brand can show you better performance, why wouldn’t you be willing to share part of that gain in higher performance by paying a higher royalty rate? T Darrell Johnson is CEO of FRANdata, an independent research company supplying information and analysis for the franchising sector since 1989. He can be reached at 703 -740-4700 or djohnson@frandata.com.

Multi-Unit Franchisee

ISSUE 3, 2019

S IG N U P B

SEPTEMBER 27 A N D S AV E

Registration is now open for franchising’s biggest, boldest and most exciting event — the International Franchise Association’s Annual Convention!

FRANCHISING’S FUTURE STARTS WITH US

Come network and learn with the best in the business as we work together to honor our accomplishments and ensure tomorrow’s franchise community supports today’s ideas. We have topnotch programming and content that is designed to better your franchise business and profitability, and you’ll leave this event with valuable contacts who will help guide you to your future success.

KEYNOTE SPEAKER

Simon Sinek

Optimist and best-selling author of Start with Why: How Great Leaders Inspire Everyone to Take Action and Leaders Eat Last: Why Some Teams Pull Together and Others Don’t

franchise.org/convention

FEBRUARY 8-11, 2020 | ORL ANDO WORLD CENTER MARRIOTT | ORL ANDO, FL

$50!

ALL ROADS LEAD TO

Sept. 13-14, 2019 â&#x20AC;¢ Donald E. Stephens Convention Center Meet face-to-face with thousands of entrepreneurs that are prepared and motivated to take the next step toward franchise business ownership.

FOR MORE INFORMATION Linda.Thompson@comexposium.com

201.226.1130