Best practices for start up and early stage franchisors

Organizational Growth for Start-up and Early Stage Franchisors Dave Hood President The iFranchise Group

About The Speaker Dave Hood President The iFranchise Group

 The iFranchise Group assists both start-up and established franchisors  Former president of Auntie Anne’s Pretzels  Current Board member with Harris Research, Inc. (Chem-Dry and N-Hance brands)

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Nation’s Leading Franchise Consulting Firm • More hands-on experience than any other firm – –

27 consultants with over 500 years of franchise experience 98 out of the top 200 franchise companies

• More “senior level” experience – –

Former CEOs, CFOs, and EVPs of major franchise companies Start-up franchise programs and established franchisors

• Breadth across five functional areas – – – –

Strategic planning Quality control Marketing Organizational development

• Franchise experience throughout the world • Franchise Dynamics – –

Sold 500+ franchises in each of the last two years Sales team has sold 7,000+ franchises during their careers Slide 3

Topics We’ll Cover  Franchise lead generation  Marketing for your franchisees  Franchise sales  Essential building blocks for your support program  Developing a capable support team  Involving franchisees in your support planning and development  Business planning with your franchisees  Communication systems and processes  Measuring your performance as a franchisor Slide 4

Franchise Lead Generation

Š 2013 TopFire Media, Inc. All rights reserved.

Lead Generation and Franchise Sales Average Franchisee Recruitment Budget (In Thousands)

Source: Franchise Update

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Franchisor Marketing Dollars by Media Percentage of Total Expenditures: 2010 - 2014

Almost 70% of Franchise Lead Spend is Focused on Digital Media

Source: Franchise Update

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Source of Franchise Leads by Media Percentage of Total Leads Received: 2009 - 2013

And Over 80% Franchise Lead Generation Comes from Digital Media

Source: Franchise Update

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Breakdown of Expenditures on the Internet (2010 - 2013)

For Most Franchisors This Is The Wrong Allocation

Source: Franchise Update

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Using a Webcentric Approach

Your Message Is No Longer Centered On Print Media Focus Should Integrate All Media Around The Website

Š 2013 TopFire Media, Inc. All rights reserved.

Your Website Needs a Plan!

• A focus on visual appeal alone can be a disaster • Too many websites • Provide non-optimized content • Provide too much content • Flash over substance

• Develop a plan • • • • •

Plan must do more than increase unique visitors Create effective calls-to-action Increase the length visitors stay on your site You need to design websites that converts traffic Improve franchise lead capture rates

© 2013 TopFire Media, Inc. All rights reserved.

Developing Your Franchise Sales Strategy and Organization

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Franchise Sales It is also important that you have a defined sales and qualification process, the core elements of which should include:  A defined process which you convey to franchise candidates

 A sequence of events which keeps candidates actively engaged with you

 Frequent communication with your candidates  Constant evaluation of each candidate as they flow through your process

 A rigorous evaluation of the candidate’s financial condition

 Awarding franchises only to those candidates who are likely to represent your brand very well

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How Aggressive Growth Can Derail the Cycle Aggressive growth too early in your development could result in the following challenges:

 Mistakes in your franchise sales process  Poor franchisee selection  Poor real estate decisions  Inadequate support of new franchisees  Duplicating mistakes rather than replicating your success  Poor franchisee validation  A damaged brand and sales cycle

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The Franchise Sales Cycle

Pre-Sale

Post-Sale

Copyright, The iFranchise Group, 2013. All rights reserved.

Lead Generation and Franchise Sales A good concept + Good marketing material + Marketing Plan +Adequate marketing budget + Good sales technique

= leads = meetings = franchise sales Slide 16

Select a Sales Strategy As a young franchisor, it is important that you select the correct sales strategy for your franchise offering:  ‘Do it yourself’ – Management grants the franchise rights  Hire a franchise development executive to join the Company  ‘Do it for Me’ – Management ‘outsources’ the franchise development function

 Each has positive and negative qualities – your strategy should be determined based on a variety of factors, including the system growth and financial results that you are trying to achieve

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The Do-It-Yourself Strategy • May be best option for franchisors looking for slower initial growth – Need to honestly assess your internal sales ability – Spend the time and resources to invest in the development of a sales plan and a professional advertising/marketing program

• Good option for less aggressive growth • Good for new franchisors before pipeline is built

Copyright, The iFranchise Group, 2013. All rights reserved

The i Franchise Group

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Recruit an Internal Sales Team • • •

• • •

•

Challenge for “emerging” opportunities Levels of compensation Nearly 30% of sales professionals do not last one full year in a new position* Increased fixed costs Increased control Best option for franchisors looking for much faster growth – if they have the budget Good option for those experienced in franchise recruitment *SOURCE: Salesforce.com

Copyright, The iFranchise Group, 2013. All rights reserved

The i Franchise Group

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Franchise Sales Outsourcing • Newer concept • NOT a “broker”, but work with Franchise Brokers • Outsourcing companies are dedicated to a specific franchisor client…

– Allows emerging franchisors to obtain the same level of talent previously only available to large franchisors – Greater level of experience; Can be a way to diminish risk – Removes burden of hiring, training, retaining sales force to management – Generally more expensive…Look for a “full cycle – full service” provider

• Best practices: – Franchisor doesn’t give up any royalty or equity – Model should be heavily performance based

Copyright, The iFranchise Group, 2013. All rights reserved

The i Franchise Group

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Franchise Sales offering As a young franchisor, it is also important that you desire what offer you will take to the market:  Single franchise unit structure – franchise rights are granted to a franchisee who will operate that unit

 Multi-Unit franchise operator – franchise rights are granted to a franchise who MAY operate a unit, but will focus on operating multiple units with ‘Managers’ – a “business builder”…

 Area Developers and Master Licensees – a franchisee who MAY operate a franchise unit or multiple franchise units – but is typically focused on developing a larger territory or even a country though other franchisees that they develop; may provide ongoing services to them in exchange for a portion of your fees and royalty

 Each of these approaches have various strengths and challenges at each stage of a franchisor’s growth

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A Franchisor’s Journey Toward Sustained Profitability Royalty Revenue

Revenues

Expenses

Franchise Fee Revenues Franchise Fee Associated Expenses

Losses

Break-Even Point Slide 22

Time

Support of Your Franchisees

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Essential Building Blocks Nine Primary Areas of Support Third-Party Supplier Support Communications and Technology Brand and Local Marketing Field Consulting Supply Chain Ongoing Training Pre-Opening Training Construction Real Estate Not relevant to some service businesses

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One Size Does Not Fit All Your support strategy may vary depending on:  The industry in which you operate  The types of franchises you’re awarding (e.g., single unit, multi-unit or area representative)

 The experience level of your franchise owners  The size and maturity of your franchise system  The geography you need to support  Your philosophy toward the support of franchisees  Input you receive from franchisees themselves

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Franchisors Providing the Best Support Tend to Demonstrate These Characteristics

 Lead by example  Involve franchisees in the strategic development of the system  Develop and refine their support system around the issues most important to franchise owners

 Accumulate, benchmark and share key performance measures with franchisees

 Promote communication between franchisees  Maintain a strong internal culture that is supportive of franchisees  Evaluate the potential benefit of any support program to the franchisor company, the franchise owners and the franchisees’ consumers

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A Great Support Program Will Achieve The Following  Strong validation from your existing franchise owners  Franchisees who want to expand with you rather than looking elsewhere

 More profitable franchisees  Higher royalties for you  Greater market share for your brand  Less time and money spent in resolving disputes or litigation  A much better and more productive work environment for your employees

 A higher valuation for your company

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10 Common Mistakes in Supporting Franchisees 1. Lack of capital to provide adequate support, particularly in the early years of franchising

2. Hiring support staff that is under-qualified or given insufficient training and direction

3. Lack of operational experience by the franchisor 4. Failure to build the support program around the issues that are most important to franchisees

5. Failure to involve franchisees in key decisions 6. Failure to develop an effective process to implement system changes 7. The belief that technology can replace human contact 8. Failure by the franchisor to measure the results of its support efforts 9. Negative attitudes toward franchisees 10. Fear of losing control with either the support staff or franchisees Slide 28

Focus of Support May Vary Depending on Who Your Franchisees Are Multi-Unit Franchisee

Single Unit Franchisee

 Financial statement basics

 Detailed business planning

 Expense controls

 Financial benchmarking

 Best practice sharing

 Planning for capital spending

 Sales training

 Technology development

 How to manage a family

 Multi-unit management training

business effectively

 Assistance with finance or

 Strategies for local store

lease programs

marketing

 Input on key strategy issues

 Hiring good employees

impacting the brand

 Managing employees Slide 29

Developing a Capable Support Team

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Key Issues in Building a Support Team  Base hiring decisions on an annual budget process  Hire staff slightly ahead of need  As an owner or founder, be committed to hiring people who are more experienced and capable than you in the areas in which they will be responsible

 For most positions that deal directly with franchisees, hire based on experience in franchising rather than experience in your industry

 Be cautious about moving staff from your existing corporate operations to a franchise support position

 Provide staff with clear direction and let them do their jobs  Remember that you must lead your staff just as you need to lead your franchisees

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Typical Staffing Ratios Franchise development staff

 Single unit focus = 1 for each 12-18 deals  Multi-unit focus = 1 for each 5-8 deals Field support staff

 Single unit restaurant = 1 for each 20-25 units  Multi-unit restaurant = 1 for each 10-15 owner groups  Territory-based service system = 1 for each 30-35 owner territories Field marketing staff

 1 for each 50 to 100 units/territories Overall staff to franchised locations (within a mature organization)

 1 staff equivalent for each 7 to 11 locations Slide 32

Typical Early Stage Support Structure

President

Director of Franchising

Franchise Development Coordinator

Director of Finance

Director of Ops. and Training

Field Support Representative

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Manager of Real Estate and Construction

Director of Marketing

Training Specialist

Leverage Staff Resources Through Outsourcing Depending on the size and needs of your system, outsourcing support in areas such as the following may be worth considering:

 Marketing

 Quality assurance

 Public relations

 Insurance compliance administration

 Site selection

 Franchisee web portal

 Facility design

 Other information technology

 Construction management

 Franchisee training

 Benchmarking

 Convention/meeting management

 Accounting

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Involving Franchisees in Building and Refining Your Support Programs

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Why Involve Franchisees in the Development of Your Support Programs?

 They’ll provide input on what priorities your support program should focus on

 As your system grows, franchisees will provide many of the best-practices your support program should incorporate

 Franchisee involvement will dramatically increase acceptance and adoption rates of new initiatives you introduce

 Franchisees can help beta-test new programs  Encourages a philosophy of doing things with them, not to them

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Ways to Involve Franchisees in Building Your Support Programs

 Advisory councils  Short-term committees focused on specific support initiatives  General day-to-day contact  Broader-based surveys of your franchisees  Technology systems such as your franchisee portal

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Business Planning With Your Franchisees

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Focus Within a Franchise Support Program

Compliance 20%

80% Helping franchisees increase revenues and profits

Focus support around an annual business plan with each franchisee

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Prerequisites for the Business Planning Process  Some level of standardization for franchisee accounting practices and income statement generation

 Requirement that franchisees generate monthly financial statements  Technology available to capture and analyze income and expense information for the system

 Field support staff who are capable as business consultants and trained in the franchisor’s process

 The respect of your franchisees to provide value through the business planning process

 Defined expectations and responsibilities for both franchisees and the franchisor company

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Business Planning With Your Franchisees Key steps in the planning process: 1. Create and continually refine the planning process with the input of your franchisees

2. Communicate the final process both internally and to your franchisees

3. Schedule an in-depth meeting with each franchisee to develop their plan for the coming year

4. Meet with franchisees at least quarterly to review progress to the plan and actions needed to address problem areas

5. Provide benchmarking data to franchisees throughout the year, allowing them to measure their own progress against the system as a whole

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Business Planning With Your Franchisees The planning process will vary based on the needs of each franchise system. In general, however, a franchisee’s plan will focus on areas such as: Marketing

Operations Management

Human Resources

Facilities

Budget

Revenue Goals

Staff Levels

Maintenance

Local Marketing

Cost of Goods

Co-op Planning

Operating Expenses

Training & Development

Construction & Trade Dress Updates

Support of System-wide Initiatives

Overall Profitability

Tracking Marketing Performance

Capital Expenditures

Compensation Plan Turnover Targets

Cash Budget

New Staff Hires

New Equipment Technology & Software Facility Lease Review

Operations Quality Customer Feedback

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Business Planning With Your Franchisees The franchisee’s performance should be continually benchmarked against their targeted goals and the performance of the system as a whole….

If you don’t yet have a benchmarking/dashboard platform in place, it should most likely be a priority for you.

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Communication Systems and Processes

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Creating a Great Communications Strategy  Use technology to supplement personal support, not replace it  Don’t under-estimate the value of face-to-face contact  Develop your strategy based on the needs expressed by your franchise owners

 Designate a Communications Manager at your office who will review and approve any systemwide communications before they are sent

 Whenever possible, highlight the importance of franchisee input into the communication of any major decisions that you’ve made on their behalf

 Take calls, and minimize the use of voice mail  Return all calls to franchisees the same business day  Ensure your management team calls franchisees on a regular basis, not just when there are problems

 Thank franchisees for their positive efforts and results  Track all communications with your franchisees Slide 45

Options For Communicating With Franchisees

Phone

Field Visits

Newsletter

Training

Conference Call

?

Blog

Social Media

Secure Web Portal

E-mail

Webinar

Convention

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Advisory Council

Measuring Your Performance as a Franchisor

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Measuring Your Performance as a Franchisor In addition to benchmarking the performance of your franchisees, it’s important that you periodically measure your performance against the expectations of your franchisees.

Recommended steps include:

 Utilizing an outside vendor to maintain credibility and confidentiality

 Providing franchisees with feedback from the survey results

 Ensuring that you communicate an action plan back to your franchisees for making improvements

 Take credit for improvements that you make based upon your franchisees’ input

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