Organizational Growth for Start-up and Early Stage Franchisors Dave Hood President The iFranchise Group
Robert Stidham President Franchise Dynamics
About The Speakers
Dave Hood, Ph.D. President The iFranchise Group Founded: 1997 Former president of Auntie Anne’s Pretzels
Former member of the IFA Supplier Advisory Board Current Board member with Harris Research, Inc. (Chem-Dry and N-Hance brands) The iFranchise Group is the largest consulting firm focusing on franchising Worked with 90 of the top 200 franchise brands in the US
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About The Speakers
Robert Stidham President Franchise Dynamics Founded: 2006 Franchise Dynamics is the largest franchise sales outsourcing firm today 25+ years of experience in franchise development Robert has been involved in more than 2,000 franchise transactions
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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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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 Concept & Value Proposition Offer/Structure
Validation
Pre-Sale Communication Marketing Plan
Support Message & Materials Opening Assistance Advertising Expenditures
Post-Sale Training
Selectivity
Sales Process
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 14
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 20
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 26
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 business effectively
Multi-unit management training Assistance with finance or lease programs
Strategies for local store marketing
Input on key strategy issues impacting the brand
Hiring good employees
Managing employees Slide 27
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 30
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 Tracking Marketing Performance
Overall Profitability
Compensation Plan
Capital Expenditures
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. Slide 41
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 43
Options For Communicating With Franchisees
Phone
Field Visits
Newsletter
Training
Conference Call
?
Blog
Social Media
Secure Web Portal
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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www.ifranchisegroup.com 708-957-2300
www.franchisedynamics.net 708-798-1800