Maintaining Brand Standards by iFranchise Group

 Over 40 years of business experience across a range of industries and functions  Over 10 years of direct franchising experience, both as a franchisee and as an executive within multiple national franchisor systems Barry Falcon Senior Strategy Consultant iFranchise Group

 Former President and Co-Founder of ShelfGenie Franchise Systems where he grew the concept from zero to 145 locations in five years  Former franchisee with Velocity Sports Performance

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More hands-on experience than any other firm ◦ ◦ ◦

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More “senior level” experience ◦

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27 consultants with over 500 years of franchise experience Our consultants have worked with 98 out of the top 200 franchise companies worldwide Offices: Chicago, Dallas, Los Angeles, Miami-Fort Lauderdale, Atlanta, Toronto, Dubai, Riyadh

Former CEOs, CFOs, EVPs of two dozen major franchise companies  Adia (now Adecco), Armstrong Tile, Auntie Anne’s, Dunkin’ Donuts, LINE-X, Pearle Vision, McDonald’s, PIP Printing, Schlotzsky’s, Snap-on Tools, Snelling & Snelling, and other national brands Experience with start-up and established franchise programs Vertical specialties by industry segment

Breadth across four functional areas ◦ ◦ ◦ ◦

Strategic Planning Quality Control Marketing Organizational Development and Implementation

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More Data = Better Data (track 200,000+ leads)

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TopFire Media ◦ ◦ ◦

Nation’s first fully integrated media firm -- SEO, PPC, Social Media, Blogging, PR, and Website Design and Development Both brand/consumer focused and franchise lead generation Recent honors and awards:  Best new agency (Ragan & PR Daily Ace Awards)  Best Website Finalist (PR News)  Best Media Relations Campaign Finalist (PR News)

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Many people think franchises have lower level of quality – just the opposite is true The Quality Trade-Off ◦ ◦ ◦ ◦

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More difficult to control Higher Caliber More highly motivated Longer term

Studies show franchisees outperform corporate operations

The Four Pillars Of Quality Control

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Franchisee Selection Documentation & Training – the Tools

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Support

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Legal Documents and Compliance

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Franchisee Selection

◦ Cost of walking away from a check ◦ Higher costs of marketing

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Documentation & Training

◦ First class tools, Intranet, video, etc. ◦ More staff required for more training

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Support

◦ Cost of Staffing ◦ Frequency of visits (travel costs, etc.)

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Legal Documents and Compliance

◦ Enforcement actions ◦ Costs of losing a franchisee (even an underperformer)

Franchisee Selection

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Maintaining quality control starts with the franchise selection process Philosophy of granting franchises vs. selling franchises Need to find like-minded franchisees who are a good fit with your system Franchisees need to “buy into” your operating system Look for franchisees who want to work within a system rather than change the system Potential benefits of using profiling tools in the evaluation process

1. Passion for the franchisorâ&#x20AC;&#x2122;s brand 2. Business experience 3. Experience in hiring and managing people 4. Ability to finance the development and growth of the business 5. Willingness to follow the franchisorâ&#x20AC;&#x2122;s system

If you select the wrong franchisees, they will often: 

Under perform in terms of revenues and profitability

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Have high staff turnover in their franchise business

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Remain a single-unit owner in your system

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Not engage with you or other franchisees in your system, or contribute to your system’s development

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Validate poorly with franchise candidates that contact them

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Require much more time and attention from your staff

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Be a negative influence on other franchisees, and your staff

 Be proactive rather than reactive in generating leads  Develop and then follow a well defined sales process  Focus more effort on understanding the candidate’s qualifications and goals, and place less focus on closing the sale  Consider incorporating a work experience into your sales process  Have multiple people in your organization assess the candidate  Speak with the candidate’s professional references, not only their personal references  Don’t be afraid to reject candidates

Cash Flow Modeling for Growth Conservative Growth $

Only incremental cost is franchise marketing and that can be a variable cost after a start-up allocation

The Golden Rule: Grow No Faster Than Your Ability To Support Your Franchisees

Second Hire

Royalty & Gross Margin Revenues Leverage Existing Staff and Minimal Advertising

First Hire

Loss

Tools to Improve Franchisee Performance

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Key here is “best practices”

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Serves many functions ◦ Sales Tool ◦ Training Guide ◦ Reference Tool ◦ Liability reduction ◦ Enforce system standards for Quality Control ◦ Extension of the legal documents

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Determining what to document ◦ ◦ ◦ ◦

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Scope of the manual Standards to be enforced Procedures to be required Procedures to be recommended

Manual development process

◦ Gathering pertinent information ◦ Determining best practices ◦ The drafting and review process

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Use of Subject Matter Experts

Discussions with Key Stakeholders

Review existing material, forms, & documentation

Develop preliminary outline

Determine gaps in current documentation

Assign responsibility for content creation

Identify Subject Matter Experts for gaps

Interview Subject Matter Experts

Onsite observation of units & documentation

Resolve Best Practices Conflicts

Draft material to cover all identified gaps

Edit all material into common style & “voice”

Revise first draft of Operations Manual based on client input

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Faster growth requires formal training programs ◦ For your staff ◦ For franchisees

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Focus on training the trainer (your franchisee) ◦ Franchisee will train their staff ◦ Should have tools to do so

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Video pushes quality control to lowest level of the organization On-line training decreases costs, increases quality, and can decrease liability

◦ Customized by employee ◦ Document what is reviewed and test scores ◦ Lowers on-site training time and costs for both the franchisor and the franchisee

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Franchisee intranet platform

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Third-party quality assurance programs

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Mystery shop programs

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Franchisee advisory councils

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The importance of documenting your brand standards

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Franchisee websites

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Social media controls

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Approval of local marketing initiatives

Best in Class Ongoing Support

Training 15%

Compliance 15%

IMPORTANT ROLES: • • • • •

Brand Ambassador Trainer and Coach Operations Expertise Marketing Support Financial & KPI Analysis

70% Business planning and sharing of best practices

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Pre-opening support ◦ Real Estate

◦ Facility design ◦ Construction ◦ Operations training ◦ Marketing planning ◦ Supply chain development

• Ongoing support  Ongoing support • Brand development ◦ Brand development • Local marketing support

• Field businesssupport support ◦ Local marketing • Ongoing training ◦ Field business support • Best practice sharing ◦ Ongoing training • Vendor management ◦ Best practice sharing

◦ Supply chain management

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Qualifications for the field support position

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Compensation structure

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Where should field support people be located?

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Ratio of reps to units

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Frequency of visits

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Routing efficiency

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Agendas for each visit

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Business planning tools

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Tracking all communications

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Frequency of visits ◦ ◦ ◦ ◦

Complexity of business Need for quality control Type of business (restaurant vs. retail) Need for on-site monitoring (can you monitor KPIs remotely – sales franchise?)

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Clustering of franchise locations

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Type of franchise ◦ ◦ ◦ ◦

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Individual franchises Area development Conversion Area representative/Sub-franchise

Speed of growth

Legal Issues In Managing Quality Control

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Be sure your contract and FDD have the necessary levels of control

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Document should allow you the flexibility to make changes as the system matures

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Develop and monitor a system for monitoring contract compliance

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Develop and monitor a system for determining financial qualification

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Train your franchise sales force on quality standards for franchisee selection

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Notice to cure and default process used when appropriate

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Install a system for tracking and documenting that each franchisee is maintaining proper insurance coverage

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Install a system for tracking and documenting that your franchisees are maintaining any required licenses for their businesses

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Install a system for documenting appropriate franchise background checks, financial diligence, and representations

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A good Operations Manual can help you avoid litigation

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A bad Operations Manual can be a franchisor’s worst nightmare

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Operations Manuals must provide you with adequate brand control but should not be too prescriptive – a fine line

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Must avoid creating an inadvertent “agency” relationship

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Must avoid potential areas of negligence or take great care when prescribing actions

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Should cross-reference regulations and not cite them

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Should be updated annually and reviewed by professionals and attorney

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Operational Support Limiting your liability: 

Having a standard compliance checklist for field support that does not leave room for interpretation

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Make sure your support people document everything and that you keep a detailed file on each franchisee including all correspondence, contacts, FA, FDD, etc.

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Supplement field support visits with Secret Shopper Programs

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Document all client calls using Contact Management Software

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Train your staff on a regular basis on appropriate franchisee communication and interaction, as well as best practices communications techniques – especially emails!

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Develop a Field Support Manual for identifying problems and maintaining best practices

1) Hiring support staff that is under-qualified 2) Giving insufficient training and direction to support staff 3) Failure to convey detailed (and current) standards to franchisees 4) Failure by the franchisor to measure the results of its support efforts 5) Looking the other way on minor infractions or playing “favorites” 6) Trying to be a “nice guy” and a friend to the franchisee instead of viewing

your role as the “keeper of brand standards”

7) Failure to give the franchisee’s “tough love” when they fail to live up to

those standards

8) Failure to enforce the same quality standards relative to your own company-

owned operations

9) Unwillingness to look for alternatives to help “move” a failing franchisee or a

poor operator

10) Lack of willingness to terminate if all else fails