Multi-Unit Franchisee Magazine - Issue I, 2018 by Franchise Update Media

PEOPLE ■ INVESTMENT INSIGHTS ■ EXIT STRATEGIES

Multi Unit Multi-Unit

MULTI-UNIT FRANCHISEE

Franchisee ISSUE I 2018

MEGA M E G A 9 9

ALSO: ■ REGULATORY UPDATE

Navigating 2018’s likely new rules

■ GROWTH STRATEGIES

6 franchisees reveal how they’ve expanded

■ MEGA 99 Ranking today’s biggest U.S. franchisees

Mike Hamra, CEO of Hamra Enterprises, operator of 157 units across 4 states

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Average Anuual Company Store Sales As of 12/31/16, there were 275 UBREAKIFIX locations in operation. As published in Item 19 of our Franchise Disclosure Document dated 3/27/17, these figures represent the actual, average total revenues for the calendar year ending 12/31/16 of all UBREAKIFIX company stores operated by us or our affiliates that met the following criteria: (i) open at least three full years as of 1/1/17, and (ii) were still open as of 1/1/17 (13 stores in total). Of the included stores, four (or 31%) exceeded the stated average total revenues. A franchiseeâ€™s results may differ from the represented performance. There is no assurance that you will do as well and you must accept that risk. **This information is not intended as an offer to sell, or the solicitation of an offer to buy a franchise. If you are a resident of or want to locate a franchise in a state that regulates the offer and sale of franchises, we will not offer you a franchise unless we have complied with the applicable pre-sale registration and disclosure requirements in your state. This advertisement is not an offering. An offering can only be made in NY by a 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.

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877-596-1020 6/27/17 1:56 PM

D O O

D R I N VEN. O I S S I M . D E T A V I T O M

EXCLUSIVE TERRITORIES AVAILABLE NATIONWIDE GREENS & GRAINS BOWLS | SALADS | ALL-NATURAL BURGERS HAND-CUT FRIES | SHAKES & SMOOTHIES | KIDSâ€™ MEALS Many of our menu items are inspired by the seasons & rotate with local harvests.

This is not an offer to sell, or the solicitation of an offer to buy a franchise.

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bgood.com/franchise 12/15/17 1:21 PM

Multi-Unit

Franchiseecontents I S S UE I, 2018

MEGA

COVER STORY

Mega 99 Time! 10 Six multi-unit franchisees—Emily Harrington, Mike Hamra, Tracy Bouwens, Anil Yadav, David Schuck, Evan Latham—describe their pathways to success. BY DEBBIE SELINSKY and KERRY PIPES

LISTS

Mega 99 Rankings 40 The top U.S. franchisees listed by total number of units

FEATURES

Caution: Legislation Ahead 46 Opportunities to seize and potholes to dodge in 2018 BY EDDY GOLDBERG

Build, Buy, or Both? 52 6 growth-minded operators share their strategies BY SARA WYKES

MULTI-UNIT FRANCHISEE IS S UE I, III,2018 2009

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How did Freshii become the Fastest Growing Restaurant Chain in the World? By making delicious healthy food convenient and affordable. Technomics 2016 Fastest Growing Multinational Restaurant

18 Consecutive Quarters of SSS growth!

Award winning chef designed and nutritionist approved menu

Flexible footprints from 250 - 2,500 square feet

Average build-out cost of $260,000*

NO stoves, NO ovens, NO fryers, NO ventilation, NO freezers required

Freshii is looking for successful multi-unit owners in select markets. Please visit www.freshii.com/multiunitfranchiseÂ to learn more.

*Buildout costs can vary due to several factors. Please refer to our Franchise Disclosure Document for a complete breakdown of costs. 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. There are approximately 14 countries and 15 US states that regulate the offer and sale of franchises. The countries are Australia, Brazil, Belgium, Canada (provinces of Alberta, Prince Edward Island, British Columbia, Manitoba, New Brunswick, and Ontario), China, France, Indonesia, Italy, Japan, Malaysia, Mexico, Russia, South Korea, Spain, and the United States of America. The US states are 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 or countries, are receiving this message in one of these states or countries, or intend to operate a franchise in any of these states or countries, 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.

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12/21/17 9:52 AM

Departments CO-CHAIR’S NOTE

Learn from the best at April’s MUFC! 6 ONLINE

What’s online @ mufranchisee.com 8

Columns CUSTOMERS COUNT

Always on Stage 58 5 tips from the pros to improve customer service BY JOHN DIJULIUS

PEOPLE

Learn from Your Customers 60 Walking an hourly shift in their shoes BY JOCELYN MANGAN

INVESTMENT INSIGHTS

Complacency Alert! 62 With changes afoot, prepare now for 2018 BY CAROL SCHLEIF

FINANCE

Management Intelligence 64 Sweating the small stuff pays off big-time BY ROD BRISTOL

EXIT STRATEGIES

KISS that Deal Hello! 68 Keep your negotiations straightforward to succeed BY DEAN ZUCCARELLO

FRANCHISE MARKET UPDATE

Prospecting for Growth? 70 How 2018 is shaping up for franchising BY DARRELL JOHNSON

Multi-Unit

Franchisee CHAIRMAN Gary Gardner CEO Therese Thilgen EXECUTIVE VICE PRESIDENT OPERATIONS Sue Logan CHIEF CONTENT OFFICER Diane Phibbs VICE PRESIDENT BUSINESS DEVELOPMENT Barbara Yelmene BUSINESS DEVELOPMENT EXECUTIVES Jeff Katis Judy Reichman EXECUTIVE EDITOR Kerry Pipes MANAGING EDITOR Eddy Goldberg CREATIVE MANAGER Kevin Waterman MAGAZINE DESIGNER Peter Tucker DIRECTOR OF TECHNOLOGY Benjamin Foley WEB DEVELOPER Don Rush WEB PRODUCTION ASSISTANTS Esther Foley Juliana Foley DIRECTOR OF EVENT OPERATIONS Christa Pulling SENIOR MANAGER, EVENTS & PRODUCTION Katy Geller SENIOR SUPPORT MANAGER Sharon Wilkinson PROJECT COORDINATOR Joanne Peralta SUPPORT COORDINATOR Leticia Pascal VIDEO PRODUCTION MANAGER Wesley Deimling GRAPHIC DESIGNER Cindy Cruz MARKETING ASSOCIATE Cameron Gustafson FRANCHISEE LIAISON SUPPORT Greg DelBene CONTRIBUTING EDITORS Rod Bristol John DiJulius Tom Epstein Darrell Johnson Jocelyn Mangan Carol Schleif Dean Zuccarello CONTRIBUTING WRITERS Helen Bond Debbie Selinsky Sara Wykes ADVERTISING AND EDITORIAL OFFICES Franchise Update Media 6489 Camden Avenue, Suite 204 San Jose, CA 95120 Telephone: 408-402-5681 Fax: 408-402-5738 SEND ARTICLE INQUIRIES TO: editorial@fumgmail.com MULTI-UNIT FRANCHISEE MAGAZINE IS PUBLISHED FOUR TIMES ANNUALLY. Annual subscription rate is $49.00 (U.S.) FOR SUBSCRIPTIONS EMAIL sharonw@franchiseupdatemedia.com or call 408-997-7795 FOR REPRINT INFORMATION CONTACT FOSTER PRINTING AT 800-382-0808 www.fosterprinting.com

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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AMERICA’S DINER. TODAY’S FRANCHISE.

DENNY’S IS ONE OF -------------------------------------------THE FASTEST GROWING BRANDS IN FULL SERVICE RESTAURANTS

--------------------------------------------

#GreatW ayToSta

rtMyDay

#IDeserveThis

eWayIWantIt

#ComfortFoodTh

“When I started with Denny's at 16, I was a food server. Today, I'm one of the largest franchisees in the system. If that's not the American Dream, I don't know what is." Dawn Lafreeda Denny's Franchisee, Owner/Operator of over 80 restaurants in 6 states

VISIT

DENNYSFRANCHISING.COM OR CALL 800 304 0222

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Co-Chair’s Note

Learning from the Best

t was nearly 20 years ago today I was a lucky franchisee, invited to the very first MultiUnit Franchising Conference in Los Angeles. As I wandered around the small, crowded room packed with franchisors and vendors, I came across a gentleman who said he could provide our customers with wi-fi, including a family filter, landing pages, and posters with instructions on how to log in. We put wi-fi into our shops and it made a difference. Our next issue, of course, was how to get people to leave our lobbies as they worked on their laptops using our free wi-fi. Certainly there is nothing exciting about free wi-fi today. In fact, for many businesses, it could be considered table stakes. But back then (and I’m sure you all remember), it was exciting, a breakthrough—and we learned how to do it at that first-ever multi-unit gathering. Registering for the 2018 Multi-Unit Franchising Conference will give you the chance to see this year’s newest technologies, as well as the new and emerging franchisors who can provide you with a look at today’s exciting breakthrough ideas. We can’t predict the future, but we know there will be businesses riding the crest of the next big trend, and you can meet them early on. When I asked my husband and partner what his favorite part of the conference is, he was clear: the Exhibit Hall, which is packed full with franchise brands and suppliers of pretty much anything you need. And while we have chosen to stick with our one brand (Supercuts) through the years, he still enters the room ready to be wowed by the next big idea, and open to all ideas about improving our business. For me, it is about speakers, especially the general session keynoters. This year we are looking forward to hearing from quarterback Steve Young, columnist George Will, and trendspotter Seth

Mattison. These are people I certainly don’t have the ability to hear on my own. Although general session keynotes from big names are impressive and well worth the cost of attending, I also eagerly look forward to hearing from other franchisees, in the halls and on the panels, who walk in our shoes and deal with the same things we do every day. Franchisees will lead sessions where you can find plenty of take-home value to help you save money, grow sales, find employees, or plan for expansion— as soon as you get home. We have been expanding units recently, so we will also be dropping by the Money Room for ideas on how to finance our newest units. We don’t need to visit the Law Room to meet oneon-one with top franchise attorneys, but perhaps you could use some legal advice as you grow your business. What can you learn at the Multi-Unit Franchising Conference? A lot—from the best franchisees, franchisors, suppliers, attorneys, and financial pros in the world. You can learn that you are happy in your industry, or that you are ready for something new. Or both! You can learn what you do well, and where you need to be open to growth and personal development. Perspective is a beautiful thing. Can you resist a few days at Caesars Palace and a chance to meet your peers, make new friends, and perhaps set a new all-time high on your Fitbit? Have a cocktail with friends new or old, appreciate all you have accomplished, and make sure you’re ready for your next business challenge. Make your reservations now! We’ll see you there, in our most comfortable shoes.

Cheryl & Joey Robinson 2018 Conference Co-Chairs

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CMY

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12/28/17 10:31 AM

✓FRANCHISE OPPORTUNITIES Looking for your next franchise opportunity?

✓ CONFERENCES 2018 Multi-Unit Franchising Conference Planning is nearly complete for the 2018 Multi-Unit Franchising Conference, April 3–6 at Caesars Palace in Las Vegas. Keynote speakers will be Steve Young, record-setting quarterback for the San Francisco 49ers; George Will, author, sports fan, and political commentator; and trendspotter Seth Mattison. Attendees at the 2017 conference enthusiastically told us it was a highly worthwhile experience, filled with educational nuggets they were eager to take home for immediate implementation. This annual gathering is a unique, must-attend opportunity for multi-unit franchisees to meet and learn from the best in the business, explore new brands, and soak up invaluable expertise at the panels and sessions—not to mention the many networking opportunities, more than 220 franchisors and suppliers exhibiting the latest solutions to your current challenges, and charity fundraising golf tournament. Stay in touch with developments as the year progresses and keep current at www.multiunitfranchisingconference.com

✓ONLINE Multi-Unit Community Grows Check out our community-based website for multi-unit operators. It’s your exclusive look into the world of multi-unit franchising, your one-stop shop to find: • New brand opportunities • Exclusive interviews • Networking opportunities • Operator profiles • Online edition and archives • Financing resources www.franchising.com/multiunitfranchisees

ARMY EXPERIENCE “I see that what I do is similar to my experience in the Army. I want people to show up on time, in uniform, with a good attitude, and work well together. That’s literally the Army!” — Emily Harrington, U.S. Army veteran and Tropical Smoothie Cafe franchisee in Florida, plans to open 4 more in 2018

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 www.franchising.com

✓RANKINGS

Check out our annual rankings of the top multi-unit franchisees and their brands to find out “who’s on first.” This issue contains our annual Mega 99 list, ranking the largest franchisees by total number of units and the brands they operate. For our Multi-Unit 50 rankings of brands with the most multi-unit franchisees, go to www.franchising.com/ multiunitfranchisees/mu50.html.

✓PUBLICATIONS

“Don’t just survive, thrive!” Franchise Update Media’s 2018 Annual Franchise Development Report and the best-selling book Grow to Greatness by top franchise consultant Steve Olson, offer invaluable tips for franchise sales success and unit growth. To order, visit www.franchising.com/franchisors/ afdr.html and www.franchising.com/franchisors/ growtogreatness.html

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

LAND OF OPPORTUNITY “I came to this great country and was given the opportunity to be a worker and then a manager at Jack in the Box. The turning point was when Jack in the Box believed in me and gave me the chance to purchase my first restaurant at the age of 25.” — Anil Yadav, JIB’s largest franchisee (227), who operates 374 total units, as well as 3 California golf resorts

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“ARBY’S REMARKABLE RESURGENCE CONTINUES” -QSR MAGAZINE

“ARBY’S HAS THE MEATS AND A WINNING FORMULA” -FORTUNE

CONSECUTIVE YEARS OF POSITIVE SAME-STORE SALES GROWTH

27%

AVERAGE UNIT VOLUME GROWTH SINCE 2013

INCENTIVES* Waived License Fee (normally $37,500)** 1% Royalties for the First 12 Months (normally 4%)

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ArbysFranchising.com

Jodi Fraser | JFraser2@Arbys.com | 678-514-6928

12/20/17 12:10 PM

MEGA BY EDDY GOLDBERG

It’s Mega-nanimous! Six great stories to start the year

ere comes 2018, and we’re starting the year in our usual way: with our “Mega 99” list of the largest U.S. franchisees, ranked by total number of units. We also feature profiles of six successful multiunit operators—including our Reconnect with Anil Yadav; an Athlete profile with a former professional basketball player; and an Under 30 profile of the son of Orangetheory Fitness co-founder Ellen Latham. Together they provide a broad spectrum of size, industries, and scope of operations. Perhaps more important, each has been successful in their own way and has a unique story to tell— and learn from. Successful franchisees, from mega to mini, must learn to become leaders, the CEOs of their own organizations, who know how to make a deal work, hire the right people, and create a dedicated, hard-working team, both internally and on the front lines. With the right combination of skill, brains, heart, and soul, they’re able to create, build, and sustain companies that provide high-quality products and services, top-notch customer service, a wide range of job opportunities and training in their communities, and build revenue and royalty streams for their brands. Once again we are privileged to have been granted a look behind the scenes at six franchisees who have carved their own paths to success. These are highly personal stories of how they’ve overcome obstacles and grown not only their organizations, but also their employees and themselves in the process. It’s rewarding and inspiring for us—and we hope for you—to read their stories, now in progress at many locations near you. • Emily Harrington has spent her life as a high achiever and shows no signs of slowing down. After leaving the U.S. Army as a second lieutenant, she worked in private equity, all the while pursuing her passions for biking, rowing, Olympic weight lifting, high-intensity interval training, and playing music. She left the corporate life, built a Hardee’s operation to more than 40 units, sold them, and today operates 5 Tropical Smoothie Cafes, with 4 more planned for this year and 50 in the next 10. • Mike Hamra was born and raised in his family’s Midwest restaurant business. Today he’s the CEO, but en route became an attorney, spent 8 years in Washington, D.C., as a political appointee in the Clinton administration and as chief of staff and legal advisor for the FCC’s Wireless Telecommunications Bureau. In 2001, he returned to the family business and in 2011 was named CEO of

Hamra Enterprises, which operates 157 units (Wendy’s, Panera Bread, Noodles & Company, and Holiday Inn Express) in six states. • Tracy Bouwens was a stay-at-home mom who never stayed home when she discovered Scooter’s Coffee, an emerging brand based in her home town of Omaha. In 2004 she and her husband bought their first Scooter’s store. Within six months, they’d moved to Kansas City as area developers for the brand. Thirteen years later, she is the brand’s largest franchisee, with 37 coffee shops in four states (Kansas, Missouri, Nebraska, and Iowa). • Anil Yadav (Reconnect) is big man, both physically and in business. When we met him in 2008, he had a combined 94 locations for his Jack in the Box and Denny’s units. He has nearly quadrupled that number through growth, acquisitions, and by adding new brands… not to mention buying three golf courses/resorts. Beginning as a fry cook at Jack in the Box, he was awarded his first JIB franchise when he was 25. Today, with 227 locations, he’s the brand’s largest franchisee. • David Schuck (Athlete) played forward for the Air Force and UNC Greensboro basketball teams before heading to Spain to play professionally. “The apartment I lived in was 5 minutes from the Mediterranean Sea,” says Schuck, who spent 2 years traveling through Europe playing b-ball. Returning to the U.S., he tried teaching and coaching, and then spent several years in banking before finding his way to franchising back in North Carolina. Today he operates 15 Liberty Tax stores and 2 Club Pilates, with plans for more. • Evan Latham (Under 30), son of Orangetheory Fitness co-founder Ellen Latham, says he’s been a part of the business since its inception. “My first job was cleaning the original fitness center,” he says. Today he operates an Orangetheory Fitness location in Cooper City, Fla., and another in Nashville, and says he can see himself teaming up with another brand and becoming an area representative for a brand someday. So whether you have a single unit with dreams of 100, or dozens spread across several brands and regions, you’re sure to find something interesting, educational, even entertaining in the stories of these successful multiunit franchisees. And since this is our annual Mega 99 issue, be sure to check out our ranking of the country’s largest multi-unit franchisee organizations, ranked by number of units, beginning on page 40.

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o t e c n a h c K Your A E EP

H T H C A RE

PEAK PERFORMANCE

Twin Peaks is a clearly defined brand with category-leading sales and operational metrics. Even as casual dining continues to experience sales declines, Twin Peaks is reporting 20 weeks of positive comps. Find out why several large, multi-unit franchisees made the decision to join the Twin Peaks brand. • Franchisee AUVs of $3,879,134* • Prime Costs of 56.6%** • Significant lunch sales (weekday lunch is 44% of sales) • 90% of existing units are conversions • 80 locations from Florida to California with nearly 100 units in the development pipeline

To learn more, please visit TwinPeaksRestaurant.com/Franchise Contact Franchise@TwinPeaksRestaurant.com Call 972-941-3160

*The franchise average unit volume of $3,879,134 is the actual average of 40 franchised Twin Peaks Restaurants open and operating for a full 52 weeks during fiscal 2016. **The Prime Costs of 56.6% is the average combined Total Cost of Sales and Total Labor Cost is derived from the 28 company-owned Twin Peaks Restaurants that operated during the full fiscal year ended December 25, 2016. See item 19 of our FDD for complete details. This advertisement is not an offering to sell a franchise. An offering can be made only by Franchise Disclosure Document that has been registered with and approved by the appropriate agency in your state if your state requires such registration. Individual financial performance will vary.

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12/27/17 9:57 AM

MEGA BY DEBBIE SELINSKY

Atta Grl!

Army vet ignores her critics and plows ahead

mily Harrington has spent her life as a high achiever and shows no signs of slowing down. New Jersey born and raised, she earned a B.S. in engineering management from the United States Military Academy at West Point, where she was a four-year women’s soccer varsity letter winner. She earned her MBA from Cameron University while serving 5 years of active duty in the U.S. Army as Signal Corps Platoon Leader, Company Executive Officer, and Special Assistant to the Commanding General of the U.S. Army Europe. After the Army, Harrington enjoyed a successful nine-year run in the financial services industry in Boston, working in private equity fundraising and fixed income institutional sales. When not working, she pursued biking, rowing, Olympic weight lifting, and highintensity interval training—and is an avid musician, playing the violin since age four. It wasn’t until she was 35 that Harrington realized that the corporate world wasn’t for her. “I learned a lot and it was a great experience because I was exposed to financial markets, but at the end of the day I realized that I’d NAME: Emily Harrington TITLE: President, CEO COMPANY: Three Grls LLC NO. OF UNITS: Tropical Smoothie

Cafe, 5 AGE: 40 FAMILY: Daughters Mary 7, and

Lilly 4 YEARS IN FRANCHISING: 4 YEARS IN CURRENT POSITION: 20

months

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spent five years in the Army and nine years working for other people in large organizations and it was not a good fit for me. These were great experiences, but when I look back, I kick myself that I didn’t come to that realization sooner,” she says. “I’d also like to add something else because it defines who I am,” she says. “For a long time, I allowed other people to tell me what I was capable of and I finally got tired of it. When I told my family I was quitting my corporate life to run hamburger restaurants, they were supportive, but concerned. And many friends thought I was crazy. That’s when I learned not to listen to other people, to the naysayers.” Harrington, high energy and highly driven, didn’t spend much time on regrets or the opinions of others. Before going into franchising, she looked at a variety of different brands and available deals. “I didn’t want to move someplace where I’d be swimming against the tide with labor law

diffi culties and economic forces not working in my favor. I also knew that if I moved to a metro area or growing state, incomes would be rising and good, long-term economic opportunities would be there. That knocked out the Northeast because the population isn’t growing, and the Midwest because incomes aren’t rising, so I focused on places where I could grow the business and find available real estate,” she says. Tampa, one of the nation’s fastestgrowing regions, ticked off all those boxes and had the added incentive for Harrington of warm weather year-round. “I wanted to move someplace where I could be outside all year long,” she says. As for a brand, since they had no previous restaurant experience, Harrington and her husband sought to invest in a proven one, and chose Hardee’s. In 2013, they acquired their first 10 restaurants and in just a few years had grown the business to more than 40 units. When the couple divorced, they agreed that he was a great fit for Hardee’s, while

PERSONAL First job: Second lieutenant in the U.S. Army. Formative influences/events: My high school basketball coach taught me that grit and motivation are more valuable than talent. I learned from 9/11 that not everyone on this planet agrees with our way of life, and I learned from the 2008 financial crisis that cash is king and one must be prepared at all times. Key accomplishments: Graduating from the U.S. Military Academy at West Point, earning an MBA while stationed overseas, and starting Three Grls as a single mother. Biggest current challenge: Right now it’s finding balance between growing my business and growing my girls. Next big goal: Opening my fifth cafe this January, followed by the sixth, seventh, and eighth—all in 2018.

Exercise/workout: Biking, rowing, Olympic weight lifting, and highintensity interval training. Best advice you ever got: Ignore your critics! What’s your passion in business? Giving people the opportunity to better their lives, whether through employment opportunities or delicious and healthy food. How do you balance life and work? As best I can. I have a goal of traveling for pleasure once per quarter. I’m not there yet, but it’s on my list for 2018. I believe that traveling to a place I have never been feeds my spirit and reminds me of what is truly important in life. Next on my list: the Grand Canyon, Bhutan, and Sonoma County. Guilty pleasure: Wine and cheese. Favorite book: The Untethered Soul by Michael A. Singer.

First turning point in your career: Realizing that a traditional corporate job was not for me. This took me some time to figure out—I was 35. But once I had that level of clarity, I was able to focus on exactly what I wanted to do.

Favorite movie: “The Shawshank Redemption.”

Best business decision: Deciding to leave my corporate life in Boston to buy restaurants. My family and friends thought I was crazy!

Pet peeve: Straw wrappers on the floors of my cafes.

Hardest lesson learned: You cannot wait for an opportunity—you must create your own.

Last vacation: Ummmm… what’s vacation? I took my girls to Disney World for their birthdays. Does that count?

Work week: I am in my cafes probably five days a week, and not necessarily Monday through Friday. I am very rarely completely disengaged from my business. Even when not in the cafes, I am either in my office at home or contemplating my growth strategy, personnel development, etc.

Person I’d most like to have lunch with: Jeff Vinik, owner of the Tampa Bay Lightning, and a true visionary who has built a world-class sports franchise and will completely transform the city of Tampa and the west coast of Florida.

What do most people not know about you? That I am an avid musician, playing both violin and piano. I started playing violin when I was four years old. What did you want to be when you grew up? A chef!

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she preferred to invest in a brand that aligned with her own healthy approach to living. “I’m an avid fitness buff. I exercise five times a week. I eat clean and healthy. I wanted a brand that was more modern and fresh and healthy and with a lot of upside. Is Tropical Smoothie Cafe riskier from a brand standpoint? Yes, it is. But the upside is greater—there’s more potential reward being involved with the brand,” she says. Naming her new Odessa, Fla.-based company Three Grls LLC (for herself and her two young daughters), Harrington bought three Tropical Smoothie Cafes in 2016 and another in 2017. Her newest cafe (and her first new build) was set to open in January 2018, and she intends to open four this year. Looking ahead, she is aiming for 20 units in the next 5

“What I do is similar to my experience in the Army. I want people to show up on time, in uniform, with a good attitude, and work well together. That’s literally the Army!”

years, and 50 in the next 10. Harrington says she and her new brand are a perfect match. “I was not familiar with Tropical Smoothie until I moved to Florida. I discovered them while on the road traveling between meetings and was wowed by the menu. There is some overlap on the menu with Panera Bread, but we are by far the better value,” she says. “I researched the brand, went to Atlanta and met with the ownership group, and found a lot of alignment between what we want. Being part of a brand where the franchisee and the franchisor are like-minded is important to me. That gave me a lot of confidence.” Harrington said she is aware of the challenges she faces as she grows her new brand. “My ultimate goal is to

MANAGEMENT Business philosophy: Feed People Well, Treat People Well, Do Well. I can’t take credit for that. It’s from Tropical Smoothie corporate, but I truly believe it and endeavor to instill this in my team members every day. Also, I am a firm believer in following through. If you want people’s trust, you need to follow through. Management method or style: I’m very hands-on, but I also trust my people to do the right thing. Greatest challenge: Growing the right people in the right way to foster development. How do others describe you? Intense and dedicated. One thing I’m looking to do better: Maintain my calendar! How I give my team room to innovate and experiment: I recently gave each of my general managers the task of creating a company policy: uniform policy, cell phone policy, eating and drinking policy, cash handling policy, and scheduling policy. I asked each of them to research, create, and write our company policies. If they create it, they will internalize it. I also sit with each of them every month and review their cafes’ individual P&Ls so they know exactly how they have performed. It inspires them to take ownership and focus on growing sales and controlling COGS and operating expenses. They have the latitude to not only suggest, but also to execute local store marketing ideas to drive sales and promote brand awareness. How close are you to operations? Very close. I have no problem jumping into the smoothie line or onto the register. I am also intimately involved in every pay raise discussion, promotion, inventory management, etc. What are the two most important things you rely on from your franchisor? An inspirational menu and technological innovation, be it our rewards app or state-of-the-art POS. What I need from vendors: Timeliness and honesty. Have you changed your marketing strategy in response to the economy? How? The future of advertising is digital. Traditional advertising is not nearly as cost-effective and the delivery method is not nearly as efficient as digital. The one exception would be directional billboards, which I find have

the most immediate impact on my sales. How is social media affecting your business? Social media is transforming the way restaurant operators treat guests—for the better! If a guest has a negative experience, the market will know almost immediately. How do you hire and fire? Because my company is growing so rapidly, we are always hiring. We are implementing a consistent set of interview questions throughout each cafe to pinpoint the applicants who are going to fit our brand the best. Fortunately, Tropical Smoothie Cafe is a modern and fresh brand that attracts a lot of talented young people. We receive a lot of walk-in applicants and people who apply online. I have also relied on a couple of different subscription-based recruiting websites and have had some success in sourcing general managers. Of course, my strong preference is to promote from within, but there are times when a supervisor isn’t ready for the full responsibilities of management, and the worst thing would be to promote them and possibly set them up for failure. How do you train and retain? Training is an ongoing process in the company. I rely on my general managers and supervisors to train team members on the basics of our operation, but I have recently engaged with Tampa Bay Sports and Entertainment to assist me in putting together a customer service training program specific to my cafes and my brand. They created a concept called Blue Ribbon Service within their own organization (they own the Tampa Bay Lightning and Tampa Bay Storm) and have won numerous awards and accolades. I am working closely with their management team to emulate and implement some of the same assessment tools, training, and employee recognition programs within Three Grls. How do you deal with problem employees? I have a very low tolerance for team members who do not buy in to our mission. I understand that we are not for everyone. If someone cannot follow the basic policies and procedures, then there is very little preventing me from “re-gifting” them to the job market. It doesn’t mean they are bad people, it just means we were not a good fit. Fastest way into my doghouse: Failing to take responsibility for one’s actions.

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1/8/18 6:15 PM

OUR NUMBERS SPEAK FOR THEMSELVES. AVERAGE GROSS SALES OF

846,431

FOR THE TOP 50% OF FRANCHISE OWNERS

THAT’S A 32% INCREASE OVER THE LAST 4 YEARS!

640+ locations coast-to-coast to serve our loyal brand fanatics • 500+ new franchises sold in the last 3 years — 50% to existing Franchise Owners • 250+ locations opened in the last 3 years •

JOIN THE FRANCHISE THAT PLAYS TO WIN! TropicalSmoothieFranchise.com 800-206-3407 *Top 50% of Cafes. Based on calendar year 2016, 88 of 412, or 21.4%, 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. © 2018 Tropical Smoothie Cafe, LLC. Tropical Smoothie Cafe, LLC 1117 Perimeter Center West, Suite W200 Atlanta, GA 30338.

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12/21/17 2:33 PM

MEGA

get to 50 cafes, which I’ll probably do through acquisitions and organic growth. I told my franchisor that how rapidly we grow depends on the real estate market. In Tampa, it’s very competitive with all brands growing. There may be 30 other concepts looking at the same real estate that I am. So to be able to capture a deal and get across the finish line is not always easy.” Fortunately, she says, there still is a lot of room to grow in Florida right now. “North of Hillsborough County, where my four cafes sit, there are no Tropical

Smoothie Cafes for 100 to 150 miles. I’m actually getting ready to buy out that county from corporate.” Already with a wealth of experience at 40, Harrington offers some advice for would-be franchisees. “When I first decided to look at franchises, I told myself I’d never consider restaurants. The reason I said that was because everybody thinks restaurants are too difficult. Again, you can’t listen to the naysayers. For me, when I look at my restaurants and how they operate and the people I employ, I see that what I do is similar to my

experience in the Army. I want people to show up on time, in uniform, with a good attitude, and work well together. That’s literally the Army!” Harrington, who says she is the happiest and most satisfied she’s ever been, adds one more thought. “I’m really good at operating restaurants, and I didn’t even consider them at first because I was afraid. My advice is to keep an open mind. Don’t have preconceived notions about an industry without doing your research and due diligence and talking to people who work in it.”

BOTTOM LINE Annual revenue: $2.5 million (approx.). 2018 goals: Opening four more cafes and keeping overall company employee turnover under 100 percent. Growth meter: How do you measure your growth? At a strategic level, I measure growth in terms of year-over-year same store sales and the number of units I am operating. At a tactical level, each of my managers has a development plan, and their growth is of the utmost importance to me. If they grow professionally and personally, I am successful. Vision meter: Where do you want to be in 5 years? 10 years? In 5 years, I’d like to have 20 cafes with $20 million in gross revenue. In 10 years, 50 cafes with $60 million in gross revenue. How is the economy in your region affecting you, your employees, your customers? The economy in the Tampa DMA is booming. This is great for sales and I have been able to gradually increase prices. However, hiring is a challenge when the economy is growing so quickly. Many of my competitors are also growing. I invite competition—it makes me better, but it takes longer to source the cream of the crop. Are you experiencing economic growth in your market? Yes, Tampa and its surrounding DMA is consistently listed as a Top 20 market for economic growth in the U.S. Growth is tremendous, which is exciting. However, it comes with potentially higher development costs in the form of impact fees and overall rising real estate costs, be it land prices or construction costs. How do changes in the economy affect the way you do business? See above. How do you forecast for your business? I am very conservative when it comes to putting together projections. I never assume that a particular location with a new cafe or an existing cafe post-remodel will transform into a top-performing cafe in the system. I base my forecasts on past performance. If things turn out for the better, then it’s all gravy. What are the best sources for capital expansion? The absolute best source for capital expansion right now is a combination of personal savings and borrowing. With the stock market at an all-time high, I would rather bet on myself and invest in a brand that has tremendous upside. I shy away from equity partners. If I need additional capital and cannot provide it myself, then certainly a local bank is the next best option. Experience with private equity, local banks, national banks, other institutions? Why/why not? Yes, yes, and yes. When I first got into the business, I used a national bank for my commercial banking

requirements. It was not a good fit. Nowadays I feel strongly about using a local bank that understands 1) the potential seasonality of the Florida market, and 2) local real estate. Many of my bankers are also my customers and I truly feel as though I am a part of the community. I have also enjoyed working with some private equity–backed lenders, who are much more efficient and aggressive than a traditional bank. A private equity–backed lender might be more expensive in terms of interest rate, but in return I don’t have to spend months in underwriting. There are pros and cons to each. What are you doing to take care of your employees? Ninety percent of my employees are Millennials. The most important thing I can do to take care of them is to give them a purpose. If they believe in the mission and the vision of my company and the brand, then they know they are a part of something greater than themselves. Certainly, money can motivate, and I do reward those who go above and beyond with consistent wage increases and promotion opportunities. My team members know we are growing. They are aware of the company’s vision of 50 cafes in 10 years. My goal is to ensure that they understand that they have an opportunity to build a long-term career with Three Grls, and that they can feel good about what they do each day. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? I don’t view any of these as a cost, but rather as an investment. I firmly believe that I am in the people business. I happen to sell delicious smoothies and food, but ultimately I am growing people. I get out of bed every day feeling fortunate to have the opportunity to serve the people I employ. Each brings a special set of skills and talent to my company. It is my privilege to foster their development and growth. How do you reward/recognize top-performing employees? Admittedly, I have not cracked this nut yet. I do some of the traditional things, like bonuses and gift cards, but I am finding that many people are not motivated by money. I think providing employees with a career path and an understanding that there is opportunity for them in my company is the most important thing I can do as an owner/operator. Defining this in exact terms is something I am still working on. What kind of exit strategy do you have in place? First and foremost, I am a long-term believer and therefore, long-term owner, of Tropical Smoothie Cafe. My children are part owners and I view this business as a 20to 25-year investment. I truly believe that the best days for the brand and its franchisees are ahead. If I had to select an exit strategy it would be handing the reins over to my two girls.

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1/8/18 6:15 PM

Ranked #1 in category Entrepreneur’s, 2018 ‘Franchise 500’

2018 IS THE YEAR OF THE DOG

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SEVEN consecutive years, same store sales increase*

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Simple operations, quality menu, little competition

949-892-2629

franchising@wienerschnitzel.com

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*Same store sales reflective of past seven consecutive years through December 31, 2017. Please request and read our FDD for more details and sales information.

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12/4/17 12:27 PM

MEGA BY DEBBIE SELINSKY

Family Man

A way of life, not just a way of business

ike Hamra grew up in the Midwest, where his parents ran a highly successful restaurant business, Hamra Enterprises. But before joining the family business, he earned a law degree from the Uni-

versity of Missouri School of Law in Columbia and headed to Washington, D.C., where he specialized in telecommunications regulations and legislation and worked as a political appointee for the Clinton administration. In that role,

he executed policies to support the government’s strategy to connect the nation’s schools, libraries, and healthcare organizations. He also served as chief of staff and legal advisor for the FCC’s Wireless Telecommunications Bureau. In that role, he was involved in writing new rules allowing spectrum bands that had been dedicated to mobile radio users to be reallocated and used by Nextel (now Sprint) for commercial purposes. “This was a massive undertaking and a big deal in the ’90s, because it allowed the government to auction off the bands after they were reallocated,” says Hamra, who also received the U.S. Department of Commerce Bronze Medal for superior federal service. In 2001, after eight years in D.C., Hamra joined the family business, working first as president and COO of Boston Bread LLC and Chicago Bread LLC, Panera Bread franchises operating under the Hamra Enterprises umbrella. In 2005, he was named president and COO of Hamra Enterprises and in 2011, his father, Sam, founder of the multimillion-dollar Springfield, Mo.based company, passed the torch to his son, naming him president and CEO. NAME: Mike Hamra TITLE: President, CEO COMPANY: Hamra Enterprises NO. OF UNITS: Wendy’s, 90; Panera

Bread, 57; Noodles & Company, 9; Holiday Inn Express, 1 AGE: 49 FAMILY: Wife Eileen, 4 children,

including a new baby boy YEARS IN FRANCHISING: 19 YEARS IN CURRENT POSITION: 10

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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Sam Hamra remains chairman of the board, and his wife June is vice chair. Today Hamra Enterprises has 157 units and 7,000 employees across four brands (Wendy’s, Panera Bread, Noodles & Company, and Holiday Inn Express) and six states (Illinois, Kansas, Massachusetts, Missouri, New Hampshire, and Texas). Life is full of surprises, says Hamra, who also holds an MBA from Kennesaw State University. “Early on, I had no intention of joining the family business. But years later, I got interested and excited about the possibility of being able to take a small entrepreneurial business started in southwest Missouri and growing it to a multi-state, multiunit, multi-brand business. And I knew I would regret it if I didn’t take the opportunity to work with my family.” In addition to his parents, one of his nephews also works in the company. Hamra says he has no doubts that working as an attorney has helped him in his current role. “Being a lawyer was always about learning and developing oneself while approaching and solving problems. That’s been great training

for running and growing the business.” But what has really brought Hamra’s passion to the forefront is his focus on leadership development. “Our franchisors develop training courses to support people in how to run the brand. So we focus our attention on that, plus leadership training,” he says. “What we do is less about transferring knowledge and more about who a person is as a leader.” Describing himself as a leader who combines collaboration with accountability, Hamra is quick to tell employees to be unafraid to act. “I don’t want people who are overly concerned about seeking permission to act when a good opportunity is clearly there. I tell them it’s fi ne to make mistakes, but not to fail to act.” Hamra continues to look for ways to support his employees. He established the Hamra Employees Reaching Out (HERO) Fund to assist employees with emergency needs such as extended medical leave, funeral expenses, and transitional housing. Employees contribute the amount they want to the fund, and the company matches it, dollar for dollar. “We’ve raised $1.2 million and sup-

ported more than 400 employees over the last six years,” says Hamra, who now makes his home in Chicago. An exciting new development is under way in his Chicago market, he says. “Through our HERO Fund, we’re starting to offer down payments for homes, forgivable after five years. We are just naming our first recipient, and this will lead to other opportunities to support our employees in the community.” Hamra is also chair of Family Enterprise USA, a nonprofit educational organization focused on collective issues facing family enterprises. A youthful 49-year-old husband and father of four (including a new baby boy), Hamra laughed when asked about an exit strategy. “There is none. We’re creating a generational business with the vision and values of our family. We’re now in a position that wasn’t available to us 15 or 20 years ago to give back to the community and our employees. We’re constantly seeking ways to do that. That’s our focus and our passion.” And that’s why the company mantra is “Hamra, a way of life, not just a way of business.”

PERSONAL First job: Digging post holes on a farm in Missouri. Formative influences/events: The realization that I am completely, 100 percent responsible for my life. That hit home with me. I’m it. Key accomplishments: As a lawyer for the FCC, I wrote a rulemaking that transferred mobile radio users out of their incumbent bands to allow Nextel communication (now Sprint) to use the same bands for commercial purposes. This was a massive undertaking and a big deal in the ’90s, because it allowed the government to auction off the bands after they were reallocated. Another major accomplishment was when Hamra Enterprises reached the 100-unit mark a few years back. With that foundation, we were able to go out and acquire two new markets in Boston and Chicago through Wendy’s refranchising. This was important because it enabled us to do it in a way that seamlessly integrated our people into our cultural foundation and values and who we are as an organization. Biggest current challenge: Hiring good people to run our stores. Next big goal: To grow the company with another 100 units organically or through acquisitions. First turning point in your career: Completing my career as a lawyer in the telecom industry and starting a new career in the restaurant industry. Best business decision: Deciding to create an organization that supports people and leadership. That’s not a given, it had to be discovered. Then I knew we should be focusing on that. Hardest lesson learned: That listening to people really does matter. It really makes a difference.

Work week: Generally, Monday through Saturday. It typically involves travel and being with out-of-store management or being in stores to visit operators and see the restaurants. Exercise/workout: I get to the gym or do something physical two or three times a week. Best advice you ever got: Anything is possible. What’s your passion in business? Finding new ways for supporting people and creating an environment in the organization that people love to be in. That’s why I get up and do it every day. How do you balance life and work? I commit to being with my family in the morning and at night. And I spend as much time as I can going to my children’s activities, especially on the weekends. Guilty pleasure: I love a good chocolate chip cookie! Favorite book: The Three Laws of Performance: Rewriting the Future of Your Organization and Your Life by Steve Zaffron and Dave Logan. Favorite movie: “The Matrix.” What do most people not know about you? That we just had a baby boy. Pet peeve: When people don’t swing into action. What did you want to be when you grew up? A fighter pilot. Last vacation: Over New Year’s 2017, we went to Rome and England. Person I’d most like to have lunch with: Abraham Lincoln. He stood up in an era when things were shifting, and our nation’s thinking was evolving.

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MANAGEMENT Business philosophy: Never give up in business. And love what you do. Management method or style: I believe in collaboration with accountability. Greatest challenge: Making sure we have a team that’s passionate about what they’re doing. How do others describe you? As a listener and a pragmatist with a streak of idealism. One thing I’m looking to do better: I’m always working on elevating my own performance. How I give my team room to innovate and experiment: I give people a lot of space, and I encourage failure. I like people to take initiative, to make decisions without needing to seek permission when there’s a good opportunity to do something. How close are you to operations? I look at numbers weekly and spend time with market leaders as well as district managers. I spend time in the stores, and I will get my hands dirty if I see something that needs doing. If there’s a pile of dishes in the back, they will get cleaned. What are the two most important things you rely on from your franchisor? Supporting us in the performance of the business, and keeping our concepts relevant with menu innovation, store design, and opportunities to grow new stores. What I need from vendors: Reliability.

Have you changed your marketing strategy in response to the economy? How? In our Wendy’s brand, we’ve been more creative around how we incentivize people through couponing and discounting. How is social media affecting your business? It matters, especially with the generations after me and my children’s generations. You have to build your brand inside the world of social media. You’re either cool or you’re not, and that’s driven by what’s being talked about on social media. How do you hire and fire? We look for people who are committed and passionate about the restaurant business and the brand they’re interviewing for. People that don’t either consistently honor their word in performance or lack some type of passion have a short tenure here. How do you train and retain? We rely on our franchisors to develop training courses to support people in how to run the brand. Then we spend a lot of resources focusing on leadership training. How do you deal with problem employees? There’s always a conversation with specific objectives put into place. We come to the table with an eye toward supporting them and their development. It’s up to the individual to choose that. If they don’t after a certain amount of time, they’re not going to be here. Fastest way into my doghouse: Not acting on something that’s clearly an opportunity.

BOTTOM LINE Annual revenue: $300+ million.

national banks, but none with private equity.

2018 goals: To grow by another 50 to 100 units.

What are you doing to take care of your employees? We have an employee assistance program called Hamra Employees Reaching Out (HERO). It’s supported by employees who contribute—one time or recurring with their paycheck—however much they want. We match their contributions dollar for dollar. We’ve raised $1.2 million and supported more than 400 employees in different ways over the last six years. In our Chicago market, through the HERO fund, we are offering employees the opportunity to own their own homes.

Growth meter: How do you measure your growth? Through the number of employees we have. We have 7,000 people today. Our goals are based on how many people we’re supporting in the business. Vision meter: Where do you want to be in 5 years? 10 years? We’d like to be doing business with more units in the same markets we have now and adding new markets. That means growing in the Central Midwest, the Northeast, and nearby markets. How is the economy in your regions affecting you, your employees, your customers? It’s affecting us more in the Midwest than anywhere. We know our operations are good and solid, but we’re still seeing fewer people coming in. Are you experiencing economic growth in your markets? We have big markets, so we’re seeing growth in certain areas and not in others. How do changes in the economy affect the way you do business? We’re very mindful of people’s income levels and opportunities for housing and education. We focus on those areas to make sure we’re pricing menus properly so that people can continue to do business with us. How do you forecast for your business? We look at indicators in each market separately. We also have conversations with other franchisees. What are the best sources for capital expansion? Traditional sources. Experience with private equity, local banks, national banks, other institutions? Why/why not? We’ve had experience with

How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? Some of it is offset through menu increases and reductions in other areas of the business. But it’s truly becoming a larger cost component to doing business—much more quickly than we want to be addressing. It’s tough. How do you reward/recognize top-performing employees? We recognize people through our own social media networks and they get acknowledged from me to the store level. We have actual awards we hand out for great guest services and increasing sales. Twice a year we have parties for our employees in each market. During the summer, we have picnics for all our employees and their families. Then we have holiday parties for our management teams and their spouses. What kind of exit strategy do you have in place? I have no exit strategy. We’re creating a generational business that reflects the vision and values of our family. As we grow, we’re able to contribute in bigger ways, not just financially.

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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A GOOD FIT! OWN THE GYM THAT’S BRINGING A LUXURY EXPERIENCE TO THE VALUE FITNESS SEGMENT.

WE’RE ALL ABOUT RESULTS: AVERAGE UNIT VOLUME *

$1,657,818 EBITDA *

$576,987 EBITDA MARGIN *

34.8%

15k square ft. facility with top of the line cardio and strength equipment, functional area (shown), locker rooms/ shower, personal training, and retail

55+ locations open and growing fast Multiple buildout models, scalable expansion and exclusive development areas available Labor light, virtually cashless operational model

* Figures reflect the actual average annual gross sales, average annual EBITDA and EBITDA margin, and average end-of-year membership numbers of 39 affiliate-owned and operated Blink Fitness Gyms (operational for at least 1 full year as of December 31, 2016 and incurring the development and operational costs and expenses of the typical Blink Fitness Gym for which we offer franchises) during their 1st full 12 months of operation, of 34 of those 39 Gyms during their 2nd full 12 months of operation, of 23 of those 39 Gyms during their 3rd full 12 months of operation, and of 9 of those 39 Gyms during their 4th full 12 months of operation. All figures above are published in Item 19 of our March 24, 2017 Franchise Disclosure Document (FDD), which also identifies the number and percentage of these affiliate-owned and operated Gyms attaining or surpassing the various averages during each 12-month period. The beginning and ending dates of the 12 months of operation represented for each Blink Fitness Gym differ because each Gym opened on a different date. The financial performance representation contained in Item 19 of our March 24, 2017 FDD includes both actual average and actual median annual gross sales, annual EBITDA, end-of-year membership numbers, and other annual financial performance information for 39 affiliate-owned and operated Blink Fitness Gyms (operational for at least 1 full year as of December 31, 2016 and incurring the development and operational costs and expenses of the typical Blink Fitness Gym for which we offer franchises) during their 1st, 2nd, 3rd, and 4th full 12 months of operation. A new franchisee’s results may differ from the represented performance. There is no assurance that you will do as well and you must accept that risk. 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 Department of Law.

For more information, contact Patricia Perry (917) 251-0953 or visit blinkfranchising.com

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6/26/17 12:09 PM

MEGA BY DEBBIE SELINSKY

Queen of the Beans It was love at first sip for Tracy Bouwens

racy Bouwens was a stay-at-home mom who never stayed home in Omaha when her discovery of Scooter’s Coffee piqued her entrepreneurial instincts. “The coffee industry was exploding and that was intriguing to me, so I began to explore and research the industry. This was about the time that Scooter’s, headquartered in Omaha, began franchising,” she says. “I met with the founder and fell in love with the concept and with him and his family and knew it was a great fit.” In 2004, she and her husband purchased their first Scooter’s Coffee shop in Omaha. Within six months, they’d decided to move to Kansas City as area developers for the brand. Thirteen years later, she is the brand’s largest franchisee, with 37 coffee shops in four states (Kansas, Missouri, Nebraska, and Iowa). What makes Scooter’s distinctive in a cram-packed field of coffee shops is that “we keep it simple,” says Bouwens. “We don’t use super-automated machines. We hand pull shots and steam milk by hand. That sets us apart in terms of quality of product. All that coupled with cusNAME: Tracy Bouwens TITLE: Co-founder, president COMPANY: Freedom Enterprises NO. OF UNITS: Scooter’s Coffee,

37 AGE: 47 FAMILY: Husband Shawn, 3

children, 1 granddaughter YEARS IN FRANCHISING: 13 YEARS IN CURRENT POSITION: 4

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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1/8/18 6:18 PM

Looking for a great franchise opportunity? Then come join a growing, fast casual brand* DESIRABLE TERRITORIES AVAILABLE FOR FRANCHISING INDUSTRY LEADING AUV FLEXIBLE 4,000-4,800 SQ FT FOOTPRINTS

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For more information, visit lamadeleine.com/franchise *This advertisement is not an offering to sell a franchise. An offering can be made only by Franchise Disclosure Document that has been registered with and approved by the appropriate agency in your state if your state requires such registration. Individual financial performance will vary. A copy of the FDD is available by contacting Sheryl Fox, Vice President Business Development at La Madeleine 12201 Merit Drive, Suite 900 Dallas, TX 75251 http://lamadeleine.com/franchise. Â© 2017 La Madeleine de Corps, Inc. All rights reserved.

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PERSONAL First job: Washing dishes at a little restaurant near my hometown in Yutan, Nebraska. After washing dishes for a short time, I was promoted to server. I learned the lesson quickly that hard work pays off! Formative influences/events: My parents have been a huge influence in my life. As entrepreneurs, they have modeled for me what it looks like to walk in high integrity and morals in the business arena. They often encouraged me as a young girl to set high goals and not to settle for less. I had a sense of confidence they had instilled in me that I could accomplish anything I wanted to do. When I got married, it was like my father passed the baton to my husband, who has since become my biggest cheerleader. The encouragement I receive daily keeps me pressing forward in my daily goals. Key accomplishments: First and foremost, my biggest accomplishment was raising my three children. Training up children is a tough job, with no vacations. I am very proud of who my children have become as adults: honorable citizens contributing positively to our society. From a business perspective, my greatest accomplishment is building a team of amazing people who work alongside me each day at Freedom Enterprises, helping to grow our organization. Without them, I would never have been able to become the largest franchisee in the Scooter’s system. They challenge me and make me better at my job every single day. Biggest current challenge: Staffing our stores. This is, hands down, our biggest challenge. With unemployment rates so low and minimum wages rising, we find it more and more difficult to find the people we need to staff our stores. On a positive note, it is forcing us to be creative as we seek top talent for our company. When things become a little challenging, it pushes us to think outside the box, and that is where the status quo gets pushed aside while new ideas and methods are birthed. Next big goal: I look forward to the day we reach our 100th store opening, and I plan to continue to move forward in that direction. However, I’m excited about a new goal I have, which is to form a business with the goal of using 100 percent of the profits solely for funding safe houses for rescued trafficking victims around the globe. It’s quite an undertaking and I’m looking forward to the challenge. First turning point in your career: My husband and I first became Scooter’s Coffee franchisees in 2004 in Omaha. Within six months, we made the decision to move to Kansas City as area developers for the brand. Bringing Scooter’s to Kansas City launched us on an adventure that included both trials and victories—an adventure full of learning experiences that would launch us into the success we are so incredibly blessed to experience today. Best business decision: Becoming a Scooter’s Coffee franchisee. Hardest lesson learned: We joined the Scooter’s Coffee family when the franchise was very young. Opening stores in the Kansas City market with a brand that was not yet known was very challenging. The early days were tough. But I’m so thankful for those years because that is where we learned so much about this business and about ourselves. We always thought we had what it took to persevere, but having to develop those “perseverance muscles” has made me who I am today as a businesswoman. I love being able to share those experiences with other aspiring entrepreneurs and being a positive influence in the marketplace. Work week: Typically, I work hard Monday through Friday and then enjoy my weekend. It wasn’t always that way though. In the early days we worked long days to build our business. My husband and I worked shifts in the stores, alongside our employees, often seven days a week. Exercise/workout: I like to ride my Peloton stationary bike as often as I am able.

Best advice you ever got: As a young mother, my grandmother advised me to “enjoy the moments because the cobwebs would always be there tomorrow.” In addition, a neighboring mother told me not to sweat the small stuff, pick your battles and let the rest fall to the wayside. Both pieces of advice have stuck with me, even into the business arena. The to-do list never ends. The issues or troubles of the day sometimes arise. But the most meaningful part of my life are those moments I get to just pause and look someone in the eyes, hit the pause button for just a moment on the chaos around me, and simply listen. That is truly “enjoying the moment” for me. What’s your passion in business? People. I love seeing people on my team grow in their skills and talents. I love seeing them have that “ah-ha” moment and then rising to the next level of leadership ability. I love making a difference in people’s lives, whether it is my employees, my customers, or through philanthropic opportunities. I appreciate the blessings in my own life and believe giving back is the most important thing I can do. How do you balance life and work? My day starts early (usually 5 a.m.). I start by sipping coffee in “my chair,” reading a book, and quietly meditating on the day that lies ahead. Each day brings joy but also challenges, and starting in the right frame of mind helps me to make sound decisions. When the work day is over (and on the weekends) I stay disciplined, focusing on my family and my personal goals. It’s easy to get sucked into working 24/7, and I did that for many years. I find that I am more productive when I keep boundaries between work and personal time. Guilty pleasure: Wine. I just enjoy a nice glass of wine in the evening with my husband! Favorite book: I’m a big reader, so my next favorite book is always just around the corner. Because it is the 500th anniversary of the reformation, I am currently reading a book called Martin Luther: The Man Who Rediscovered God and Changed the World by Eric Metaxas. But my very favorite books are the John Maxwell books, particularly The 21 Irrefutable Laws of Leadership. We use John Maxwell materials regularly in training our management team to become excellent leaders. Favorite movie: “It’s a Wonderful Life.” What do most people not know about you? I currently serve on the board of YouCanFree.Us, an international human rights organization that is fighting human trafficking around the world through advocacy, rescue, and rehabilitation. We rescue women and children out of slavery and commercial sexual exploitation, provide psychosocial care and holistic healing, and help them to re-enter society. Pet peeve: People who are late for meetings. What did you want to be when you grew up? My dream job would have been to be a surgeon. Early in my marriage, I decided to make a commitment to supporting my husband in his career while I dedicated time to our family. I believe all things happen for a reason, and I absolutely love what I’m doing today. No regrets! Last vacation: I traveled with my daughter last May to Mumbai, India. In addition, my husband and I own a lake house, which we use as our little sanctuary to get away for a few days on a regular basis where we just enjoy the beauty of nature and one another’s company. Person I’d most like to have lunch with: Ivanka Trump. I love visiting with other strong businesswomen. I would love to hear in person about her business journey and lessons learned along the way, and how she manages to maintain her grace and dignity in the face of adversity.

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tomer service—the right smiling faces in the drive-thru window—wows the customers. At Scooter’s, our mantra is ‘Amazing People, Amazing Drinks… Amazingly Fast!’” It didn’t take long for Bouwens, who admits she’s hooked on the Scooter’s Americano with an extra shot, to realize that success would need to come from more than having a coffee shop where people come and hang out and have fun, she says. “I realized that you don’t make money just having a grand old time. I’m thankful for the concepts I learned from the system. We focus on what matters—getting people through

With units already in four states, Bouwens says there’s still plenty of room to grow and plans to open six to eight more Scooter’s in 2018.

the drive-thru quickly. I thought I’d have to let go of that romantic side of having people come in and sip coffee.” Her locations include both sit-down coffee shops and drive-thru kiosks, and a menu of drinks, pastries, and breakfast sandwiches. Her favorite business model is the drive-thru kiosk. “The drive-thru kiosk is a smaller build with fewer staff,” she says. “It’s just an easier model to manage.” With units already in four states, she says there’s still plenty of room to grow and plans to open six to eight more Scooter’s in 2018. Her husband of 26 years, Shawn, now is a commercial contractor

MANAGEMENT Business philosophy: Treat others like you want to be treated (The Golden Rule), make all decisions through the filter of integrity, and never burn a bridge. Management method or style: Hire people smarter and better than myself, and then empower them to do their job with excellence. I believe in providing my employees with the tools they need to succeed, and when they make a mistake or experience failure, I want to be there to pick them up, dust them off, and redirect them back onto the course to success. Greatest challenge: Hiring and retaining staff. This has always, notoriously, been a great challenge for businesses of all types over the years. As a business owner, it is essential that we monitor the changes in our culture and society, the changing minimum wages, etc., and look for ways to adapt and find success in hiring and retaining staff. If we don’t adapt, we will fail. How do others describe you? Strong, confident, focused leader who strives to lead by example, yet humble and willing to admit when I am wrong. One thing I’m looking to do better: Getting better is a never-ending process. I often tell my team, “The day we stop learning is the day we should get out of the business and retire.” It’s not necessarily one thing, but rather an overall continual striving to grow as an individual and as a business. How I give my team room to innovate and experiment: One of my favorite ways to encourage my team to think outside of the box and come up with solutions is to answer their questions with a question. When a team member approaches me with a problem or for permission to try something, the best answer is sometimes not to provide an answer. I simply turn the question back on them and let them provide me the answer. How close are you to operations? My director of operations handles daily operations. She has been working with me for years and has honestly exceeded my abilities in terms of operations. She and I meet on a regular basis to strategize and brainstorm, but she executes our business strategy with her regional management and management team. What are the two most important things you rely on from your franchisor? Marketing and new product initiatives. The marketing department at Scooter’s does a tremendous job working with me, often on a daily basis, to strategize local marketing initiatives as well as grand opening marketing plans. In addition, I rely on the franchisor to roll out new products, whether they are a permanent addition or a limited time offer. Either way, it keeps our product line fresh and exciting for our customers.

What I need from vendors: Competitive pricing. With rising labor costs, it is essential to the success of my business that we maintain or even reduce our costs in other areas. This is something we look to our vendors to help with. Have you changed your marketing strategy in response to the economy? How? I think it is important to watch what is happening in the industry in terms of products, customer preferences, and technology. Technology has changed so much in the last 13 years. Today our customers mostly have smartphones, so having an app where we can promote products and customers can earn rewards has become useful and an essential tool. How is social media affecting your business? Social media allows us to communicate regularly and effectively with our customer base. It also allows us to receive feedback from our customers and respond to that feedback in a timely fashion. It is such an encouragement to our team members when our customers share positive stories of amazing customer service on social media. How do you hire and fire? We interview constantly. Any time we find a great candidate, we find a position for them. Once we’ve made a commitment to hire someone, we also become committed to training and developing that person so they have an opportunity to grow their skill sets. On occasion, we end up having to part ways, but for us that is a last resort. The only exception to that is when there is a breach in integrity, particularly in the areas of lying, cheating, or stealing. We can help individuals grow in their talents and skills, but we usually can’t change the core of who a person is in their heart. How do you train and retain? We have a pretty thorough training system. Our goal is to make sure that our team members feel fully equipped and confident in their role with our company. Retention, once they have been trained, is key. We are constantly reviewing our employee retention efforts. It starts with a company culture that cares for people. Life happens, both good and bad, and our goal is to be there through the journey with our team members. We want to be there to celebrate with them in their successes and be there as a shoulder to lean on when necessary. After all, we are family. How do you deal with problem employees? We believe in clear and honest communication. Taking time to develop and train people is one of our core values, but you can’t do that without being clear and honest. Our goal is to work with our team members to see them grow in their leadership and positional abilities. To do that, we try to be clear in our expectations but also helpful in our coaching and training. Fastest way into my doghouse: Dishonesty and lack of integrity.

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who handles her new builds. Bouwens is a lifelong student and an avid reader who attends leadership seminars to continue her growth. “It’s important to be constantly learning, to grow and stay humble through it all,” she says. Work is important, but for Bouwens family still comes first. “We love lake time with our family and make sure that we capture those moments on the boat and the lake. We’re building memories, and as more grandchildren come, it’ll be even more important,” she says, adding that she spends time with her only grandchild every weekend. “That’s too valuable. None of the rest matters if I don’t have that.” She also finds time to serve on the board of YouCanFree.Us, an international human rights organization fighting human trafficking around the world through advocacy, rescue, and rehabilitation.

BOTTOM LINE Annual revenue: $15 million.

in management changes, and the need for training and support.

2018 goals: 1) Continue to engage and inspire our team members while strengthening our company culture. Culture is something that needs to be focused on and built upon continuously. 2) Open 6 to 8 new locations. 3) Double-digit same store sales growth.

What are the best sources for capital expansion? For us, it’s primarily been through our local bank. We have a great working relationship with our local bank and value their partnership with us over the years.

Growth meter: How do you measure your growth? We measure our growth and success in several ways. First, we look at employee satisfaction and retention. Once we have that, it lends itself to momentum in terms of increased customer counts, increased sales, and the ability to continue to open new locations with a solid group of team members. Vision meter: Where do you want to be in 5 years? 10 years? There are business opportunities all around us. As an entrepreneur at heart, I look to continue adding Scooter’s Coffee locations over the next 10 years. In addition to that, my goal is to position myself to take on new opportunities as they arise. How is the economy in your regions affecting you, your employees, your customers? The economy is strong in the four-state region where our coffeehouses are located. The most difficult part of the economy for us is the low unemployment rates, making it difficult to fully staff our locations. Are you experiencing economic growth in your market? Yes. How do changes in the economy affect the way you do business? Over the past 13 years, we have found that staying fundamentally committed to the operational core philosophies at Scooter’s Coffee has allowed us to thrive in a thriving economy and press through in a sluggish economy. The key for us is to maintain focus on the daily things that matter in a successful coffeehouse. How do you forecast for your business? I read a lot about what is happening in the QSR segment and I study the data from our stores almost daily. The numbers coming from the stores also tell a story. If you study the data, you can make swift decisions through the ebb and flow of the economy,

Experience with private equity, local banks, national banks, other institutions? Why/why not? We have experience with both private equity and local banks. Both have proven to be great resources for us as we have grown our business. What are you doing to take care of your employees? We have a wonderful team of employees working for us and we appreciate them in so many ways. Our salaried employees enjoy benefits such as medical insurance, vision and dental insurance, long-term and short-term disability, as well as life insurance. We work hard to source a well-rounded benefits package for them, but more importantly we look for small ways to care for each person, right where they are in life. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? Rising labor costs are a reality. As we see minimum wages rising along with healthcare, we are analyzing every aspect of our business, including scheduling, to optimize efficiencies while minimizing cost increases. We work hard to analyze every line item on our P&L for cost savings. How do you reward/recognize top-performing employees? Through various methods. We routinely run competitions with prizes such as gift cards and flat screen TVs to keep things fun and lively. We also have an annual awards ceremony at our big annual management meeting and provide bonus opportunities throughout the year. What kind of exit strategy do you have in place? I’m still young so that’s not a priority right now. At some point, I’ll want to retire, though I don’t like being idle. I want to train and develop our employees to take on more responsibility, so I can eventually act in an advisory role. This would also leave me free for other ventures.

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BY KERRY PIPES

Only the Best! Anil Yadav works hard at perfection

nil Yadav has graced the pages of this magazine before. He’s well-known as a man whose work ethic took him from a Jack in the Box fry cook to the brand’s largest franchisee, with 227 restaurants. Following his success as a Jack in the Box and Denny’s multi-brand operator, he has been busy growing his portfolio substantially over the past decade. When we first met him in 2008, he had a combined 94 locations for his Jack in the Box and Denny’s units. Today he has nearly quadrupled that number through growth and by adding more brands… not to mention adding three golf courses/resorts to his holdings. It was definitely time to catch up! Yadav says much has changed in the marketplace since we last spoke in 2012, not all for the better. “Competition has been in a more discounting mode and government intrusion is the other significant challenging factor we’ve been facing,” he says. “Affordable healthcare has not been affordable for us or our employees. Margins have been compromised due to many other associated costs beyond our control. Consumer demand and technology has also changed the way we do business.” Still, he has been on a growth trajectory that would be difficult to rival. Yadav says his development has been motivated in part by a desire to diversify into other restaurant concepts and markets, such as casual dining with TGI Fridays, to complement his fast casual brands. It’s a strategy he’d employed before when he expanded from fast food pioneer Jack in the Box to family dining with Denny’s. He’s also been looking to spread his portfolio geographically, beyond his previous dominance with Jack in the Box and Denny’s in Texas and California. With many of his new locations in the Southeast and Midwest, Yadav says he is better able to spread the risk and take advantage of the economy and business opportunities in different markets. In the years since 2012, Yadav has added 10 more Jack NAME: Anil Yadav TITLE: President/CEO COMPANY: Yadav Enterprises NO. OF UNITS: Jack in the Box, 227; TGI Fridays, 75; Denny’s, 39; El Pollo Loco, 12; Corner Bakery Cafe, 11; Marco’s Pizza, 5; Sizzler, 5 AGE: 53 FAMILY: Wife Vandana, sons Akaash 25, Aman 21,

daughter Aanchal 15

YEARS IN FRANCHISING: 28 YEARS IN CURRENT POSITION: 28

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in the Box locations, 10 more Denny’s, and has expanded into several new brands: TGI Fridays, Corner Bakery, El Pollo Loco, Marco’s Pizza, and Sizzler. He says his mission is to be the most admired franchisee in every brand he operates. Then there are his California golf and resort holdings, one in Southern California, and two in the Silicon Valley region. In 2012, he led an investment team that purchased the 172-acre Pala Mesa Resort in Fallbrook (between Los Angeles and San Diego). In 2016, he purchased the Bridges Golf Course and Resort in San Ramon, and the Eagle Ridge Golf Course in Gilroy (about an hour south of his base in Fremont). In all three cases, he says, the price and the opportunity seemed right. “We’re reinvesting in the golf courses and the surrounding areas and I think it’s going well,” he says. New concepts, whether franchise brands

“Succeeding out of necessity built the foundation of my character.”

or golf courses, often mean different operational management structures, but throughout Yadav maintains his usual nose-to-the-grindstone approach. “We have some learning to do every time we get involved with a new brand,” he says. “But it’s just a matter of learning, making adjustments, and getting the operations perfectly incorporated and streamlined. Everything else will fall into place.” Yadav remains dedicated to looking for and hiring the best people he can find all across his organization, empowering them, and promoting from within. After all, that’s how he began. “I still tell people that I started as an employee—and if I can do it, anyone can,” he says. After 28 years in franchising, Yadav says there are likely more acquisitions ahead, and he’s toyed with the idea of becoming a franchisor himself. He’s one dominant franchisee who would likely make a dominant franchisor.

PERSONAL First job: Worked at Jack in the Box as a fryer in 1984.

in 1989, but never off the clock.

Formative influences/events: I grew up with seven siblings in one home trying to make ends meet. Those days I wasn’t working to thrive, I was working to survive. That kind of perseverance kept with me throughout my entire career. Succeeding out of necessity built the foundation of my character.

Exercise/workout: I try to work out two to three times a week, but it is tough to stay consistent with the kind of work schedule and traveling I do.

Key accomplishments: I feel as though I have many key accomplishments, both in my business and personal lives. I’ve helped and supported many family members and friends in achieving their goals in terms of business. But my greatest accomplishment is my family. I have a beautiful, loving wife, and three smart, grounded children who support me and have shown their own talents. Biggest current challenge: There are several challenges, but I would say that the biggest current ones are keeping up with the changing environment. It’s tougher to recruit and retain talent in some markets and government intrusion surely doesn’t help, especially in California. It is also challenging to keep up with competition and retaining positive transactions. It is required to stay relevant in our business in order to maintain growth. Next big goal: Maintain what we have built over the years. Possibly acquire additional brands, become a franchisor. First turning point in your career: I came to this great country and I was given the opportunity to be a worker and then a manager at Jack in the Box. The turning point was when Jack in the Box believed in me and gave me the chance to purchase my first restaurant at the age of 25. Best business decision: Purchasing my first restaurant and sticking to the fundamental beliefs of what it takes to run a successful business. Then acquiring 25 restaurants in 2003 and 2004, which helped me to be part of the bigger picture and learn how to manage a larger organization. Hardest lesson learned: Growing too fast without the infrastructure to support it. I went from 7 locations to 34 in less than 6 months in 2003 and 2004 and thought I could build the structure as I went. I learned very quickly that you need to have the right people to lead before you grow. Work week: 10-plus hours a day as I did when I bought the first restaurant

Best advice you ever got: Work hard but maintain a balanced professional and personal life. Keep focused and don’t let the surrounding noise distract you. Advice from my dad: “Don’t let anybody stop you from what you believe in” and “Your word is your bond.” What’s your passion in business? Hard work and being successful in what I do. Help people in our team to be successful and help my people grow with our company. I believe that it is easy to make a dollar, but you have to work twice as hard to maintain that dollar. I am passionate about building the right team to lead our organization and take care of them. How do you balance life and work? It is sometimes challenging to balance life and work, but I do take vacations annually with my family and do my best to disconnect from time to time. Guilty pleasure: I love spicy food (sometimes it doesn’t love me) and work too hard. Favorite book: I find that I don’t have the time or patience to finish the books I pick up, but I read articles and magazines. Favorite movie: “Groundhog Day,” but I love the action movie genre too. What do most people not know about you? How I keep calm in business and how I deal with challenges with so much patience. Pet peeve: Dealing with people who will put ego before good business sense. I learned a long time ago that in business you don’t get what you deserve, you get what you negotiate. What did you want to be when you grew up? To be the best with whatever I do and be a successful businessman. Last vacation: Cruise to Alaska over the summer with family. Person I’d most like to have lunch with: My people or friends.

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MANAGEMENT Business philosophy: If you have to think twice about something, donâ€™t do it. It is all a team effort and it is important to take care of your people as they take care of you. Management method or style: Do the right thing at all times and take care of your people and provide support. Greatest challenge: Spending time with everyone in my organization like I was able to do when I had fewer locations. I miss them because I am busy with many other parts of the business. How do others describe you? Successful, smart, hardworking, and caring, and dare I say, humble. One thing Iâ€™m looking to do better: To relax and organize more. How I give my team room to innovate and experiment: I empower my people and build the trust so they can do their jobs better. I continue to be innovative and expect my people to do the same, as that keeps us fresh in thinking. I also encourage collaboration because I believe that different ideas can lead us to be more productive and successful. How close are you to operations? Very close. I spend a lot of time with my leaders and visit the stores every opportunity I get. What are the two most important things you rely on from your franchisor? Provide operations and marketing support to compete and succeed in current market conditions. And to continue to build upon the culture and strength franchisors have built. What I need from vendors: To be innovative in coming up with new ideas that can resonate with guests and simplify operations.

Have you changed your marketing strategy in response to the economy? How? Yes, I see many marketing strategies change with brands in order to compete, including discounting, new products, and improving the quality of product. The biggest thing we continue to focus on is the execution within our four walls with guest experience. We also have focused on pricing by not pricing ourselves out of the market. How is social media affecting your business? Social media has become a huge part of communication in our business space. It has a big effect on our business because the impact, positive or negative, is instantaneous. It is very important nowadays what people say about your business on social media as they influence the decision-making of guests as to where they want to indulge themselves. How do you hire and fire? It mostly depends on what position we need. We have used recruiting firms for higher positions and also have used recruitment websites and traditional communications at the restaurant level. I believe in promoting people from within before we recruit outside the company. How do you train and retain? We have a training department responsible for training our people, and our DO and DMs are trained to train their people in four walls. We have monthly and quarterly leadership meetings to refresh what they know and to remind them of what they have learned. How do you deal with problem employees? We work with them and communicate with opportunities and a development plan for them to get better. If it is a training issue then we train them, but we have no tolerance for dishonesty. We maintain clear communication with employees, and if they donâ€™t meet the expectation we cut the cord quickly.

BOTTOM LINE Annual revenue: $625 million. 2018 goals: Do better than 2017. Growth meter: How do you measure your growth? Be better than the previous year, every year. Vision meter: Where do you want to be in 5 years? 10 years? I want to see our organization be an admired organization and to be able to transition to my children so I can take a back seat and enjoy a bit within the next 10 years. How is the economy in your regions affecting you, your employees, your customers? Currently, we have to deal with rising minimum wages, competing brands, and low unemployment environments that make it very difficult to hire and retain good employees. A good economy brings its own challenges as the work pool is smaller. Are you experiencing economic growth in your market? Yes, but everyone is fighting for the same business, and the best operated restaurants are enjoying better success. How do changes in the economy affect the way you do business? The cost of doing business is different every year, and the margin continues to be challenging with the rising cost from labor and food and government agency intrusion. Building costs have also risen and have been challenging to make the model work from a construction point of view. What are the best sources for capital expansion? Business savings and traditional banks.

Experience with private equity, local banks, national banks, other institutions? Why/why not? I am fortunate to have had great working relationships with national banks for years. We also deal with local banks for many projects as they have great programs for a few projects that are local. We have not had any challenges in getting financing from our bank, as we have not over leveraged and continue to work hard to keep our leverage where it is manageable in a downturn situation. What are you doing to take care of your employees? We have many initiatives in place, from benefits to bonus plan and ongoing incentives, to recognize their hard work. We do care for our employees and do our best to recognize and reward them for their good behavior. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? It is very tough to pass these costs on to the guests as these are changing at a more rapid pace than we can figure out how to deal with. We are seeing our margin shrinking with all these rising costs. We have been hit hard with healthcare and new minimum wage requirements. How do you reward/recognize top-performing employees? We have bonus plans with many incentives and competition programs, such as the double-digit club where we take the winners out to dinner and give cash rewards. We also have the annual Circle of Excellence awards where we take the high-performing managers on an all-expense-paid trip to Hawaii. What kind of exit strategy do you have in place? My kids will take over. Akaash is finishing his MBA from UCLA and Aman is getting his pre-law degree from American University.

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AT H L E T E S I N F R A N C H I S I N G BY KERRY PIPES

Power Forward O

Taking it from the basket to the bank

n March 4, 2001, the UNC Greensboro men’s basketball team won its first Southern Conference championship when David Schuck made a layup at the buzzer. The team went on to play in the NCAA Tournament that year. Schuck is a 6-foot 8-inch North Carolina native who played forward for the Air Force and UNC Greensboro during his four years of college. After graduating in 2002, his agent secured a deal for him to play professional basketball in Spain. “The apartment I lived in was 5 minutes from the Mediterranean Sea,” he recalls. He played for two teams in Spain over the course of the next two seasons: CB El Ejido and Caja Rioja (yes, where the famous wine comes from). Shuck was even named league MVP in his rookie year. And, he says, who wouldn’t enjoy traveling throughout Europe for two years? When his sports career ended, Schuck returned to North Carolina and, like many other former pro athletes, found himself searching for the right transition from sports to a business career. He tried teaching and coaching (as his father had done) for a year and then spent several years in banking. “I knew I wanted to be self-employed and have more control over my own career,” he says. He turned to franchising in part because of the model’s proven system and follow-theplan execution. “I found most food franchises to be too expensive and ultimately locked in on the accounting sector first,” he says. “I liked the Liberty Tax brand, and the North Carolina territory of the Greensboro Triad region was open.” In 2007, he put out the shingle on his first Liberty Tax store, then opened a couple more on his own before beginning to acquire existing units. He now has 15 operating in North Carolina. “I’ve been actively involved with my Liberty Tax locations since day one, and I love the seasonality of the work,” he says. Always looking for new opportunities, Schuck and two former basketball players and friends recently inked a deal to bring Club Pilates to North Carolina’s Research Triangle area. The partners have two units open so far, one in Raleigh and one in Chapel Hill and are signed up to open a total of six.

As a business operator, Schuck says he’s learned to “delegate and put priority on being proactive, and not reactive.” This means hiring great people and empowering them to do their jobs. Schuck says he is excited about his future with both brands and, in particular, is eagerly looking to grow the Club Pilates portfolio. “I have 11 years of franchising under my belt now,” says the 38-year-old. “I can’t wait to learn more and grow this operation.” With this steady approach to growth and following the system, no buzzer-beater is necessary this time around.

NAME: David Schuck TITLE: Owner COMPANY: JJD Fitness NO. OF UNITS: 15 Liberty Tax, 2 Club Pilates AGE: 38 FAMILY: Wife Jami, son Tanner, daughters Mason and

Finley

YEARS IN FRANCHISING: 11 YEARS IN CURRENT POSITION: 1.5

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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1/5/18 9:50 AM

AT H L E T E S I N F R A N C H I S I N G

“Teamwork, accountability, preparation, and competition are things that translate directly to business.” PERSONAL First job: Professional basketball player in Spain. Formative influences/events: My entire athletic career was very formative and helped shape my business life. Teamwork, accountability, preparation, and competition are things that translate directly to business. First turning point in your career: When I became self-employed and decided to control my own career path. Best business decision: To delegate and put priority on being proactive, and not reactive. If you are running around all day solving unimportant problems, then you lose the time to think, look forward, and work on solving the really important problems your business has. Hardest lesson learned: Stay healthy. My business and family does not benefit from me being out of action because I am sick or stressed out. Work week: Whenever I am awake. I am always thinking about something with respect to my businesses. Exercise/workout: Not nearly enough. However I do love to take Pilates classes at my studios. Best advice you ever got: If it is to be, it is up to me. What’s your passion in business? Building and developing teams, executing a plan, and looking for the next big challenge. How do you balance life and work? This is something I am constantly working to improve on. I am trying to be better about saving emails and calls for the next day once 7 p.m. hits. Guilty pleasure: A good steak and glass of wine. Favorite books: What They Don’t Teach You at Harvard Business School by Mark McCormack, The Pillars of the Earth by Ken Follett, or any Pat Conroy book. Favorite movie: “Braveheart.” What do most people not know about you? I do not have an active personal Facebook page, even though I am very active with social media for my businesses. What did you want to be when you grew up? A professional baseball player for the Chicago Cubs. Last vacation: A week with my family at Holden Beach, North Carolina. Person I’d most like to have lunch with: Elon Musk or Bill Belichick.

ATHLETICS What skills/experience from sports have carried over to operating a business? Always persevere. Which do you find more competitive, sports or business? Both, but sometimes in business I find myself competing against myself. Why did you choose franchising as an investment option? I’m not very creative, so having the plan already figured out and support structure in place allows me to focus on executing the plan and driving revenue. What was your greatest achievement in sports and what has been your biggest accomplishment as a franchisee? Playing in the NCAA tournament in 2001. I was the MVP for my league in Spain during my rookie year.

MANAGEMENT Business philosophy: Always look to grow, improve, operate with integrity, and have fun. Management method or style: Get the right people in the right places, then monitor and react. Greatest challenge: Focus. It’s very easy for me to look at other business opportunities or even spend time on the phone all day networking and brainstorming. While those things are good, sometimes they cause me to lose focus and not be as productive as I should be. One thing I’m looking to do better: Balance work and life better. How I give my team room to innovate and experiment: I make sure to demonstrate that their voice matters and empower them to make decisions. How close are you to operations? This depends directly on staffing. The better the staff, the more they are empowered and delegated authority. What are the two most important things you rely on from your franchisor? Brand and direction. What I need from vendors: Consistency, reliability, value, and speed. How is social media affecting your business? I love it. We can now communicate with our audience in a low-cost way and also see results directly from those efforts. The social platforms are where our customers are, and I see so much growth and opportunity in this area. How do you hire and fire? I always look to hire good, high-character people. Even when I think I am fully staffed, I am still always looking. Firing is a necessary part of leadership. Not firing the wrong person can hurt your business and suck the energy out of your team. How do you deal with problem employees? I like to provide direct feedback and offer plenty of opportunities to correct the problem. If it’s not a fit, then accepting that and taking quick action is required.

BOTTOM LINE 2018 goals: Each year we look to build upon what we accomplished the previous year. Vision meter: Where do you want to be in 5 years? 10 years? I would like to be doing something that is challenging and gets me excited every morning when I wake up. Are you experiencing economic growth in your market? Yes. What are the best sources for capital expansion? I have had a good experience with SBA lending—if you can be patient. Experience with private equity, local banks, national banks, other institutions? Why/why not? Each has their pros and cons. In the end, it’s a choice, usually between ease of access and control or cost. What are you doing to take care of your employees? Providing them with an opportunity to grow, and working to help them achieve their career goals. How do you reward/recognize top-performing employees? In all sorts of different ways. However, what’s most important is to say “Thank You” and to look for small opportunities to recognize their efforts, like a note, or recognition in a group setting.

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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1/8/18 6:21 PM

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12/20/17 12:49 PM

UNDER BY KERRY PIPES

Founding Son From a first job to a top franchisee

or Evan Latham the franchise business is a family affair. That’s because the 29-year-old Orangetheory Fitness franchisee is the son of the brand’s cofounder, Ellen Latham. He says he’s been a part of the business since its inception. “My first job was cleaning the original fitness center,” he says. Today, he operates an Orangetheory Fitness location in Cooper City, Fla., and another in Nashville. Latham says he can see himself teaming up with another brand and even becoming an area representative for a brand one day. But right out of college it looked as though he might leave the family enterprise behind. “I pursued my passion for journalism and began my career in television news,” he says. But the growing success of Orangetheory Fitness lured him back home to South Florida in 2013, and he invested all of his savings into opening the Cooper City location. “Success came quickly—our studio signed up 100 members faster than any location in the company’s history,” he says. Two years later he moved to Nashville and opened his second location with similar results. His studio is #1 in Tennessee and the first to reach 1,000 members. Latham regularly travels throughout the state to mentor other operators in the system. He loves being actively involved in the operations of his studios and says he’s in the studio six days a week, operating the business, managing, working events, or cleaning the stuNAME: Evan Latham TITLE: Franchisee COMPANY: Orangetheory Fitness NO. OF UNITS: 2 Orangetheory Fitness AGE: 29 FAMILY: Married with a baby girl on the

way YEARS IN FRANCHISING: 4 YEARS IN CURRENT POSITION: 4

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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UNDER dio. He participates in an exercise class five days a week. As an Orangetheory Fitness operator, he says, “There’s no excuse not to work out.” The young entrepreneur is a stickler for a clean studio (he learned it early on) and top-notch customer service and expects the same from his employees. “It’s my job to show them the way and then get out of the way,” he says. The young businessman will soon be facing a new challenge: he and his wife are expecting a baby girl. He says he’s excited and eager to see what this new chapter of life brings.

UNDER 30 How did you get into franchising at such a young age? Franchising basically became the family business. My mom Ellen Latham founded OTF and it was hard to ignore the opportunity. I moved home, invested all of my savings and a loan into my first business and then reinvested it in a second location. Was becoming a franchisee something you’d planned on? It is not something I planned on, but I have been unknowingly preparing myself for this role since I began cleaning my mom’s fitness studio early on. Did you have a mentor or inspiration for getting into franchising? Both my parents have been positive mentors, but it was my mom who encouraged me to take a leap of faith from my career to a business owner. What jobs, skills, and experience have helped you operate a franchise business? My positions at the fast paced, highpressure television news station helped prepare me for franchising. Running a successful business takes a high level of organization and an ability to look ahead at your next moves. What kinds of obstacles did you face in franchising at such a young age? At a young age, it was having the experience to be an effective leader for my employees and understanding the many aspects of running a small business. How would you describe your generation? As dreamers. My friends and I had such big dreams growing up, but I never expected to be where I am today. Do you see franchising as a steppingstone or a career for you? I see it as both a stepping-stone and career. I wish to continue to grow my businesses, but at the same time as an Aquarius I tend to go with the flow.

30 PERSONAL

First job: Cleaning my mom’s fitness studio. As the job grew bigger I would hire my friends to work and help me clean. I was learning about building a team and caring for a business early on. Formative influences/events: The times that had a lasting influence on me were the middle school and college years. I feel you need to get out, get in some trouble, and have experiences in life. Those who are sheltered are missing out. I am a first generation Floridian and only child. My family relocated from Niagara Falls, N.Y. I met my wife in high school. She was the new girl from Nashville. We dated and went to college together. A decade later we were married and we have a baby girl on the way. Key accomplishments: In 2013, I relocated back home to South Florida and invested all of my savings into opening a franchise in Cooper City. It was an immediate success and marked the fastest studio in OTF’s history to have 100 members sign up. In 2015, I opened my second franchise in Nashville, which my partners and I have built to be the #1 studio in the state and the first to open with 500-plus members and reach more than 1,000 members. Biggest current challenge: Balancing time invested in the businesses with family life. I care for my fitness studios like a child, but with the real thing on the way it’s good to be the boss. Next big goal: To continue to build my franchises and develop my employees and myself. Perhaps dabbling in investing in another franchise concept and purchasing some real estate might be of interest. First turning point in your career: Changing careers. The time I spent and the money I saved working in television news I reinvested in my first business. Best business decision: Moving to Tennessee and opening the first OTF in the Nashville market. The fitness community has grown noticeably in the last few years I’ve been here, and I am proud to play a role in making it a healthier place to live. Hardest lesson learned: The amount of sweat equity it takes to open a business, let alone two. At the beginning it was a seven-day-a-week grind for several months to get everything up and running, but afterward it was well worth it. Work week: Six days. I am in the studio Monday through Saturday. Whether it’s operating the business, managing my team, working outside events, or cleaning the studio, I am a big believer that time spent in your business pays off. Exercise/workout: A big perk of owning a

fitness studio is that there’s no excuse not to work out. I am in class exercising five days a week. I have seen tremendous visual results, as have millions of members throughout the world from our personalized, scientific approach to interval training. Best advice you ever got: Set priorities and create timelines to complete them. What’s your passion in business? Seeing the reaction of a customer. When the studio is clean and the customer service is over the top, there is no greater feeling than interacting and experiencing their joy to be at my business. How do you balance life and work? I set a work schedule for myself much like I do for my employees. Holding myself accountable to spend time at the businesses and clock out in time to be home with family seems to work. Guilty pleasure: Sweets. For someone who works in the fitness industry I have a major craving for desserts and candies. Favorite book: The Secret History of Twin Peaks is an epistolary novel by Mark Frost, which provides background information on the history of the fictional town and characters from my favorite television series, “Twin Peaks.” Favorite movie: This is a hard question. I am a big-time movie fan and would rather watch the same old movie over and over than something new on TV. That said, if I had to pick one it is “Tron: Legacy.” This film was visually beautiful with a deep and strong storyline and an incredible soundtrack. What do most people not know about you? I am a 200-plus bowler. In my youth I spent most of my time in a bowling league rather than on a baseball field. Pet peeve: Messes. I am a clean freak. You’ll always catch me cleaning up my businesses. What did you want to be when you grew up? My first answer to that question was a car washer. I later wanted to be a filmmaker. Last vacation: I took a trip in October for the annual OTF convention in San Diego. I spent a few extra days in Los Angeles with my cousins who are also involved in OTF. Person I’d most like to have lunch with: That would have to be director, screenwriter, producer, painter, musician, actor, and photographer David Lynch. He is truly the most important director of this era.

MULTI-UNIT FRANCHISEE IS S U E I, 2018

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37 1/8/18 6:22 PM

UNDER

MANAGEMENT Business philosophy: To deliver proven fitness results for a healthier world. My vision is to be a trusted team leader of customer service-driven businesses. Management method or style: To participate in all aspects of the business. I have spent time as a sales associate working the front desk. I’ve worked as my studio manager and even stood on the street corner as a sign spinner in an orange morph suit. I believe no action is too low for you to do if it’s supporting your business. Greatest challenge: At a young age, it was having the experience to be an effective leader for my employees and understanding the many aspects of running a small business. How do others describe you? Dedicated, always on but slightly off, and a definite clean freak. One thing I’m looking to do better: To let go. I sometimes find myself completing an activity myself rather than having an employee do it. I understand that in order to better my team I have to show them the way and then get out of the way. How I give my team room to innovate and experiment: I find it is important to play on an individual’s strengths. Not everyone is going to be the best seller, so I empower my team to take charge of a particular part of the business. For example,

I have an artist on staff who designs our studio announcements. Someone who is highly organized will lead our fitness challenges. How close are you to operations? My business partners and I have found the perfect balance. While I handle the day-to-day, in-studio operations they report on whether the business is in line with certain benchmarks and that employees are getting paid. What are the two most important things you rely on from your franchisor? To continue to stay ahead of the fitness industry curve and develop new and exciting ways to wow our customers. I also expect them to continue to invest in the franchisee through ongoing training. What I need from vendors: Reliability and consistency. Too many times I see orders getting mixed up and I am unable to get in contact with someone who can help. Have you changed your marketing strategy in response to the economy? How? I have maintained the same level of spending my franchisor recommends. As I continue to invest a significant amount back into my businesses I continue to see a significant return. How is social media affecting your business? Social media is benefiting my business.

Most first-timers hear about OTF on social media. This is a big reason we continue to work with a social media company that advertises for us on multiple social media platforms. How do you hire and fire? Slow to hire, quick to fire. In addition to the usual job posting sites, we have found long-term success in hiring people with energy, enthusiasm, and personality. In other words, they bleed orange. The rest can be taught. How do you train and retain? We train our staff through extensive role-playing and by allowing them to first spend time in the business and observe how we do things. We want them to be able to talk about our product first. The computer and technical stuff can be shown later. How do you deal with problem employees? They are given a formal write-up and expectations are communicated. I have found the key to this is to audit and follow up on whether they’ve taken our advice. As business owners, if we don’t audit every aspect of the business there’s no reason to be in business. Fastest way into my doghouse: I am a really easygoing guy, but lack of respect will not be tolerated.

BOTTOM LINE Annual revenue: $2.6 million.

can’t keep up.

2018 goals: To increase total annual revenue of both businesses by 25 percent.

How do changes in the economy affect the way you do business? The impact of a strong economy on my businesses requires me to keep pace with demand by hiring additional employees and adding classes to the schedule.

Growth meter: How do you measure your growth? Total members is the most important number to a fitness franchise. I have built both businesses to over 1,000 members, which accounts for two of the nearly 20 studios in our OTF network with those kinds of numbers. Vision meter: Where do you want to be in 5 years? 10 years? In 5 years I see myself investing in another franchise concept. In 10 years I see myself as the area developer for a franchise concept. How is the economy in your regions affecting you, your employees, your customers? The Nashville economy has continued to outpace the nation. Tennessee has a climate that continues to attract new businesses. Are you experiencing economic growth in your market? We are experiencing significant economic growth to the point where infrastructure

How do you forecast for your business? The financial reporting software my franchisor provides me with allows me to forecast how the business’s sales are trending for the year. Looking ahead plans for success. What are the best sources for capital expansion? First bust open your piggybank. Then take out a credit line. Don’t be ashamed to ask family for help. Experience with private equity, local banks, national banks, other institutions? Why/why not? In Florida I found success with private equity and national banks. In Nashville, I discovered that a local bank supported my business model much better. What are you doing to take care of your

employees? You have to take care of your people if you want them to stick around. That’s both financially and personally. I find taking the time to consistently review your employees and give raises and bonuses will boost morale all around. The occasional lunch and coffee goes a long way too. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? I have noticed quite the opposite. The businesses have proven to me that the more I spend on payroll the more the businesses earn. How do you reward/recognize topperforming employees? Employees are assigned individual and team goals for the month. They are awarded bonuses for reaching individual goals and a team bonus is split for accomplishing a team goal. What kind of exit strategy do you have in place? I have learned that in business time is precious and you should always have an exit strategy. When the time comes, working with a franchise resale group would help tremendously.

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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MEGA

2018 Mega 99 Rankings Each year we work with FRANdata to compile a list of the country’s largest multi-unit franchisee organizations. Based on total unit count, the rankings show not only the number of units these “mega” franchisees operate, but also their brands. While the list is dominated by food brands, it also includes non-food concepts such as business services (tax preparation), consumer services (automotive), and lodging. Building a multi-unit empire is a matter of taste, opportunity, passion, and comfort level. If you’re looking to expand and diversify your own franchise empire, study what the “big guys” are buying—it just might help you with your own growth choices in 2018.

NAME

UNITS

BRANDS

NPC INTERNATIONAL

1,530

PIZZA HUT, WENDY’S

2 3 4

TARGET FLYNN RESTAURANT GROUP SUN HOLDINGS

1,129 886 829

5 6 7 8

CARROLS GROUP DHANANI GROUP MUY BRANDS ARAMARK

802 801 755 591

9 10 11

KBP FOODS HEARTLAND AUTOMOTIVE SERVICES PILOT TRAVEL CENTERS

586 550 548

ARMY & AIR FORCE EXCHANGE SERVICES

491

13 14 15 16

JAMES HUMPHREY GPS HOSPITALITY ROTTINGHAUS SUMMIT RESTAURANT GROUP

467 395 394 390

PIZZA HUT, COLD STONE CREAMERY APPLEBEE’S, TACO BELL, PANERA BREAD BURGER KING, POPEYES LOUISIANA KITCHEN, ARBY’S, GOLDEN CORRAL, CICIS, KRISPY KREME, T-MOBILE, GNC, CANTINA LAREDO, LING & LOUIE’S, PANDA EXPRESS, BRUEGGER’S BAGELS, PAPI’S CUBAN CAFÉ, CRU WINE BAR, CAFE IZMIR, RODEO BAR BURGER KING BURGER KING, POPEYES LOUISIANA KITCHEN, LA MADELEINE FRENCH BAKERY & CAFE PIZZA HUT, WENDY’S, TACO BELL CHICK-FIL-A, EINSTEIN BROS. BAGELS, SUBWAY, PAPA JOHN’S, PANDA EXPRESS, FRESHII, PIZZA HUT, WHICH WICH, MOE’S SOUTHWEST GRILL, JAMBA JUICE, TACO BELL, QUIZNOS, TIM HORTONS, QDOBA, STEAK ‘N’ SHAKE, CHILI’S, MCALISTER’S DELI, MOOYAH, WAHOO’S FISH TACO, WENDY’S, COSI, ERBERT & GERBERT’S, KFC, BLIMPIE, DUNKIN’ DONUTS, NATHAN’S FAMOUS, PINKBERRY, PJ’S COFFEE OF NEW ORLEANS, THE EXTREME PITA, WINGSTOP, LA MADELEINE FRENCH BAKERY & CAFE, THE COFFEE BEAN & TEA LEAF, QUAKER STEAK & LUBE KFC, TACO BELL, FIRST WATCH JIFFY LUBE SUBWAY, CINNABON, WENDY’S, ARBY’S, DQ TREAT, TACO BELL, MOE’S SOUTHWEST GRILL, PIZZA HUT, CARVEL, CHESTER’S, HOT STUFF PIZZA, KFC, MAMA DELUCA’S PIZZA BURGER KING, SUBWAY, CHARLEYS PHILLY STEAKS, POPEYES LOUISIANA KITCHEN, TACO BELL, ARBY’S, EINSTEIN BROS. BAGELS, WING ZONE, BLIMPIE, PIZZA HUT, TACO JOHN’S, CHURCH’S CHICKEN, CINNABON, DOMINO’S PIZZA, GODFATHER’S PIZZA, QDOBA DUNKIN’ DONUTS BURGER KING, POPEYES LOUISIANA KITCHEN SUBWAY APPLEBEE’S, IHOP

17 18

HARMAN MANAGEMENT SODEXO

388 378

19 20 21 22 22

UNITED STATES BEEF CORP TACALA MASON-HARRISON-RATLIFF ENTERPRISES BODDIE-NOELL ENTERPRISES YADAV ENTERPRISES

373 348 347 343 343

KFC, A&W, LONG JOHN SILVER’S, PIZZA HUT CHICK-FIL-A, PIZZA HUT, TACO BELL, ERBERT & GERBERT’S, JAMBA JUICE, UFOOD GRILL, PAPA JOHN’S, QUIZNOS, HOT STUFF PIZZA, TIM HORTONS, COSI, QDOBA, CURRITO, BLIMPIE, CARL’S JR., DENNY’S, GODFATHER’S PIZZA, GOLD STAR CHILI, NRGIZE LIFESTYLE CAFE, PHILLIPS SEAFOOD, QUAKER STEAK & LUBE, EINSTEIN BROS. BAGELS, WOW CAFE & WINGERY, BAJA FRESH, CHESTER’S, PJ’S COFFEE OF NEW ORLEANS, THE COFFEE BEAN & TEA LEAF, SUBWAY, BURGER KING, MOE’S SOUTHWEST GRILL, MCALISTER’S DELI, A&W, DENNY’S, STEAK ‘N’ SHAKE, DQ TREAT, THE HABIT BURGER GRILL, SBARRO, SMOOTHIE KING ARBY’S, TACO BUENO TACO BELL, SONIC, KFC SONIC HARDEE’S JACK IN THE BOX, TGI FRIDAYS, DENNY’S, EL POLLO LOCO, CORNER BAKERY CAFE, MARCO’S PIZZA, SIZZLER

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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*These figures reflect average gross sales from two company-owned restaurant and six franchised-owned restaurants that were in operation continuously through 2016. This average gross sales information is published in Item 19 of our Franchise Disclosure Document and you should review that document for all the details on these figures. There are no assurances 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 informational purposes only. 12/20/17 12:19 PM

1/8/18 4:48 PM

MEGA

2018 Mega Rankings, continued

NAME

UNITS BRANDS

24 LOVE’S TRAVEL STOPS & COUNTRY STORES

337 SUBWAY, CHESTER’S, HARDEE’S, GODFATHER’S PIZZA, ARBY’S, TACO JOHN’S, DQ TREAT

25 TA RESTAURANT GROUP

331 SUBWAY, POPEYES LOUISIANA KITCHEN, GODFATHER’S PIZZA, TACO BELL, PIZZA HUT, PIZZA HUT SLICE BAR, BURGER KING, DUNKIN’ DONUTS, DUNKIN’ DONUTS EXPRESS, DAIRY QUEEN, ARBY’S, WENDY’S, CHARLEYS PHILLY STEAKS, CHESTER’S, A&W, SBARRO, CHAMPS CHICKEN, TIM HORTONS, BASKIN-ROBBINS, TACO TIME, HOT STUFF PIZZA, NOBLE ROMAN’S, QUAKER STEAK & LUBE, FUDDRUCKER’S, BLACK BEAR DINER

26 HMS HOST

314 BURGER KING, QUIZNOS, SBARRO, CHILI’S, PIZZA HUT, CINNABON, THE GREAT AMERICAN BAGEL, ROY ROGERS, NATHAN’S FAMOUS, POPEYES LOUISIANA KITCHEN, FAMOUS FAMIGLIA PIZZERIA, CHICK-FIL-A, KFC, JOHNNY ROCKETS, PINKBERRY, SMASHBURGER, SHULA BURGER, GREAT STEAK, LA MADELEINE FRENCH BAKERY & CAFE, PHILLIPS SEAFOOD, EINSTEIN BROS. BAGELS, RUBY’S DINER, STEAK ‘N’ SHAKE, A&W, BLIMPIE, CARL’S JR., GODFATHER’S PIZZA, KELLY’S CAJUN GRILL, MANCHU WOK, MIAMI GRILL, MOE’S SOUTHWEST GRILL, WINGSTOP, YEUNG’S LOTUS EXPRESS, PIZZA BELL HOP, SALSARITA’S FRESH MEXICAN GRILL, PANDA EXPRESS

27 K-MAC ENTERPRISES

312 TACO BELL, KFC

28 AMERICAN WEST RESTAURANT COMPANY

300 PIZZA HUT

28 COVELLI ENTERPRISES

300 PANERA BREAD, O’CHARLEYS, DAIRY QUEEN

30 SIZZLING PLATTER

296 LITTLE CAESARS, DUNKIN’ DONUTS, SIZZLER

31 CAFUA MANAGEMENT

289 DUNKIN’ DONUTS

32 ADF COMPANIES

280 PIZZA HUT

33 MERITAGE HOSPITALITY

253 WENDY’S

34 COMPASS GROUP USA

252 PAPA JOHN’S, EINSTEIN BROS. BAGELS, SUBWAY, PIZZA HUT, PANDA EXPRESS, MOE’S SOUTHWEST GRILL, QUIZNOS, DENNY’S, JAMBA JUICE, PJ’S COFFEE OF NEW ORLEANS, BLIMPIE, ERBERT & GERBERT’S, NATHAN’S FAMOUS, SALSARITA’S FRESH MEXICAN GRILL, TIM HORTONS, WENDY’S, SBARRO, SMASHBURGER, TACO BELL, WHICH WICH, BOJANGLES’, BURGER KING, CHEEBURGER CHEEBURGER, CHILI’S, COSI, ILLY, FRESHII, JASON’S DELI, JOHNNY ROCKETS, KFC, MARCO’S PIZZA, PITA PIT, TOSSED, CALIFORNIA TORTILLA, BUILT CUSTOM BURGERS, SLIM CHICKENS

35 FRANCHISE MANAGEMENT

251 PIZZA HUT, KFC, TACO BELL, PANERA BREAD, ROBIN’S DONUTS

36 FUGATE ENTERPRISES

245 PIZZA HUT, TACO BELL

37 D L ROGERS

234 SONIC

38 DESERT DE ORO FOODS

230 TACO BELL, PIZZA HUT

39 AMPEX BRANDS

215 KFC, TACO BELL, TIM HORTONS, PIZZA HUT, LONG JOHN SILVER’S

40 CHARTER FOODS

214 TACO BELL, LONG JOHN SILVER’S, A&W, KFC

41 CIRCLE K STORES

209 SUBWAY, BLIMPIE, HOT STUFF PIZZA, DQ TREAT, DQ GRILL & CHILL, NOBLE ROMAN’S, CHURCH’S CHICKEN, HUDDLE HOUSE, TUSCANO’S ITALIAN STYLE SUBS

42 QUALITY DINING

206 BURGER KING, CHILI’S

43 WENDPARTNERS FRANCHISE GROUP

201 WENDY’S

44 FRITZ MANAGEMENT

200 BURGER KING

45 PACIFIC BELLS

193 TACO BELL, BUFFALO WILD WINGS, KFC

46 MITRA QSR

190 KFC, TACO BELL

47 RPM PIZZA

189 DOMINO’S PIZZA

48 FRAUENSHUH HOSPITALITY GROUP

188 DQ GRILL & CHILL, DQ TREAT

48 HENLEY ENTERPRISES

188 VALVOLINE INSTANT OIL CHANGE

50 BORDER FOODS

187 TACO BELL, CHURCH’S CHICKEN, KFC, AU BON PAIN

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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2018 Mega Rankings, continued NAME

UNITS

MEGA

BRANDS

COTTI FOODS

183

WENDY’S, TACO BELL, PIEOLOGY

STARBOARD GROUP

182

WENDY’S

FALCON HOLDINGS

180

CARL’S JR., HARDEE’S, CHURCH’S CHICKEN, LONG JOHN SILVER’S

JAE RESTAURANT GROUP

178

WENDY’S

SUNDANCE

176

TACO BELL, KFC, PIZZA HUT

RMH FRANCHISE

174

APPLEBEE’S

NORTHWEST RESTAURANTS

171

KFC, PIZZA HUT, A&W, TACO BELL, LONG JOHN SILVER’S

CELEBRATION RESTAURANT GROUP

169

PIZZA HUT, TACO BELL, KFC

BRIAD RESTAURANT GROUP

168

WENDY’S, TGI FRIDAYS

PAC PARTNERS

161

PIZZA HUT

HAMRA ENTERPRISES

157

WENDY’S, PANERA BREAD, NOODLES & COMPANY, HOLIDAY INN EXPRESS

SERVUS!

157

LONG JOHN SILVER’S, WENDY’S, DENNY’S, GRANDY’S, MCALISTER’S DELI

DEKK GROUP

156

DUNKIN’ DONUTS, BASKIN-ROBBINS

JRN

156

KFC, PIZZA HUT

WING FINANCIAL SERVICES

155

JACKSON HEWITT TAX SERVICE

DOHERTY ENTERPRISES

154

APPLEBEE’S, PANERA BREAD, NOODLES & COMPANY

PACPIZZA

154

PIZZA HUT

B & B CONSULTANTS

150

SONIC

PJ UNITS

150

PAPA JOHN’S

MARWAHA GROUP

147

SUBWAY

INTERFOODS OF AMERICA

143

POPEYES LOUISIANA KITCHEN, BURGER KING

SUMMIT RESTAURANT GROUP

143

PIZZA HUT, LONG JOHN SILVER’S

CALIFORNIA FOOD MANAGEMENT

141

BURGER KING

RESTAURANT MANAGEMENT

140

PIZZA HUT, KFC

BAJCO

139

PAPA JOHN’S

HOOGLAND FOODS

138

MARCO’S PIZZA

APPLE INVESTORS GROUP

136

APPLEBEE’S, BURGER KING, IHOP, PIZZA HUT, TRAVELODGE

GHAI MANAGEMENT

136

BURGER KING, TACO BELL

MULTI-UNIT FRANCHISEE IS S U E I, 2018

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43 1/8/18 6:23 PM

MEGA

2018 Mega Rankings, continued

NAME

UNITS

BRANDS

AMERICAN PIZZA PARTNERS

134

PIZZA HUT

ANDRADE MANAGEMENT

134

DUNKIN’ DONUTS, BASKIN-ROBBINS

VALENTI MANAGEMENT

133

WENDY’S, CHILI’S

AMERICA’S PIZZA COMPANY

128

PIZZA HUT

WENDY OF COLORADO SPRINGS

127

WENDY’S, GOLDEN CORRAL

PARIKH NETWORK

126

POPEYES LOUISIANA KITCHEN

APPLE GOLD GROUP

124

APPLEBEE’S

SERAZEN

123

PAPA JOHN’S, HARDEE’S

DORO

122

HARDEE’S

VKC GROUP

119

GREAT AMERICAN COOKIES

SEVA PH

117

PIZZA HUT

DALAND CORP

116

PIZZA HUT

DIPASQUA ENTERPRISES

116

SUBWAY

TOMS KING

115

BURGER KING

CAMBRIDGE FRANCHISE HOLDINGS

115

BURGER KING

ARC HOSPITALITY PORTFOLIO

114

HAMPTON INN BY HILTON, COURTYARD BY MARRIOTT, RESIDENCE INN BY MARRIOTT, HOMEWOOD SUITES BY HILTON, SPRINGHILL SUITES BY MARRIOTT, HILTON GARDEN INN, HOLIDAY INN, FAIRFIELD INN BY MARRIOTT, HYATT PLACE, TOWNEPLACE SUITES BY MARRIOTT

KATZ MIDAS

114

MIDAS

JEM RESTAURANT GROUP

113

TACO BELL, PIZZA HUT

SOUTH AMERICAN RESTAURANTS (SARCO)

111

CHURCH’S CHICKEN

CAVE ENTERPRISES

110

BURGER KING

DOUGH MANAGEMENT

109

DOMINO’S PIZZA SOURCE: FR A Ndata and Franchi s e U p d a t e Med i a

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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17BUD_DF_1/2pageAd9_OL.indd Ad_half_7.375_4.625_template.indd1 1

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BY EDDY GOLDBERG

PERMANENT... FOR NOW The 2018 legislative outlook is mixed

or business in general, 2017 began with hope that Republicans, in charge of all three branches of the federal government, would bring much-wanted relief from burdensome regulations and legislative overreach. For franchising in particular, the hope included relief from joint employer liability and the passage of business-friendly tax reform. However, with disarray in the White House and a polarized Congress, relief from external threats and uncertainty came more slowly than many expected. Nevertheless, 2017 did deliver several victories important to franchising, some permanent and some temporary. We asked people involved in these issues what’s ahead on the legislative and regulatory fronts and the likely effect on franchising in 2018. “Certainly the environment has changed—in good ways, I think,” says Supercuts franchisee Gary Robins, who operates 55 salons and employs 400 people. For example, he deGary Robins scribed the rollback of the NLRB’s Browning-Ferris joint employment ruling as a “little bit of a veil lifted for us.” However, he adds, preventing a new administration from reversing this will require statutory action to make the change permanent. This means bringing back HR3441, the Save Local Business Act (SLBA), which passed the House in early November, but not the Senate as the year’s legislative session expired before a vote. “We need to keep fighting for it,” says Robins. “We need a legislative fix,” agrees Shelly Sun, current IFA chair and CEO of BrightStar Care. She says the IFA is continuing “full steam Shelly Sun

ahead” to find support for the SLBA in the Senate in 2018. The goal, she says, is to make the standard of direct control permanent through legislation, “as it had been for decades.” Another aspect of the SLBA is that it also would apply to the Fair Labor Standards Act (FLSA). Where labor organizing is the domain of the 1935 National Labor Relations Act (NLRA), the 1938 FLSA deals with minimum wage, overtime, sexual harassment, and other workplace issues. “We currently have the NLRA addressed, but the FLSA is still an area of considerable concern with differing local court opinions as to what constitutes joint employment,” Michael Lotito says Michael Lotito, a franchise attorney who co-chairs the Workplace Policy Institute at Littler Mendelson and is labor counsel to the IFA. “This certainly is a big positive step by the NLRB to reverse the joint employer ruling, but the issue remains very uncertain,” says Matt Haller, senior vice president for governMatt Haller ment affairs at the IFA. In addition to the rollback not being permanent, he says, courts will have different interpretations on what constitutes joint employment. This poses a particular problem for franchisors and franchisees operating in multiple states across different jurisdictions. “The patchwork of FLSA interpretations is a legal minefield we’re trying to clean up through federal legislation,” says Haller, specifically through passage of the SLBA. “Now is not time to take our foot off the pedal.” In fact, says Haller, until federal legis-

lation is enacted, in certain jurisdictions some attorneys will have an easier time bringing allegations against franchisors when franchisees violate any laws or regulations. Issues still in the “uncertain” department include providing scheduling software or an employee handbook to franchisees, common branding and uniforms, and other forms of franchisee support. This support, which is at the heart of the franchise business model, is being used by plaintiff attorneys and labor unions in some cases to get at the deeper pockets of the franchisor. The franchise contract, Haller reminds, states that the franchisee is responsible for employees, while the franchisor has rights to address franchisees not complying with those laws. “The SLBA would create a federal definition of who is a joint employer under NLRA and FLSA—and supersede any court decisions,” he says. “While we have a good decision from the NLRB dealing with Browning-Ferris, restoring us back to sanity, that’s good news,” says Lotito. “But we still need legislation.” Tax reform The short version of what franchisees should do following December’s Republican tax reform bill (the Tax Cuts and Jobs Act) is simple: get professional help. The choices are complex, with all situations different. Also, the “technical corrections” process is still under way as various constituencies lobby to tweak the bill in their own preferred direction. One of the questions franchisees must resolve is whether or not they should change the legal structure of their business in light of the new tax law. Should you change your S Corporation, LLC, or partnership to a C Corporation to reduce your tax bill? It’s a veritable Rubik’s Cube of new rules that trade off gains in one area for reductions in others. Do you own your real estate? Are you planning to expand? Sell some units? Buy new equipment? About 80 percent of franchisees are

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PERMANENT... FOR NOW pass-through entities, says Haller. He says that while the new, more business-friendly tax rates went into effect on January 1, 2018, franchisees have until March to switch to a C Corp if their circumstances dictate the change. “One of the things I’m looking at is how different sources of income are treated,” says Rob Branca, a large, multi-state Dunkin’ Donuts franchisee and chair of the brand’s GovernRob Branca ment Affairs Committee. Most of his Dunkin’ units are in the higher-tax states of Massachusetts and New York, with others in Ohio “You have options on which form your income can take,” say Branca, who says he had to call his CPA to understand the new rules. For now, “We’re busy analyzing how to best protect ourselves from increased taxes.” Specifically, he says, if you’re a multi-unit franchisee it’s likely you have a large number of entities and can take income in ways that are more favorable from a tax perspective. “Everything is individual,” agrees Jeff Tubaugh, a CPA and tax partner at BDO in Columbus, Ohio. “You need to look at your situation specifically—21 percent is not automatically the way to go. Talk to your tax advisor.” In terms of write-offs, he says the equation is different for franchisee organizations that are expanding, versus those who are not. It’s Jeff Tubaugh also a different game in states with no income taxes, such as Florida, Texas, or Tennessee. Other factors to consider include the reduced corporate tax rate of 21 percent; the $10,000 cap on state and local income tax deductions (for individuals); and for pass-through entities such as partnerships and S Corps, the 20 percent reduction on qualified business income. But as noted, says Tubaugh, seek professional advice, as there are many inter-related factors that enter into the calculations behind deciding how to move forward in the new tax environment. For restaurants, says Tubaugh, the biggest benefit probably is the 5-year bonus depreciation change. Under the new rules, through 2022, a 100 percent deduction

COALITION OF FRANCHISEE ASSOCIATIONS Keith Miller, a 3-store Subway franchisee who has served as chair of the Coalition of Franchisee Associations (CFA) for the past 6 years, says the organization will continue its goal of protecting the rights of franchisees, with a particular focus on three areas in 2018: 1) Termination rights. “No one wants a bad franchisee in their system, but even a bad franchisee should have due process,” says Miller. He points to the Protect Florida Small Business Act of 2017, which the CFA supported and the IFA opposed. The bill, intended to prevent a franchisor from terminating or not renewing a franchisee except for good cause, died in Keith Miller committee. He hopes to see it reintroduced this year. 2) Nonrenewable rights. The goal here, says Miller, is to protect the property and equity rights of franchisees in cases of nonrenewal. He says California was the first state to mandate that if a franchisor took possession of a business it would have to buy the equipment and assets at a depreciated value—as opposed to paying nothing. “If you’re a franchisee who gets terminated and the franchisor in essence seizes your equipment and fixtures, either they stole it, or they’re basically stating that all along they had joint ownership,” says Miller. 3) Transfer rights. A longstanding bone of contention for franchisees is the franchisor’s right of first refusal in a sale or other transfer. Under the California Franchise Relations Act (which Miller, whose stores are located in Northern California, worked to shepherd through the state legislature), franchisors are held to stricter standards, including paying a price equal to or greater than the price offered by a potential buyer. Miller is seeking to expand these protections for franchisees to additional states in 2018.

is allowed in a single year, up from 50 percent. After that, it will be phased out at the rate of 20 percent a year, vanishing at the end of 2026. More good news: this includes used equipment, where the previous rules applied only to new. Even more: there is no annual limit to this deduction—especially helpful to larger franchisees. The new bonus deprecation rules apply not only to furniture, fixtures, and equipment, but also to landscaping and parking lots—just about everything except buildings and real property. These changes for eligible assets took effect retroactively on September 27, 2017. So in addition to boom times for tax advisors, the coming 5-plus years are likely to see sharp increases in restaurant and other retail improvements, as well as the strong possibility of an accelerated timetable for building out multi-unit agreements. “This is a boon to franchising because franchisees have to remodel constantly,” says Branca. “The extent to which you can expand your deductibility could generate a fair amount of cash for expansion.” For restaurants, Tubaugh notes, successful industry and association lobbying against changes to the FICA tip credit and Work Opportunity Tax Credit in earlier versions of the House bill were “two nice wins for the restaurant industry we thought we’d lose.” The cost of compliance Despite progress on several fronts, complying with the multiplicity and overlap of federal, state, and local regulations remains a problem, especially for franchisees with operations in different states and municipalities—and so does the cost. “Today I feel as a business owner that I run two companies,” says Robins. “I run my operating company, and then another entire company that’s an administrative compliance company. This certainly diverts focus from creating growth and opportunity.” Still, the changes wrought by the new tax law and other pro-business actions in 2017, he says, are “relieving some pressure on the regulatory side, and now we’re giving more attention to the operating side.” For Robins, the most important issues to deal with will be at the state and local levels. This aspect of doing business, he says, “continues to be challenging, whether it’s states or city councils with minimum wages, predictive scheduling, the soda tax for fast-food operators, paid

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*See item 19 of the 2017 Franchise Disclosure Document for details. Figures reflect averages for 286 freestanding company-operated Del Taco restaurants that have been in operation for at least one year. These averages are based on a 53 week fiscal period from December 29, 2015 through January 3, 2017. Of these 286 restaurants, 137 restaurants attained or exceeded the average total unit sales. A new franchisee’s results may differ from the represented performance. There is no assurance that you will do as well and you must accept that risk. 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 in your jurisdiction. Contact Del Taco LLC, 25521 Commercentre Drive, Lake Forest, CA 92630 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 Number: F - 5365

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2017 Annualized Unit Volume for All Evolution Design Restaurants percent higher than All Non Evolution Design Franchised Restaurants that were in operation at least 4 months during Huddle House Inc.’s last fiscal year ending April 29, 2017. Some outlets have sold this amount. There is no assurance you will do as well. See Item 19 of our August 9, 2017 Franchise Disclosure Document. 2 2017 Average and Median Food and Paper Cost for 12 Company Owned Restaurants operated by Huddle House Inc. for the entire last fiscal year ending April 29, 2017. Six of the 12 Company Owned Restaurants have Food and Paper Cost greater than the average and median of 28.7%. The highest was 30.5% and the lowest was 26.4%. Some outlets have sold this amount. There is no assurance you will do as well. See Item 19 of our August 9, 2017 Franchise Disclosure Document. 1

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PERMANENT... FOR NOW time off, or paid family leave.” With municipalities continuing to increase their local regulations, Robins avoids certain cities when he looks to grow. “I think this is going to continue to be a challenge in 2018,” he says. Predictive scheduling In efforts intended to improve the lives of retail and fast food hourly employees, cities across the U.S. are passing “predictive scheduling” laws. However, as we’ve seen with the unintended consequences of some aspects of the ACA—for example, defining “full-time” as 30 hours—these good intentions can have negative effects on the hourly workers they’re intended to help. “New York City just passed laws that are impossible to comply with,” says Branca. One big complaint from retailers and fast food operators is the difficulty in predicting customer demand, especially in northern cities, where severe winter weather can reduce customer demand to a trickle. Early January’s “bombogenesis” storm along the East Coast is a good example of un-predictable scheduling. In previous years, Branca says he would go into a store and work it himself, rather than endangering his employees by asking them to drive to work in a blizzard. If he did that under some of the new laws, he could face fines and penalties for not providing sufficient advance notice to the employees he felt he was protecting. Other requirements that rankle franchisees where predictive scheduling laws are in place include: loss of flexibility (for both employers and employees) from having to schedule two weeks ahead; having to offer full-time work to existing employees before hiring new part-time workers; how to fill a schedule when an employee calls in sick (or goes to the beach) with no advance notice; and flexing around medical appointments or school meetings a parent must attend. Predictive scheduling rules also could also make employers think twice before offering extra shifts on short notice to employees—even if they request them—to avoid being fined or penalized for last-minute schedule changes. It also takes away some of the decision-making from hourly employees who would like to work an extra shift or put in some additional hours. Some of the penalties for noncompliance with New York City’s new “Fair Workweek” laws are downright onerous, including $200 to $15,000 for a pattern

of infractions—levied on a per-employee per shift basis. If a business shuts down because of fines and penalties for scheduling violations, how does that help its (former) employees? There will always be businesses that take advantage of hourly employees, but why penalize operators who treat their employees well? Branca says his best employees have had a good night’s sleep, are healthy, and have good morale—which is better for them, for him, and for the customers. In the attempt to protect hourly workers from bad actors, he says, “You don’t legislate to the lowest denominator.” Group health insurance? After yet more failed attempts to “repeal and replace” the Affordable Care Act (with more emphasis on repeal than replace), the Republicans continued to whittle away at the ACA in 2017. Included in the tax reform package was an option to allow small businesses to band together in socalled association health plans, allowing them to buy coverage in the “large group” insurance market. The IFA, in a January 4 press release, said the organization “applauds” the proposed rule and praised the DOL for the proposal, “which will allow small-business owners to join together to buy health insurance.” Issued in early January, the proposed rule would amend current regulations to allow more groups to qualify as associations—allowing them to buy coverage outside the ACA markets. While some claim this would benefit smaller employers and franchisees, critics have warned the new rules could result in health plans that offer limited coverage and are poorly regulated. Specifically, they say, it could allow plans that don’t cover pre-existing conditions and eliminate other benefits required under the ACA. One potential result down the road: a majority of voters don’t like the tax reform and do like the ACA, worrying Republicans that they will be swept out of power in November’s mid-term elections. Continued attempts to rush legislation through Congress before year-end could backfire. On the one hand, this might produce positive changes for franchising and business; on the other, hastily written legislation pushed through Congress without proper review might result in unintended consequences that harm smaller businesses, as well as the Republican majority in both houses of Congress come November.

Overtime rule The DOL’s May 2016 ruling to raise the threshold for overtime from $23,660 to $47,476 (or from $445 to $913 per week) was immediately challenged, including 21 states filing suit against it. Many franchisees raced to meet the December 1, 2016 deadline, but a court injunction at the 11th hour put the increase on hold. The Obama administration appealed, but the current administration dropped the appeal. The current overtime test will stay in place for 2018, says Lotito, with a final ruling expected in 2019. Last July, the DOL issued a call for comments, with more than 200,000 received. Lotito says there are a number of open questions about what the new threshold will be, including regional differences. He expects the new overtime number will be in the $32,000 to $35,000 range. This is in line with the $33,000 figure Labor Secretary Alexander Acosta suggested during his confirmation hearings in March 2017.

GET INVOLVED! There are many ways for both franchisees and franchisors to get involved with the legislative and regulatory process, whether at the local, state, or federal levels. • The Coalition of Franchisee Associations, whose CFA Day Forum includes lobbying visits to Congress. • The IFA’s Franchise Action Network (FAN), which hosts state and federal legislators in their districts. • Joining the IFA’s FranPAC political action committee and contributing to pro-franchising lobbying efforts. • The Coalition to Save Local Businesses, working to fix joint employment permanently. • Spreading the word on how franchising is the best training and apprenticeship program in the country because it pays so many young people to learn how to work in a business with other people, treat customers well, and advance through hard work. • Telling the story of franchising to everyone you can—starting with your employees (many still think they work for the franchisor, not the franchisee) and your customers (many think franchises are corporate stores, not locally owned small businesses).

MULTI-UNIT FRANCHISEE IS S UE I, 2018

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BUILD

BY SARA WYKES

OR BUY?

6 GROWTH-MINDED OPERATORS SHARE THEIR STRATEGIES

s Jesse Keyser and his brother Charles prepared to buy the local pizzeria that sustained them through college, they received some fortuitous advice, redirecting them to search for a franchised pizza brand. Now, almost 20 years later, they’ve built a 24-unit portfolio with three franchised brands: Little Caesars, Sport Clips, and Oxi Fresh. If you ask about their growth strategies, they have plenty to say—as do the other growth-minded franchisees we spoke with. The first step for the Keysers is the choice of whether to build or buy. “Do both, but for different reasons,” says Jesse Keyser. When it comes to buying, exist-

Jesse Keyser

ing locations up for sale happen for two reasons, he says: 1) the owner isn’t making money, or 2) the owner decided there are better opportunities to invest their capital. “If you have experience turning locations around, you can pick up some very good deals, depending on the life cycle of the brand,” he says. Existing units often come with top locations, he says, especially important in today’s competitive real estate market. Great deals can be found in these situations, sometimes for a fraction of the cost of opening a new unit. A strong operator with deep pockets can acquire these units with the expectation of turning them around. The choice of whether, and when, to build or buy also may be determined by a deliberate strategy. “We start with buying existing locations—what we call a platform company—because that is our core competency,” says Omar Simmons, founder and managing partner of Exaltare Capital Partners. “We start with an existing business and then add new units organically. We also like to make add-on acquisitions to accelerate growth.” Simmons says this approach allows for lower start-up risk and faster ramp-up than building every location from scratch. “It also helps us learn about the brand and the model through due diligence on existing locations before we start the organic build process,” he says. This approach also allows Simmons

Omar Simmons and his partners to begin with a proven operator. “While we have run businesses day-to-day, we prefer to back strong operators with aggressive growth plans,” he says. “Our skills are best applied by supporting strategic growth, financing that growth, and helping to scale the business with additional resources as needed.” Although scaling up quickly by acquiring existing locations makes sense, especially for today’s larger multi-unit franchisee organizations, building anew has its own set of benefits, says Adam Saxton, co-CEO and co-owner of The Saxton Group and a 2016 Multi-Unit Franchisee magazine MVP winner (see

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“New locations come with no bad reputation. It is what you make of it.” Adam Saxton the Q3 2016 issue of this magazine). The company began with a single Mazzio’s Pizza in 1982, expanding their holdings to 50 restaurants before selling them in 2004. Today the Saxton Group operates 68 McAlister’s Deli locations. “Organic unit development, building your own locations, is always going to create more value, but it carries with it the risk of the unknown,” says Saxton. “No tool can fully evaluate a trade area or site and tell you with certainty that your chosen brand will be successful in that location. Doing so takes a lot of experience. Know your strengths.” Eric Werner, CEO of Texas Subs, has expanded the company’s business so impressively it has twice made the Inc. 5000 list of the fastest-growing U.S. private companies. For Werner, the choice to buy or build is never black-and-white, but he likes to buy existing stores. “With the new, you don’t know how it may perform until you open the doors,” he says. “You might also be able to renegotiate a lease. It all comes down to whether you are buying at the right price. You must know what you are buying.” Building anew also can be an opportunity for someone with a passion for opening up new markets and the skill and experience to do it well. “New locations come with no bad reputation. It is what you make of it,” says Werner. “If you have great marketing and operational experience, you can take a new location and have it grow at a faster rate than turning around an average location that has already settled.” Additionally, he says, “A new build means there’s no need to change the minds of people who have

already made up their mind about doing business with a brand—and that can be expensive.” Shirin Kanji, senior vice president and chief investment officer at Impact Properties, which has diverse hotel, retail, restaurant, and real estate holdings, watches the market closely and knows that finding the perfect deal for a new build location is difficult. “Real estate that is reasonably priced and well located is hard, so building new is a challenge,” he says. However, he notes, “Major brands may find it a worthwhile pursuit to grow unit count in growing areas.” Financing changes too, depending on the build or buy choice. “Both options can be financed, but the methods will be different and the cost of funds will vary,” says Giovanna Koning, CFO of Falcon Holdings Management, which operates five restaurant brands. “Typically, buying an existing location requires an initial outlay and then you can finance it.” Whereas, she says, building new units

Eric Werner

requires a steady stream of cash as the project develops, although some help can be found in construction loans. Simmons, with his background in private equity, also carefully evaluates the financial dynamics of any deal, whether build or buy. “We usually buy a platform business with equity and debt,” he says. “The debt has to be paid first. As a consequence, we need steady cash flows. The debt acts as a discipline to ensure

Shirin Kanji the growth is measured and profitable.” As an investment advances, he continues to evaluate the financials. “While we add people and make additional investments we are making sure we get an attractive return on each investment, or we fix it or stop before getting into trouble. Our capital structure can provide early warning signals if plans are not progressing as expected.” Culture and people Taking over an established location should also raise concerns about managing changes that might be needed in the culture. “Acquiring stores requires you to be very good at changing culture,” says Keyser. “I am a big advocate of getting new general managers out of their stores to be mentored and trained by a general manager from one of our existing stores.” The reason? “The general manager of the store you recently acquired gets to see with their own eyes how you want the store to be run, and how the team works together,” says Keyser. “Having that general manager who is new to your team see firsthand how a well-run team works allows them to go back and identify

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BUILD what needs changing in their own stores.” Newly armed with that knowledge, he says, “You can expect them to come to you with a list of things they want to address and change to improve the store, resulting in faster and better results.” If you choose to build, then a different skill set is required, says Saxton, especially in a new market. “Team leaders will have to be focused on getting something off the ground from day one. Know your team’s capabilities,” he says. Choosing a brand Beyond build or buy, if the decision is whether or not to add a new brand, Keyser has an evaluation based on a brand’s age and size. “The real trick is to find a brand that is emerging in that 300- to 500-unit area and to have the capital to

Giovanna Koning expand faster than most of their existing franchisees,” he says. “There’s a perfect storm that can happen because so many franchisees have troubles making the switch from being a 1- to 3-unit store operator to a multi-unit, multi-state operator. Eventually most of the 1- to 3-unit operators sell because it's intensive work for an owner, and responsibilities can’t be shared with district or area managers.” At Exaltare, Simmons is comfortable with both emerging and mature brands—if the unit economics are right. “Established brands have the benefits of being around a while and recognized by consumers,” he says. “The downside is that they might not have as much growth potential organically. Emerging brands for us are exciting so long as the brand is in a category we like, it is number one or number two in its

B UY

“There’s no substitute for spending a huge amount of time being a consumer of the brands you are evaluating.” category, and it has proven unit economics. We believe brands like that have the benefit of future growth, but have been around long enough to have proven value to consumers and franchisees.” For Saxton, “The best case is to find a brand that is proven and growing across multiple markets, but isn’t so mature that the opportunities for the franchisee are limited,” he says. “It’s hard to spot a brand at that point, but if you do it will provide the best nexus between risk mitigation and opportunity runway.” When evaluating a growth opportunity, Koning always wants the answers to certain questions: Does the acquisition meet the investment objectives of management? What is the brand’s vision and long-term strategic plan? What is the brand positioning? Does the brand meet a unique need in the marketplace? What is the brand’s financial track record? Never-ending diligence Finding the right sources to answer those questions and more means thinking beyond the obvious. Keyser interviews existing franchisees, and is particular about what he’s trying to find out. Interview as many as you can, he advises, but with a certain blend in mind. “What you are looking for is something like a 30/70 mix: 30 percent of the existing franchisees should impress you with their knowledge and operational experience, and 70 percent should make you realize there is a lot of room for improvement in how they run their business,” he says. “This is the opportune time to be in a brand and expand fast because there are people you can learn from and lots of people who eventually will want to sell to you,” he adds. “If you can’t find operators who are making some money

but also need to improve their business, then you probably will not be able to grow fast through new store growth and acquisitions.” Says Koning, “You need to have a methodical approach to reviewing the financial data, and then you need to assess the operational metrics.” Those operational metrics, she says, can make or break a transaction. “If the system is broken and you identify the elements, then you can make an assessment about whether it can be fixed.” “Due diligence is really important for us as private equity investors,” Simmons says. “We learn the most from examining existing locations and talking with existing operators. We recognize that we are never the brand experts. Consequently, we learn a lot from talking to franchisees, franchisors in similar brands, and competing brands.” Specifically, he adds, “We learn a lot by studying the historic performance drivers, risks, and successes of a target brand.” This not only provides a sense of the strength of a potential investment, he says, “it also ensures that we understand both the pros and cons of what we are buying so that we can grow quickly and effectively from that foundation.” For Saxton, you can’t do enough due diligence on the front end, whether you’ve chosen to build or buy. “There’s no substitute for spending a huge amount of time being a consumer of the brands you are evaluating. Experience what a guest experiences, again and again. Then ask yourself if you can execute that experience the same or better.” Once you’ve chosen a new brand, additional research is needed before breaking ground on a new unit. “When I’m looking for a place to build a restaurant I spend a huge amount of time in the market figuring out where the trade areas are, and then stay laser focused on finding the best locations in those trade areas without making compromises,” says Saxton. With a potential acquisition, he adds, “Spend the time knowing what you are buying. Ask too many questions so you can understand the risks associated with taking over another company culture and transitioning that into your own. There’s no magic bullet or data point or tool for any of this. You’ll need to dig in, do your research, spend the time, and then make an educated decision backed up by your own knowledge.”

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he theme of this year’s Secret Service Summit was “Your Customer Xperience Is Always On Stage.” This has never been truer; the experience your company delivers is on stage 24/7 in numerous ways. 1) Leave it at the door

You must always be aware of how you act when you are dealing with customers, regardless of what you have going on in your life. Even Snow White has bad days. However, she understands that she has to leave her personal life at the door and give Disney guests what they came for. This is no different in any of our businesses. This includes not over-sharing about work, personal life, slow computers, or blaming co-workers for problems. It also includes avoiding the dreaded RBF syndrome (look it up). If you are happy, tell your face. If you are unhappy, lie to your face. Watch this 1-minute video of “Leave It At The Door” (youtube.com/ watch?v=JT1vF5e1EYk). 2) You are still on stage Employees forget that they are still on stage when they are not dealing directly

with customers, but customers can still see or hear them. This could be employees or receptionists talking to each other about their personal life, or making negative comments about customers or their boss—all within earshot of a customer who may be in the waiting area or on line. This could also be an employee reading their text messages or eating in front of customers when they are off the clock. It doesn’t matter if the employee is off the clock—the customers don’t know this. All they see is unprofessional behavior. Watch this 1-minute video of “You Are Still On Stage” (youtube.com/ watch?v=H_Y1JlAK8_I). 3) Must be present to win If you are really present with a customer, a firecracker could go off nearby and you wouldn’t even realize it. Employees must understand how unprofessional it is to have personal conversations with co-workers while engaging with a customer, or multitasking while on a call. The greatest gift you can give someone is your undivided attention.

Watch this 1-minute video of “Must Be Present To Win” (youtube.com/ watch?v=EiJr2CQ5ASs). 4) Everyone is your customer The experience you deliver extends far beyond customers. It is how you act and

treat co-workers, vendors, people you buy from, even strangers in an elevator. Secret Service is not something you do or deliver; it is something that is in you, in all areas of your life. Watch this 1-minute video of “Everyone Is Your Customer” (youtube.com/watch?v=rPVb3IAC3Vg). 5) Everyone is in the media In the past, there were professionals in the media who reported stories of interest on television, radio, and in newspapers.

Today, every single person with access to a smartphone, camera, and social media is a potential reporter. When customers are sharing their experiences on sites like Yelp, Facebook, Twitter, and Instagram, businesses must make significant changes in the experience they deliver. Today, every business is one negative experience away from going viral. All these stories would have never made the headlines if it weren’t for smartphones and people catching companies red-handed mistreating customers and then posting it online. Watch this 1-minute video of “Everyone Is In The Media” (youtube. com/watch?v=JIM89yHSfI8). 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, Chickfil-A, Ritz-Carlton, Nestle, PwC, Lexus, and many more. Contact him at 216-839-1430 or info@thedijuliusgroup.com.

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People BY JOCELYN MANGAN

Learn from Customers Walking an hourly shift in their shoes

y career in business began at an unconventional location: the Brewhouse Grill in Hermosa Beach, Calif. Fresh out of college, I worked there as a waitress. And while that may seem to have little to do with my present career as a tech executive, I consistently draw upon the experiences and lessons of that first job in my daily professional and personal life. As the COO of Snagajob, which connects hourly workers and employers in the service industry, I wanted to expand our executive leadership team’s internal and professional boundaries by spending a day in the shoes of our customers (the hourly workers and employers who use our software and online platforms). In our ongoing effort to build meaningful experiences for hourly employees by understanding our customers, we took on hourly shifts right alongside them. Each of us chose a local employer that most resembled the first job each of us had. That’s why our CEO flipped burgers at a local Five Guys and I joined the team at The Greene Turtle as a bartender and server. I was curious to see if I still had the chops to keep up with the fast-paced world of restaurant work, and how my experience as a tech executive might help me rise to that challenge. Over the course of my shift, I learned exactly how being an hourly worker and waitress prepared me to be a successful product manager and company leader. As a result, here are four key lessons every business owner can learn from hourly work and take back to their office. 1. Get into the customer’s head During my shift, I experienced firsthand what motivates, frustrates, and inspires our core customer, the hourly worker. My favorite part was getting to connect with each employee to learn about who they were: a full-time student working to complete his business degree, and a mother working to support her 5-year-old daughter. Through their stories, I was able to see how these individuals approached their hourly jobs,

what they got from the experience, and how they handled the challenges. This reinforced my own day-to-day mission: to create seamless technology that puts people into the right-fit positions so they can maximize their potential and lead more fulfilling lives. I spend a lot of time thinking about the needs and behaviors of our customers. But I rarely have the chance to live their experience, and I was reminded just how important this kind of regular connection with our customers is. 2. Hospitality is always important My shift at The Greene Turtle illustrated how hospitality is the bedrock of all industries. The staff were generous with their time and expertise, training and guiding me through every step of my shift. Even as the line at the bar stretched longer and the customers’ demands grew louder, the crew helped keep me calm under pressure. This particular team had a strong rapport, and their warm, welcoming attitude radiated in their interactions with each other and their customers (even the demanding ones). Every minute, each team member skillfully observed the restaurant to see if a customer or fellow worker might need special attention—a top hospitality sector skill that optimizes the dining experience for customers, creates a safer environment for workers, and vastly improves efficiency. The conscientious care that The Greene Turtle staff brought to their jobs was incredibly valuable—and transferable—to any sector and across business settings. I returned to my office the next day vowing to bring that same focus on hospitality into my own workplace. Do my product team members have everything they need to succeed? Am I doing everything I can to show my appreciation for my employees, both individually and as a team? Do I offer enough personal training and guidance? 3. Hourly work is hard work Hourly work, whether it involves pouring beers or driving for a ride-sharing

service, takes concentration, dedication, and skill. I was embarrassed to discover that, despite my past experience as a waitress, I struggled to properly pour a beer. No question, restaurant work requires intense concentration, attention to detail, and patience. The hundreds of tasks I saw hourly workers perform simultaneously renewed my appreciation for the collaborative multitasking required of us in all of our jobs. Serving in a restaurant is at its core a human interaction, and the last thing we want technology to do is get in the way of people connecting. Back in my office, I thought about how I could better guide and encourage collaboration among our engineers and designers as they create new features and products that enhance and simplify our customers’ lives. 4. Teamwork is everything In an hourly shift setting, there is an art to working “on the floor” with other team members, sensing what they need, helping them manage responsibilities, even moving out of the way when needed. When orders were ready for two of my tables at the same time, a co-worker kindly stepped in to help carry the food so that all the guests were served quickly. Lessons learned Whether your particular team is composed of a waitress and a bartender, or an engineer and a product manager, people who work gracefully together will always bring the best results. This lesson transcends industries and positions, and applies to everyone from entry level to CEO. My journey from the boardroom to the bar and back was incredibly rewarding, thought-provoking, and fun. I hope my experience encourages you to take a moment to appreciate everything that hourly workers do. Moreover, in our roles as managers, franchisees, executives and team leaders, let’s recommit to understanding our customers, building meaningful experiences for them, and remembering to ask ourselves: What does it feel like to spend a day in our customer’s shoes? Jocelyn Mangan is the COO of Snagajob, the nation’s largest online marketplace connecting hourly workers to employers.

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InvestmentInsights BY CAROL M. SCHLEIF

Complacency Alert! With so many changes afoot, prepare now

quity markets blew past the 30th anniversary of the 1987 crash this past fall, with nary a missed beat, pushing further into all-time high territory. Underlying fundamentals were supportive of strong markets, with low global interest rates, solid GDP growth domestically and abroad, healthy housing and real estate markets, and global manufacturing on the rise. Investors appear to have relearned to “buy the dips,” and constituent leadership on the upward march has been broad-based, with all industries except telecom posting some sort of gains. Fall markets, which can be volatility plagued, appear to have focused instead on the presumption that tax reform was a done deal and that the key provisions would be overtly business-friendly. Assets, sectors, and styles associated with a “risk on” trade strongly outperformed those that typically do better during volatile times, and the growth/value disparity has rarely been wider. For example, according to FactSet, for the 10 months ended October, the Russell 1000 Growth Index was up 25% and nearly 30% for the past year, versus increases of nearly 9% and 18% for the Russell 1000 Value Index during the same time periods. The MSCI EAFE Index (in dollars) was up 22% this year, while the MSCI Emerging Markets Index was up nearly 33%. Continuing the “risk on” theme to the sector level, the S&P Technology Select Sector Index advanced 32% for the first 10 months, while the S&P Consumer Staples Select Sector Index was up just 5%. Prudent investment management dictates a continual frank assessment of risk and potential return. Yet those evaluations can tilt either bullish or bearish based upon proximity to recent events. When markets are in free fall, we tend to get tunnel vision and become very near term-oriented, believing things will stay bleak for a very long time; and when things have been going well for an extended period, we become lulled into a sense of complacency, thinking the good times will keep rolling forever. Perhaps the most intriguing aspect to this process is that it seems to be repeat itself time and again.

You’d think we would be wise enough students of financial history to learn a few lessons. But nearly 10 years into a major bull market and here we are again, justifying that reach for risk (without insisting upon adequate compensation), hunting in riskier places for yield, and accepting priced-for-perfection valuations. Momentum-driven markets—especially those undergirded by solid/improving fundamentals as this one is—can go on for much longer (years even) than fundamentals or the calendar might dictate. That said, it doesn’t excuse us from constantly scanning the horizon to ask, “If something did go wrong, where would it come from, what form would it take, and how might it play out?” A number of factors have remained in very delicate balance for a while now. If that balance becomes disrupted in one direction or another, the shock could have knock-on (secondary) consequences, given investors’ unprepared and complacent mindset. In that spirit, we point out a few areas we feel bear watching in the months ahead as the economy and markets navigate a host of potentially tricky events. Inflation. For many, the mantra “lower for longer” has seemingly morphed into “lower forever,” with few expecting that inflation has any chance of picking up. Pressure is building in the employment markets, however, even with the disruptions in storm-ravaged portions of the country. The pace of corporate activity is stepping up and could accelerate further should corporate tax rates be cut, a cash repatriation holiday be declared, or a capex/ infrastructure spending cycle be launched. The combination of uptick in demand and limited supply of workers could easily cause an unexpected pop in inflation pressures that would surprise many. Additionally, a reconstituted Fed trying to stay in front of inflationary pressures could choose to raise rates faster and more often than markets are currently expecting. Economic supply/demand imbalances. Another risk to igniting the inflation bogey could come from classic imbalances such as that already nipping at the housing industry. Other industries, too, such as nursing, first responders, and

teachers are staring down looming skilled worker shortages as Boomers enter peak retirement years. Liquidity risk. The shift from active to passive investment vehicles has been striking, with billions of dollars flowing to exchange traded products of all shapes and sizes. According to a Bloomberg article from July (“Active vs. Passive Investing”), approximately one-third of all assets in the U.S. are in passive funds, compared with 20% just a decade ago. While many of these are large and liquid, the assets in them can vary markedly, meaning that in volatile markets they may not be as easy to get in or out of as investors presume. Many asset classes, such as high-yield debt, commodities, and emerging markets have proven to be fitful in their liquidity in previous downturns—and there’s little to suggest that it might be different this time. Structural market changes. Coincident with the shift from active to passive investment has been the notion that a growing proportion of day-to-day trading volume is driven by algorithmic or quantitative trading, versus decisions based on bottom-up fundamental analysis. This trend has become more noticeable in the past few years in the midst of a longrunning bull market, so how quantitatively driven markets will perform in a serious downturn remains untested. What happens if all the algorithms turn sharply, but in seeming tandem, in another direction? Do we experience another flash crash or Black Monday? What’s an investor to do? Although volatility has been noticeably absent through much of 2017, this doesn’t mean it’s on permanent holiday. Extended periods of economic growth and rising markets can obscure underlying structural imbalances, which often become obvious only after the fact. Watch closely, stay diversified, rebalance regularly, and ensure your portfolio income and asset allocation is in line with your current situation. Carol M. Schleif, CFA, is deputy chief investment officer at Abbot Downing, a Wells Fargo business that provides products and services through Wells Fargo Bank and its affiliates and subsidiaries. She welcomes questions and comments at carol.schleif@abbotdowning.com.

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Finance BY ROD BRISTOL

Management Intelligence Sweating the small stuff pays off big-time

s we present our Profit Mastery training around the country, I am often asked about how to set up a company’s financial information. I would like to share with you my suggestion as to how to create not just numbers on a page, but “management intelligence” that can assist you in creating a better outcome as a result of the financial data that you receive. The accompanying illustration outlines the 10 columns that I believe best create this type of financial information. The illustration presupposes that you have created your 2018 month-by-month budget, incorporating your sales plan,

3/17

3/17 %

3/18

3/18 % 3/18 Plan YTD 17 YTD 17 % YTD 18 YTD 18 % YTD 18 Plan

expenses, and profitability expectations. With that budget, we can now create the financial information that helps you best analyze how well you’re doing. The minimum acceptable standard for financial reporting today is an income statement and balance sheet delivered to you, the owner, by the 15th day following the close of business of the previous month—every month, period. The illustration is for your Q1 financial report for March 2018. We begin with the first column to the left (3/17), which reviews your financial results for the same month last year. The next column shows your results as percentages. Next to that, moving left to right, we have March 2018. You now have the ability to compare the month from the previous year with the month you just completed. The next column shows March 2018 results as percentages. Again, moving left to right, we have your March 2018 plan. You now have the ability to analyze the trends in the month of March based on your previous performance, your performance for that month, and how well you performed to the plan you created. Are you ahead of plan? Are you behind

With this information you now have the ability to assess your complete first quarter compared with where you were a year ago.

your sales goal, how well you controlled your expenses and, hopefully, you will see things pop off the page where you are not meeting your goals by one or two percentage points. You should care about a one or two percentage point difference in sales or expenses after the first three months of the year! If you are not addressing those specific problems early in the year, they will only get worse. No one is going to fix it for you. You have to analyze operations to find the root causes of the problems based on the financial information you have in front of you—and fix it! The typical problems we see at the end of the first quarter report are: sales results below plan; expenses that have been allowed to creep up one or two percentage points because no one is paying attention; gross margin that has been

plan? If so, why? This financial data is designed to help you create operational improvement. As you go down each individual line item of your income statement reviewing and comparing last March to this March, you now have the ability to assess where are you are over, under, and ultimately what you accomplished in that month based on what you had hoped to achieve when you created the plan. Again, moving from left to right, we have five additional columns. The first is your year-to-date (YTD) 2017, in this case, Q1 2017. The next column shows your results as percentages. Next is YTD 2018, then your results in percentages, and the final column is your YTD 2018 plan. With this information you now have the ability to assess your complete first quarter compared with where you were a year ago, and with where you expected to be in your plan for sales, expenses, and profitability for the first three months of the year. Now what? You now have the ability to dig deep, analyzing how well you have achieved

squeezed as a result of decreased sales and increased expenses; inventories that have increased significantly; receivables that have been stretched out and are not being collected in a timely manner (both of which adversely affect cash); and profitability, which is decreased in comparison with last year’s results. If this scenario represents your business, then it’s time to manage with the scalpel, not the hatchet. Find a way to achieve better results of one-half to one percentage point at a time for a large number of line items in your financial information and you will achieve the profitability results in Q2 that you had hoped for at the end of Q1. Rod Bristol is executive vice president at Profit Mastery. For over 30 years, franchisors and franchisees have improved their financial performance and unit profitability by following the Profi t Mastery process: financial training, benchmarking, and accountability/bankability modeling. Learn more at www.profi tmastery.net, 800-488-3520 x13 or email bristol@brsseattle.com.

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ExitStrategies BY DEAN ZUCCARELLO

KISS that Deal Hello! Keep your negotiations straightforward “Life is really simple, but we insist on making it complicated.” (Confucius)

vercomplicating things is part of the human condition. Whether it’s something as basic as choosing an outfit for a job interview, or something as monumental as selling the company you poured your heart and soul into, people tend to overthink both their choices and their actions. It’s not hard to understand why someone might overdo it when selling their company, but the bottom line is that most transactions are complex enough already. So making the effort to curb any overthinking will deliver the best chance of reaching a successful close. Interestingly, although perhaps not surprisingly, I have noticed a sort of “Jekyll and Hyde” dichotomy, depending on the type of transaction a client is pursuing. Typically, clients looking to recapitalize their business are more like Dr. Jekyll, remaining more rational and reserved during the process. On the other hand, we find our buyers and sellers presenting themselves in a Hyde-like manner. Sure, theirs are inherently more aggressive transaction circumstances, but that doesn’t account for the massive attitude shift that occurs in many people. While there are multiple factors that induce this change in behavior, I’d argue that they all come back to one central theme: objectivity versus subjectivity. Each deal I have worked on in my 25+ years of experience has had its own unique characteristics, but there also has been an unmistakable trend. Although not always the case, I have often found that clients seeking some form of capitalization or financing engage in the process with an objective mindset, while those pursuing an acquisition or divestiture go about things in a more subjective manner. Think about it this way… The Dr. Jekylls operate in a straightforward fashion, with their efforts intended to accomplish a specific purpose, based

solely on the facts of the situation. Our Mr. Hydes are more likely to emphasize their moods, attitudes, and opinions, basing their actions on their own perceptions, as opposed to evaluating a deal opportunity in an unbiased fashion and on its merits alone. It should be no shock that dealing in a subjective manner makes any process

When people are wrapped up in their own emotional response, it becomes exceedingly difficult to understand the true motivation and reasons for their actions. more complicated than it needs to be. When people are wrapped up in their own emotional response, it becomes exceedingly difficult to understand the true motivation and reasons for their actions. Take a step back and look at the big picture. Why did you decide to pursue this course in the first place? How is it that you can best achieve this original goal? If you instead choose to focus on the granular details that hardly matter in the long run, you’re letting the deal process dictate the outcome, when it’s actually the deal opportunity that should drive your decisions. To be a legitimate player in the industry today, you should only engage in an acquisition or divestiture once you have a clear plan of action and a specific, resolute goal in mind. Know what you want to accomplish and have the confidence to stand by your decision. If you want to sell your business, be prepared to sell. If your intentions are wavering regarding any aspect of the deal, you are

automatically hurting your chances of reaching a successful close, not to mention the significant effect this could have on your reputation. If you’re known as someone who is difficult to work with, you’re severely hindering your chances of being taken seriously in the future. One portion of the deal process stands out as that which arguably would benefit most from taking this logic into consideration: due diligence. Above all else, on top of being objective, buyers and sellers must remember to be reasonable. Sellers: Don’t withhold pertinent information. Excluding excessive requests, the buyer has every right to view your updated financials and any additional metrics necessary to substantiate a valuation. Buyers: Don’t submit a 30-page due diligence request list. Diligence is meant to assist you in understanding and subsequently confirming your bid. It’s certainly not the time to enlist an army of accountants and lawyers to take a fine-tooth comb to everything, with the hope that their reports will tell you what decision to make. Most of these items should have been addressed before this point anyway. Additionally, keep in mind that you are purchasing a business, not a guaranty. If you want a guaranty, buy an annuity. At the end of the day, you need to be able to rely on your own business judgment, because this is what should ultimately produce your decision. Think back to your original goal: Viewing this transaction objectively, does it accomplish your core purpose? Don’t let your answer become muddled by a process that was unnecessarily complicated because of an emotional and irrational human brain. Dean Zuccarello is CEO and founder of The Cypress Group, a privately owned investment bank and advisory services firm focused exclusively on the multi-unit and franchise business for more than 25 years. He has more than 35 years of financial and transactional experience in mergers, acquisitions, divestitures, strategic planning, and financing in the restaurant industry. Contact him at 303680-4141 or dzuccarello@cypressgroup.biz.

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FranchiseMarketUpdate BY DARRELL JOHNSON

Growth Prospects How 2018 is shaping up for franchising

eter Drucker, the renowned management guru, once said, “The best way to predict the future is to create the future.” To a large extent, that defined the franchise business community’s efforts in 2017. Some relief from recent external threats beyond its control, such as labor regulations, allowed franchising to plow ahead. Most systems realized healthy growth, and lots of new brands entered as all these businesses took advantage of a generally good economy. Consumers were spending, businesses were hiring, banks were lending. Should we continue to expect the same in 2018? Let’s start with a macro view. The stimulation and stabilization tool of choice for the world’s central banks is about at the end of its effectiveness. After nearly a decade of quantitative easing, central banks are either beginning quantitative tightening or indicating they will do so in the next year or so. With general economic conditions across the developed world in pretty good shape, now is a good time to make that pivot. The hope is that interest rates rise gradually as expected inflation begins to pick up. That’s a tricky thing to do. Therefore, with the main economic engine of the past decade about out of gas, we are entering a period of greater uncertainty about general economic activity. On the domestic front, this means a transition from monetary stimulus to something else for the economy to keep chugging along. The options are fiscal stimulus, organic growth, or a combination of the two. The fiscal stimulus from the tax bill will undoubtedly be a positive to push the economy along. Whether it does so in a robust way or in an almost negligible way remains to be seen. However, the huge deficit it creates will limit other fiscal stimulus measures, including infrastructure spending. Therefore, general organic business and consumer growth becomes the central open question to assess for predicting

2018 economic activity and a basis for your investment/growth plans. Positives and negatives

Here are the key reasons the economy may keep growing in 2018. First, there’s nothing in the near term to stop it, other than an unexpected shock. While unexpected shocks are always a possibility, they are unpredictable and therefore unlikely in a relatively short period of 12 months. Despite two hurricanes and other natural

The main economic engine of the past decade is about out of gas and we are entering a period of greater uncertainty about general economic activity. disasters, 2017 GDP growth will clock in at around 2.2 percent, a slight uptick from previous years. That isn’t great, but it is heading in the right direction. 2018 is expected to benefit from the tax plan, rising household wealth and income, further job gains, and rising consumer credit use. All that suggests GDP growth somewhat higher than the expected 2.2 percent of 2017 and, by extension, rising business income. Amidst all this activity, some headwinds are beginning to build in strength. The most likely scenario (more like a head breeze than a headwind) is that the economy simply runs out of gas and stops growing. We are approaching the second-longest recovery on record, but it’s been a very modest one. We haven’t built up any bubbles, with the possible exceptions of student debt

and consumer credit. Consumer credit is on the rise again, which is troubling because it didn’t come down to anywhere near historical levels from the excesses of 2004–2007. However, neither student debt nor consumer credit is in frothy water as we enter 2018 and are unlikely to trigger a general decline. Quite the contrary, in fact: 2018 should have a bit more energy, but at some point in the next couple of years organic growth is very likely to falter, and when it does we will be looking at different conditions to base investment decisions on. Another possibility is the massive rotation we’re beginning to see in retail. It’s not clear how long this will take to play out, but it is clear it will change the retail landscape and affect a lot of jobs. That will not be felt in the short term, but is not showing any possibility of reversing, and, if anything, it is picking up speed. A huge amount of commercial real estate debt matures in the 2019–2021 period. There will be some serious evaluations of what these trends mean before that debt is rolled over. We will have a recession at some point, just not in 2018, absent a shock. As with most businesses in the U.S., you are well positioned because the less-than-robust economy of the past 9 years pushed you toward lean business practices. The modest recovery also makes it less likely we’ll have a big downturn when it does come—and businesses today are better prepared to handle it. The big issue for franchisees is not how 2018 plays out, but whether to expand in 2018. New units in 2018 will stabilize in 2019 or 2020. Like most of the business community, that makes for tougher investment decisions, notwithstanding fiscal stimulus measures that the government hopes will counter tightening monetary policy. 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 703-7404700 or djohnson@fran data.com.

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