Multi-Unit Franchisee magazine - Issue I, 2020

Q1 | 2020

MEGA 99

At just 32, Kyle Welch is Cold Stone Creamery's largest franchisee MEGA 99 LIST

Top U.S. franchisees by total number of units pg. 44

LEASE NEGOTIATION

Tips on landing the deal you want pg. 52

CAPITAL WON

How to find the money you need pg. 58

YOUR BIG BREAK Avg. Second Year Total Revenue for Top Quartile

$656K

Avg. Second Year Net Income for Top Quartile

$108K

Contact Brynson Smith

877-224-4349 Franchising@uBreakiFix.com *As published in Item 19 of our FDD dated May 16, 2018, these figures represent the average total revenue and net income (total revenue, minus cost of goods sold and minus expenses excluding interest, income taxes, depreciation and amortization) for the top quartile of 134 out of 326 franchise-operated UBREAKIFIX stores that submitted unaudited profit and loss statements. Median second year total revenue for top quartile of stores was $654,665. Median second year net income for top quartile of stores was $90,493. The data presented is from Jan. 2014 through Dec. 2017. Of the stores included in the top quartile for the second year, 15 (or 50%) attained or exceeded the average total revenue and 9 (or 30%) attained or exceeded the average net income. The bottom quartile year-2 average total revenue was $320,602 (median $349,890), and average net income was ($437) (median $15,545), with 20 stores or 63% of those in the quartile exceeding both averages. You should review our FDD for details about these numbers. Your results may differ and there are no assurances you will do as well and 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 that applicable pre-sale registration and disclosure requirement in your state.

This advertisement is not an offering. An offering can only be made by a franchise disclosure document filed with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law of the State of New York. 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 Business Oversight nor a finding by the commissioner that the information provided herein is true, complete and not misleading. Minnesota Department of Commerce File No. F-7063.

Franchise Opportunities www.uBreakiFix.com/Franchising

“The first day you open up, Pinch A Penny gives you everything you need to be successful.”

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A GREAT BUSINESS OPPORTUNITY RIGHT IN YOUR BACKYARD OWN THE RETAIL POOL SUPPLY AND SERVICE FRANCHISE THAT HELPS YOU LIVE THE GOOD LIFE.

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*For the year ending December 31, 2018, Pinch A Penny had 248 stores open. Of those stores, 238 have been open at least one year. Of those open at least one year, the average annual gross sales were $1,257,388. 88 stores (37%) had annual gross sales that exceeded the average. Your results may differ. There is no assurance that you will do as well. See our 2019 Franchise Disclosure Document for more information.

This information is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for information purposes only. If you are a resident of a U.S. state or a country that regulates the offer and sale of franchises, are receiving this message in one of those states or countries, or intend to operate a franchise in any of those 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. ©2020 Pinch A Penny. All Rights Reserved.

We’ve Met Before.

LUNCH , MAYBE? www.InspireFranchising.com

TM & © 2019 Inspire Brands, Inc.

$1.5 MM+ AUV Top 3rd Freestanding Mature Restaurants*

$3.27 M AUV Franchise Restaurants*

Top 1/4 of system drive-ins have average gross sales of $1,874k**

$1,430,617 AUV Top 3rd Franchised Restaurants*

$775,065 Systemwide AUV***

*See Item 19 of the current FDD

**This number represents 26% of system traditional drive-ins

***Figure reflects system-wide average gross sales for 2,655 affiliate-owned and franchised restaurants that were open during the entire period from January 3, 2018 through January 1, 2019, as published in Item 19 of our April 2019 Franchise Disclosure Document. Of these 2,655 restaurants, 1,150 (43%) had higher gross 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.

CONTENTS Multi-Unit Franchisee | Q1, 2020

Kyle Welch

44

Adam Saxton

30

COVER STORY

MEGA 99

10 12

CHAIRMAN’S NOTE

2020 MUFC: FIND YOUR OPPORTUNITIES WHAT’S ONLINE @ MUFRANCHISEE.COM MU PROFILE

MU PROFILE

40

44

LEE KLEINER

MU PROFILE

MICHAEL SASSEEN – UNDER 30 RANKINGS

MEGA 99 RANKINGS

Top U.S. franchisees by total number of units

MU PROFILE

JOHN CLANCY

Multi-Unit Franchisee

CHAUNCEY BILLUPS – PRO ATHLETE

Swimming in pool service success

61-unit operator signs a deal for 60 more

4

MU PROFILE

Mr. Big Shot: NBA star scores in franchising

KYLE WELCH

Full steam ahead with a 25-unit deal

24

36

ONLINE

“Grow at the speed of your people”

18

ADAM SAXTON – RECONNECT Catching up with McAlister’s largest franchisee

2020 profiles and rankings

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MU PROFILE

ISSUE 1, 2020

52

FEATURE

LEASE NEGOTIATION

Expert tips on getting the deal you want

CHAIRMAN

Gary Gardner

CEO

Therese Thilgen

EXECUTIVE VP OPERATIONS

Sue Logan

SVP, CHIEF CONTENT OFFICER

Diane Phibbs

VP BUSINESS DEVELOPMENT

Barbara Yelmene

BUSINESS DEVELOPMENT EXECUTIVES

Krystal Acre Judy Reichman

Jeff Katis

EXECUTIVE EDITOR

Kerry Pipes

MANAGING EDITOR

Eddy Goldberg

CREATIVE DIRECTOR

Cindy Cruz

58

GRAPHIC DESIGNER

FEATURE

Kit Anderson

CAPITAL WON

Benjamin Foley

DIRECTOR OF TECHNOLOGY

Pros tell how to get the funds you need

Don Rush

CUSTOMER SERVICE

Esther Foley

WEB DEVELOPER WEB PRODUCTION ASSISTANTS

62

BUILDING RELATIONSHIPS Digital intelligence up, emotional intelligence not

64

PEOPLE

MORE THAN MONEY

3 ways to retain today’s hourly worker

68 69

SENIOR SUPPORT MANAGER

Sharon Wilkinson

PROJECT MANAGER, CLIENT ENGAGEMENT

Joanne Peralta

SENIOR SUPPORT COORDINATOR FRANCHISEE LIAISON

Greg DelBene

INVESTMENT INSIGHTS

2020 FORESIGHT SUCCESSION PLANNING

PASSING IT ON EXIT STRATEGIES

ECONOMIC DOWNTURN?

What franchisees can do now to prepare

73

Katy Coutts

4 MULTI-UNIT MYTHS

It's more complicated than you think

72

SENIOR MANAGER, EVENTS & PRODUCTION

Leticia Pascal

Risk is a necessary part of life

70

Christa Pulling

FINANCE

It’s not what you thought, really!

MARKET TRENDS

PE BUYS INTO FRANCHISING

From unicorns to warhorses, M&A is on the rise

Juliana Foley

DIRECTOR OF EVENT OPERATIONS

VIDEO PRODUCTION MANAGER SPEAKER LIAISON

Chelsea Weitzman

CONTRIBUTING EDITORS Rod Bristol Carty Davis John DiJulius Ritwik Donde Darrell Johnson Barbara Nuss Carol Schleif Mathieu Stevenson CONTRIBUTING WRITERS

Helen Bond

Sara Wykes

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Chairman’s Note

OPPORTUNITY… OR REGRET?

Do you remember your first business opportunity? How did it come about, and what was your initial objective? Why did you take on the challenge, and did things go as planned? For me, the objective was very clear from the beginning: work to support my family and be accountable for the decisions I make. But it was much more difficult than I anticipated, regardless of the planning I did.

Few can plan their own opportunities and follow up a growth plan they designed. There are far too many distractions in business, and often we are reliant on the economy, financing, employees, brand executives, and a bit of luck to bend our way.

The competition either falters, assisting in our rapid growth, or it excels, causing us to adjust or abandon our plan.

On a podcast several years ago I made the following statement: The difference between opportunity and regret is being ready! I explained that if a person is ready when the opportunity knocks, it is then seen as an opportunity; if not ready, the individual spends the rest of their life regretting it.

Living up to my example, I spent my entire time working on being ready, not knowing when my opportunity would knock.

When it did, I welcomed it and explored it to the fullest. I took time to prepare our finances, built a strong team, created processes and standards for internal controls, developed a filter for how to choose a business as a vehicle for faster growth, saved

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ISSUE 1, 2020

money, and retired debt. I worked hard to serve on committees or associations to learn the business behind the business. And, most important, I networked and promoted our enterprise to those who were willing to listen.

Now, after more than 35 years in the making, the opportunities and the regrets are my story to tell. I stay tuned as I mentor my children and watch them put in the work to be even more ready than I was. Seeing my initial goal come to fruition is my biggest pride. I became accountable and served my family the best I could. The size of the enterprise may have changed over the years, but the philosophy remains the same: work to be ready for opportunity every day… and keep quiet in case it’s knocking!

I ask, are you ready for your knock? Are you networking and promoting your own business and your brand? Are you financially ready? Do you have your own filter, and is your team as strong as you hope it to be?

I will be at the Multi-Unit Franchising Conference April 14–17 along with fellow franchisees, telling our stories and listening for the next opportunity. Will you be there with us to explore your own? Please stop by and say hello. I and others who attend would appreciate hearing your story.

Tony Lutfi

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Let’s talk. Steve Bailey, Senior Director of Franchise Sales

859.825.6212 ownafazolis.com * As shown in Item 19 of the current Franchise Disclosure Document of Fazoli’s Franchising Systems, LLC, for the 12 months ending March 28, 2018. There is no assurance that a franchisee of Fazoli’s will sell or earn as much. Fazoli’s and logo are federally registered trademarks of Faoli’s System Management, LLC Copyright © Fazoli’s 2470 Palumbo Drive, Lexington, KY 40509-1117

European Master & Multi-Unit Franchising Conference January 28–29, 2020, Vienna, Austria

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

Multi-Unit Franchising Conference April 14–17, 2020, Las Vegas

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

Franchise Marketing Leadership Conference

Franchise Leadership & Development Conference

June 16–18, 2020, Atlanta

October 14–16, 2020, Atlanta

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2020

2020 EVENTS

Multi-Unit Franchisee

ISSUE 1, 2020

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

JOIN THE FASTEST-GROWING FRANCHISE IN THE PET INDUSTRY

Scooping Up Success

“Grow at the speed of your people”

Written By KERRY PIPES

K

yle Welch signed on for his first Cold Stone Creamery location in downtown Chicago in May 2014. He remembers it well because on that same day he told representatives from the brand’s parent company, Kahala Brands, that he would become their largest franchisee. Today he operates 43 Cold Stone Creamery locations in 12 states—making him the brand’s largest franchisee at just 32 years old.

Welch was no stranger to franchising when he signed on with Cold Stone. Fresh out of college, he found work at a large restaurant management company in Salt Lake City that was overseeing more than 300 locations. A couple of years later at 25, he left to start his own franchise business with Little Caesars.

When he discovered Cold Stone, he was drawn in by the customer experience. “Everyone who comes in the store believes that Cold Stone Creamery is the best ice cream, and we make it fresh every day so there’s a freshness factor that sets us apart,” he says.

Within 7 months of acquiring his first Cold Stone unit, Welch had 16 locations—rapid growth by anyone’s measure. He credits his quick expansion to a philosophy he calls “grow at the speed of your people.”

“When we open or acquire a new location, we make sure we have someone great who can run it,” he says. Chicago Scoops promotes 90 percent of its store managers and district managers from within the company. “When we know we have someone who’s ready, we acquire a new store and bring in more staff to develop,” he says.

While quick growth brought scalability challenges, he says having great people on his team has made it all work out. “My goal has always been to build a large restaurant management company that runs franchises professionally, creates great jobs, and harbors great opportunities for people.”

PERSONAL First job: In construction, framing houses.

Formative influences/events: My mom is Filipino, which means hospitality was ingrained in me as an infant. It’s part of the Filipino culture that our door was always open to friends, family, and the neighborhood. That definitely influenced my love for the hospitality industry.

Key accomplishments: Most of the things that I view as big accomplishments can’t be tracked on paper. My biggest accomplishments are the jobs and management opportunities we’ve created in the community. Being able to change wealth, provide opportunity, and help families drives me. Earning a degree from Michigan State University, and then being awarded the 2017 Spartan Innovator of the Year award was also pretty special.

Biggest current challenge: A lot of the time people think when your business is growing quickly it’s only good, but the difficulties of managing a rapidly growing business aren’t frequently talked about. We’re promoting from within so frequently that managing the emotions of people who are in a new job is a challenge for us.

It’s very difficult on human capital and the psychological side.

Next big goal: Within Kahala/Cold Stone it’s to continue to be a great brand ambassador for Kahala and help maintain Cold Stone as a dominant player in the ice cream industry. From an overall industry standpoint, the goal is to build a world-class restaurant management company.

First turning point in your career: I did an internship at Sizzling Platter in Salt Lake City, thinking, “Let’s see what this

Kyle Welch, 32 President

Company: Chicago Scoops No. of units: 43 Cold Stone Creamery, 8 Epic Burger Family: Recently married!

Years in franchising: 10+ Years in current position: 5+

is like” and loved it. That internship led me to start my company because I thought, “Wow, I want to do this. I want to lead a group to do this.”

Best business decision: Trusting the Cold Stone Creamery brand and acquiring my first Cold Stone unit.

Hardest lesson learned: The first franchise group I started was with Little Caesars. The first one was successful, but the second one was a miss. I learned then that you really have to do your due diligence when making a decision on new store builds.

Research where you grow, why, and really know your community for your brand.

Work week: I work every day, but I try to take Sundays off. I wake up at 4:30 a.m. and start my day by exercising. I have breakfast and drive into the office at 7 a.m. I use Mondays as an administrative day and stay in the office. Tuesdays I have meetings with all of my direct reports. Wednesdays through Saturdays are spent working in the stores.

Exercise/workout: Men’s league basketball is my passion. I also meditate, which has been a game changer for me. In the restaurant business there is a stigma that every decision you make has to be made fast, and meditation helps slow my brain down. I also looked into how to create serotonin through winning, exercise, and volunteer work. It helps me reach peak productivity.

Best advice you ever got: You will become the five people you surround yourself with the most, so be hyper-focused on who you spend your time with. Be cognizant of who your mentors are and who your relationships are with.

What’s your passion in business? Developing people and watching them grow. Seeing my managers and staff move up in the world, improve their finances, etc.—that’s better than the paycheck.

How do you balance life and work? You have to almost dedicate time to your personal life the same way you do to your work. One of the best things my wife and I have done is have date night every Saturday. She runs a successful multi-unit chocolate business in Detroit, so we’re both extremely busy, but every Saturday is dedicated to date night.

Guilty pleasure: Classic Waves chips and French onion dip.

Favorite book: Too many favorite books! Fight Club. Everyone talks about how great the movie is, but the book is phenomenal.

Chuck Palahniuk is such a great writer.

Favorite movie: “Goodfellas.”

What do most people not know about you? I own dozens of Cold Stone Creameries, but I am not a sweets person. I do love Cold Stone’s ice cream though! Another fun fact is that my grandpa delivered my wife’s dad.

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Profile - Kyle Welch Pet peeve: I hate when a family member or someone you’re living with leaves a tiny amount of chips in a bag and rolls it up to make it look like there’s more left. It’s not hospitable!

What did you want to be when you grew up? A businessman or an NBA player. My dad’s friends would ask why I wanted to be in the NBA and I would always say I wanted to have the summer off. Except, of course, every four years for the Summer Olympics.

Last vacation: Honeymoon in Barcelona and the south of France.

Person I’d most like to have lunch with: Benito Navarro, my mom’s dad, who passed away when I was a baby. He ran his own business in Manila, managing imports/exports. He was a huge community figure and helped everyone he could.

MANAGEMENT Business philosophy: Grow at the speed of your people and invest in your people. That’s how you should benchmark success.

Management method or style: I try to be extremely approachable. People can come to me, call me, walk in my office. I’m approachable but unpredictable—it keeps people on their toes.

Being approachable, unpredictable, and very personal helps me get to know my people professionally and personally.

Greatest challenge: In a short time we went from a company that had zero locations and staff to having 40 GMs, 8 area managers, department heads, and more. Now we have everything. The sheer amount of training and sacrifice from the upper management was huge. Having so many people in new positions has been difficult to manage, but it’s also why we’re a big company—because we have these people who have helped build it up.

How do others describe you? High energy. Fun and a little crazy. Likes to try new ideas.

One thing I’m looking to do better: I would say I’m a hyperemotional being. I’m working on taking the emotion out of decision-making.

How I give my team room to innovate and experiment: Whenever they call with a problem I ask, “What would you do?” And 90 percent of the time they come up with a great idea.

Innovation is about your people, and we do activities all the time with our people to help find new solutions to problems. Some of the best ideas come from the ground troops, and we create programs to make sure we’re getting their ideas. Something else I ensure all of my managers do is have time set on their calendar to work on whatever they want to work on—even if it has nothing to do with their day-to-day job duties.

“Innovation is about your people, and we do activities all the time with our people to help find new solutions to problems. Some of the best ideas come from the ground troops, and we create programs to make sure we’re getting their ideas.”

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“I believe you can’t get rid of a bad employee fast enough. When you know someone’s bad for your organization, you have to get rid of them. The wrong fit culturally is 10 times worse than making a mistake on a report.”

How close are you to operations? I’m extremely involved in operations and in the stores a ton. I will always be an operator first. When I’m feeling stressed, I work a shift in one of the locations. Scrubbing a floor will ground you and puts everything into perspective that you are in the hospitality industry.

What are the two most important things you rely on from your franchisor? An open ear. It’s so important to know you’re being listened to and have respect. Kahala is so great at it. They are always there to listen. The second is a passion for training the franchisee. The first thing I ask is, What is the training like?

What I need from vendors: To treat Cold Stone like a customer who comes into the store. If a customer comes in and is treated unfairly or it takes too long to get their ice cream, they get upset.

Vendors have to understand that their shortfalls ultimately affect our customers.

Have you changed your marketing strategy in response to the economy? How? No, we haven’t. We have a unique item that gets better in a recession. Sales of ice cream, alcohol, and bacon go up in a recession, and Cold Stone acts as a 10-minute vacation.

Families look toward our super-premium ice cream rather than going to the movies.

How is social media affecting your business? It’s all about adapting to your customer. Social media is how people are getting their news, and even ordering food. It helps that Cold Stone has always been such an Instagram and photo-friendly concept. One thing that has affected us is the speed of recovery and the speed of customer engagement. Twitter and Yelp have totally changed the expectations of getting back to your customers. With social media, customer engagement is all about the speed of service and speed of information.

How do you hire and fire? I believe you can’t get rid of a bad employee fast enough. When you know someone’s bad for your organization, you have to get rid of them. The wrong fit culturally is 10 times worse than making a mistake on a report. We make a point of hiring for personality and character and leaning on training for skill. We work hard to find dynamic individuals who want to build something. So often, brands view employees as a puzzle piece where they have to find the right fit. Companies need to view it the other way around: the job needs to fit into the employee’s life. They need a fun, appreciative culture. Teenagers and college kids are way smarter than I was at their age. They want to be taught why. To attract hires, we’ve built a startup mentality of fun

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Profile - Kyle Welch and risk-taking with all of the staff. We are known for being a cool company to work for, and a lot of our new staff come from current staff referrals.

How do you train and retain? The first four weeks are so important in training the individual when they take over their department or store. You have to make sure they are confident, because their confidence trickles down to the rest of the staff.

You have to train them on confidence, and of course things like how many ounces are in a Like It, Love It, or Gotta Have It. Getting a job leaves you with a ton of serotonin. If you can keep that high going and provide every employee with a fun, active work environment you’ll retain them.

How do you deal with problem employees? Coach them first and learn from them why they might not be a good employee.

Were they not trained well? Was there a misstep in process?

Diagnose the problem and give them a second chance.

Fastest way into my doghouse: Lack of trust. I’ll trust you until you give me a reason not to.

BOTTOM LINE Annual revenue: $20 million.

2020 goals: Continue to grow with our people, maintain positive same store sales, and provide great customer interaction.

Growth meter: How do you measure your growth? Through the people! If they develop and grow, that’s a success.

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“We are incredibly data-driven.

We use operational dashboards, spreadsheets, business intelligence software, and more. We are hyperfocused on using great technology to help in decision-making.”

Vision meter: Where do you want to be in 5 years? 10 years?

I want to be a world-class restaurant management group that provides guaranteed advancement. I want to continue to grow very quickly through our people. If we continue to focus on our people, the growth will accelerate.

Do you have brands in different segments? Why/why not? We own and operate eight Epic Burger locations in Chicago and we have the same philosophy of high growth through our people.

How is the economy in your regions affecting you, your employees, your customers? We’re in 12 states from Utah to Rhode Island, so we have a unique micro- and macro-economic standpoint. We’re dealing with all different issues in different markets. In New York City, Chicago, and Boston we’re facing a potential rising minimum wage, while in some areas there might be an economic downturn. No matter where you are, you need a lot of community involvement and must adapt to your customers, environment, and staff.

Are you experiencing economic growth in your markets?

That’s hard to answer since we have locations in so many different markets. Overall though, it’s fair to say 2019 has been our strongest year in terms of same store sales. It has a lot to do with strong in-store operations.

How do changes in the economy affect the way you do business? Changes in the economy affect the business in so many ways. We also see a major change in consumer spending. It also affects strategy, what promotions and discounts to run. The state of the economy also affects the employment pool. When the economy is really good it’s harder for restaurants to hire, but when unemployment is high you can hire higher-skilled individuals. Real estate is also affected. When the economy is doing well, it’s hard to get a great location. We always look to grow during a recession when our competition may be more conservative.

How do you forecast for your business? We are incredibly datadriven. We use operational dashboards, spreadsheets, business intelligence software, and more. We are hyper-focused on using great technology to help in decision-making.

What are the best sources for capital expansion? Private investments versus institutional is a pretty big fork in the road for a lot of people. Do they raise money privately or from institutions? I think there are pros and cons to both, but I think best sources for capital and growth would be to always be using your spreadsheets and forecasts to always keep your eyes on the prize and run your business with the correct overhead. Finding the right overhead is a huge challenge for our industry. Knowing the right amount of overhead is key to allowing you to raise money privately or through bank financing.

Profile - Kyle Welch Experience with private equity, local banks, national banks, other institutions? Why/why not? Yes, all of the above! Do your due diligence on who you’re partnering with.

No matter what route you go for financing, you have to be comfortable signing on the dotted line. Ask yourself are the terms reasonable? What is the track record of the private equity firm?

Do they understand operations? Look at it as a marriage with the prospective group or bank.

What are you doing to take care of your employees? I really try to envision where my management team is going to be in the next year and what is going to make them happy. Is it dollars, travel, experience, or something else? Early on in their employment I have a conversation with them and ask what their intentions are with the company and how they want to grow with the company.

I go back to that conversation a lot in reviews and promotions for employees.

How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? The first thing I do is humble myself. This isn’t the first time American wages have gone up.

People tend to think that this is the craziest time, but this has been happening forever. This isn’t any different than what has happened in the past. I believe it’s my job to pay my people as much as possible. I want all of my people to have healthcare and benefits. To do this, you have to be innovative and get better.

Minimum wage getting to $15 an hour is nerve-racking, but every person in every boardroom is talking about it. Cold Stone and Chicago Scoops are not alone in this. We know our entire competition is doing this. We’ve already started paying people more

“I believe it’s my job to pay my people as much as possible. I want all of my people to have healthcare and benefits. To do this, you have to be innovative and get better.” money and attracting better individuals, from upper management to hourly employees. You have to get creative and innovate to become more efficient.

What laws and regulations are affecting your business and how are you dealing with it? We’re dealing with everything by being innovative, streamlining technologies, and making sure we have just the right amount of overhead to run our business.

How do you reward/recognize top-performing employees?

We try to make incentives as personal as possible. For example, one of our managers loves the Boston Red Sox, so we’ll send him and his girlfriend to a game if his store meets a certain sales percentage growth. It means a lot to the employee that you remember what their interests are, and that goes a long way.

What kind of exit strategy do you have in place? Don’t have one. I started this business to have a business forever. This is my baby and I’ve never thought about selling. 1

Full Steam Ahead Lee Kleiner adds a 3rd brand with a 25-unit deal

Written By KERRY PIPES

Lee Kleiner, 44 President

Company: Janes Franchising No. of units: 3 Dairy Queen, 4 Which Wich, Garbanzo Mediterranean Fresh area developer Family: Wife Stephanie, daughters Jayden and Alex Years in franchising: 20

I

n 2012, Lee Kleiner faced a crossroads when the multi-unit Dairy Queen operator found himself in the position to buy out his partner.

“He was fine with the business we had, but I had a bigger vision for myself and the company,” he recalls. Kleiner took over from his partner, hired a CFO, and spent the next 3 years developing a business model that would help him scale up. He zeroed in on reinvesting in his operation, developing systems and routines, defining an organizational chart, and measuring results through monthly dashboards. It was a strategic move that worked.

In 2016, he diversified his portfolio by adding Which Wich, building four stores in 2½ years. He’s also maintained and streamlined the operations at three of those Dairy Queen stores. And in 2020 he’ll become an area developer for Garbanzo Mediterranean Fresh in a deal to develop more than 25 units over the next 5 to 8 years in Indiana, Louisville, Lexington, and Cincinnati. “I plan to use my 20 years of franchisee experience to guide, coach, and mentor new franchisees.” He also plans to open one location himself.

Over those two decades, Kleiner has proven his ability to manage and drive revenue with well-established brands like Dairy Queen, while identifying and growing with emerging concepts like Which Wich. With Garbanzo Mediterranean Fresh, he’ll depend on his proven team culture to make the transition. “Some team members will be moving to a new brand, others will be promoted within the same brand, and I’ll need some to be flexible and do what is best for the company,” he says.

At 44, Kleiner still has a lot of gas in the tank and can’t wait to see what the future holds. “Right now it’s full steam ahead,” he says.

PERSONAL Key accomplishments: In 2012, I was presented with an opportunity to buy out my business partner. We owned four Dairy Queen restaurants at the time. He was fine with the business we had, and I had a bigger vision for the company and myself.

The first thing I did was hire a CFO/advisor to help me develop my plan of attack. We spent the better part of 3 years getting my Dairy Queen operations in order and ultimately developed a model that we could scale with growth. We focused on reinvesting in our current operation, developing systems and routines, and defining our organizational chart. In 2016, I diversified my portfolio and added the brand Which Wich. My partners in this new franchise and I built four stores in 2½ years. In 2020, we’re ready to embark on an area directorship for Garbanzo Mediterranean Fresh, and we believe the sky is the limit with this brand.

Formative influences/events: I grew up in a hard-working family where we always supported one another. As I have grown my business over the years, I think I have always tried to instill in my employees that no matter the situation, they will always have my support. At times, maybe they could have handled it differently, but the fact that I support them has created a culture within my organization. As we bring on a third brand, Garbanzo Mediterranean Fresh, everyone in our organization will have to support one another. We have team members who will be moving to a new brand, some who will be promoted within their same brand, and some who will have to be flexible and do what is best for the company.

Biggest current challenge: The unemployment rate is so low that hiring is our biggest challenge, and has been for the last 3 years.

Next big goal: Being an area director for Garbanzo Mediterranean Fresh will be a huge focus of mine over the next several years.

We plan to open 25 units in the next 5 to 8 years. I plan to use my 20 years of franchisee experience to guide, coach, and mentor new franchisees.

Best business decision: Buying out my business partner in 2012.

This purchase allowed me to become the person I am today, and at the same time help others along the way.

Hardest lesson learned: Early in my career, a veteran Dairy Queen executive was watching me work as we had a meeting that day. As we were sitting he said, “Your sales would be better, but you work like a player/coach and you need to spend your time coaching your team.” The sports analogy was very relatable for me and I have always kept that in the back of my mind.

Work week: You will hear me use the word “culture” a lot. The culture within our organization allows me freedom, but I still work six days a week.

Exercise/workout: Go figure, I love to work out at franchise concepts and do so three times a week. I am in the process of trying to get into the gym before 7 a.m., but as of now I am a night person.

Best advice you ever got: Lean into the pain!

What is your passion in business? Being in the service industry, my passion will always be guest satisfaction. I want everyone to walk out of one of our restaurants feeling better on the inside.

In addition to the customer, I want all of our employees to feel valued and a part of the team.

How do you balance life and work? I will say this is a work in progress for me. My children are at that age where they are very active. So as I always say, the real work begins after work. I try to balance my work week so I can make it to everything for them. My wife does a great job of reminding me where and when I need to be after work. Our organization is made up of so many wonderful people that it allows me to be flexible with my family and I make my own hours, so I can work Sunday if needed to take off early on a Friday. Everyone in our home knows and understands that work and school will always come first.

Guilty pleasure: Seeing my kids involved in their activities.

Nothing makes me feel better.

Favorite book: I really do not read much outside of trade publications, but it just so happens I am in the middle of reading a book called The Phenomenon about former St. Louis Cardinals pitcher Rick Ankiel (go Cardinals!) and his career ending because of the “yips.” It’s a fantastic sports book about anxiety and how you are one day or one step away from losing it all.

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Profile - Lee Kleiner Favorite movie: “Miracle” is one of my all-time favorite movies.

Within the movie there are so many lessons to be learned. Coach Brooks knew his team lacked the talent to compete, but he knew if they could be molded into the best “team” they had a chance to win. There is a scene in the movie where they lose a game and he states several times the name on the front of the jersey is more important than the name on the back. Anyone who knows me understands that I have built my business around culture. I may own the company, but I am just one piece of the puzzle and we all make up the team.

Pet peeve: Not following systems and routines!

Last vacation: My wife and I are both transplants to Indianapolis, so we tend to travel to see family more often and don’t vacation much. Don’t feel too bad for us: Chicago and Phoenix are our destinations often. We have a great mix of “city” and “warmth” when needed.

Person I’d most like to have lunch with: My wife.

MANAGEMENT Business philosophy: The competition we all face today is so stiff, and if you are not operating your business as a team you will not succeed. I am a huge believer in taking no shortcuts, and that to be successful you must tackle and block each day. The systems and routines are the lifeline of our business, and the team that can execute the best usually makes out in the end.

Management method or style: Over the years, we have grown because we have developed good leaders within our organization.

I spend a lot of my time guiding, coaching, and mentoring people. I am a firm believer that in order to grow people you must allow them to make decisions and be there for them when they get stuck. Everyone in my organization knows this, and it’s the reason we have so many of our key people in positions for more than 10 years.

How do others describe you? Caring, demanding, shirt-off-theback kind of guy.

One thing I’m looking to do better: I recently met with my consultant and we are trying to implement recognition programs in 2020. Frankly, it’s something we don’t focus on enough.

How I give my team room to innovate and experiment: This is a big one for my team. I love when our team members take it upon themselves to think outside the box. They know my door is always open, and some of our best practices have come from the least likely of people.

How close are you to operations? Twenty years ago, I was all hands-on, all the time. With growth has come less of that, but I try to be in a store or stores four times a week. It’s always a challenge because at times I am pulled in so many directions, but I try to set a plan each week of where I need to be. I am pretty sure if you asked my key people, they would tell you I am relentless when it comes to operations.

What are the two most important things you rely on from your franchisor? Training materials that are fast, easy, and accessible, and the brand must be innovative.

What I need from my vendors: On-time delivery and willingness to help when in a pinch.

Have you changed your marketing strategy in response to the economy? How? Everyone is so focused on digital and social, sometimes I think we forget about the basics. We definitely focus on digital and social, but recently we have been focusing on being

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more visible in our communities, getting out and doing table touches, focusing on greeting customers, and hitting the street handing out coupons or passing out information about new products we have.

How do you hire and fire? We try to be as thorough as we can when it comes to hiring. I think the most important aspect of hiring is will they fit into your team. An example of this is some of my locations have very experienced staff members who have been there a long time. We need to think about them when we are trying to bring in someone new. It’s amazing how one bad apple can spoil a bunch. Firing is never fun and we take the onus on ourselves to make sure everyone we hire is given a fair shot.

How do you train and retrain? We rely heavily on tools the franchisor provides us. We tend to use a buddy system when

“The competition we all face today is so stiff, and if you are not operating your business as a team you will not succeed. I am a huge believer in taking no shortcuts, and that to be successful you must tackle and block each day. The systems and routines are the lifeline of our business, and the team that can execute the best usually makes out in the end.”

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Profile - Lee Kleiner training, and it’s seen as an honor to be given the responsibility of helping train new team members. It’s the easiest way to get a raise in our organization. If you can embrace training we can put more money in your pocket. Training is so important to providing consistent service day in and day out. Our GMs really focus on observing training from a distance, and before the training process is fully over they sign off on everyone.

This allows for some retraining if needed for both the trainee and the trainer.

How do you deal with problem employees? The most important aspect of dealing with employees is reading the situation. Over the years we have tried different methods of discipline, but I am a big proponent of face-to-face communication. Many times, a good conversation can resolve the situation. A perfect example of this is sometimes a new employee is late to work and, after talking with them face-to-face, you realize they have a study hall until 3:15 and getting to work by 3:30 is just not realistic. Some of our best employees started off rocky, but with good communication and patience they bought into the team mentality.

Fastest way into my doghouse: Lack of communication.

BOTTOM LINE Growth meter: How do you measure your growth? Year-toyear sales growth; it’s not all about how many units are added.

Vision meter: Where do you want to be in 5 years? 10 years?

The next 5 years will be very exciting for our team. We have seven units that we still need to grow and maintain operational excellence. In addition, we are starting a new opportunity as an area developer for Garbanzo Mediterranean Fresh, and in the next 5 years we plan to have 25 stores open or in the development stage. The 10-year focus will be to maintain our seven units and oversee the success of the 25 Garbanzo Mediterranean Fresh locations throughout Indiana, Lexington, Louisville, and Cincinnati.

Do you have brands in different segments? Why/why not?

Yes. Our recent endeavor, Garbanzo Mediterranean Fresh, was discovered because we think the segment is going to be the next big thing. After doing all our due diligence, we discovered they were the best partner for us. The corporate team is excellent, the unit economics are fantastic, they are innovative, and the food is delicious and nutritious. It has major potential.

How is the economy in your region affecting you, your employees, your customers? The markets where we are have had tremendous economic development over the last several years and with that comes new homes, which brings in a ton of new customers.

Are you experiencing economic growth in your market? Yes, one of the exciting things happening in many of our markets is the constant building of new neighborhoods, schools, and office parks. In my job you often spend time driving, and I am amazed at the development and redevelopment.

How do changes in the economy affect the way you do business? Many times, changes in the economy are what they are, changes. We as business owners can’t always worry about what everyone else is doing. In 2007 when the recession hit, we adopted the term blocking and tackling. To us that meant doing the little things daily to win the day. If there was anything positive from the recession, it was that. So when changes occur in the market, we just block and tackle and offer the best possible service to our guests.

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“We as business owners can’t always worry about what everyone else is doing. In 2007 when the recession hit, we adopted the term blocking and tackling. To us that meant doing the little things daily to win the day. If there was anything positive from the recession, it was that. So when changes occur in the market, we just block and tackle and offer the best possible service to our guests.”

How do you forecast for your business? As I mentioned, back in 2012 when I took over the business, forecasting was something we needed to upgrade. We created monthly dashboards and those have evolved over time, but we track guest transactions, sales, COGS/labor, profitability, and much more.

In addition to a monthly dashboard, we also focus on yearly forecasts and budgets.

Experience with private equity, local banks, national banks, other institutions? Why/why not? I only have experience dealing with local/regional banks. I appreciate the relationship I have with my banker and bank. Maybe I am a big fish in a little pond, but they have been very good to me and I’d like to think I have been good to them.

What are you doing to take care of your employees? All my GMs have the ability to give team members raises without asking for permission. They have a good pulse on their team and if someone deserves it we try to make it happen. I do understand money is not the only thing that drives people, and that is why we are taking a hard look into team member recognition.

How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? This is why systems and routines are so important to an organization. If you can operate to the standards you set and forecast, you can manage the increasing costs.

What kind of exit strategy do you have in place? Truthfully, I have not given much thought to this. I still love the challenge of what I do and don’t anticipate selling. I think in the next 10 to 15 years I will need to sit down with my wife and discuss this, but right now it’s full steam ahead. 1

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Water

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H e a lt h y Appe tite

John Clancy is into Smoothie King and Planet Fitness — in a big way!

Written By KERRY PIPES

L

ast summer multi-brand operator John Clancy and his Smoothie King Midwest company inked an agreement to develop an additional 60 Smoothie King locations in Ohio, Kentucky, Indiana, and Central Florida. The deal was just another day at the office for the former Wall Street investment banker and hedge fund manager who says he remains dedicated to aggressive growth with the brand.

“It’s the right time to invest in brands that cater to healthy living, and Smoothie King stands out in that space,” says the 53-year-old. Now operating 30 Smoothie Kings, he’s no stranger to the brand and is already three units into his new agreement.

But Smoothie King wasn’t his fi rst foray into franchising: he began his franchising career with Planet Fitness and operates 31 locations of that brand.

“When I left my previous career behind in 2009, I discovered Planet Fitness and saw the opportunities that held for me,” says Clancy. He chose the brand in part because of the leadership.

“Chris Rondeau [Planet Fitness CEO] has an ear for his franchisees because he understands they are the gas that keeps the franchise going.” Another plus: he also believes fi rmly in the health-centered focus of the brand.

With Smoothie King, Clancy fi rst loved the brand as a customer. He then became a believer in the brand and its leadership.

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“Wan Kim [CEO] and Kevin King [CDO] are great leaders with a commitment to the company vision, a top franchise organization, and strong financials,” he says. The brand also offered him diversity in his portfolio while sticking with his healthy living mantra.

Clancy loves the change of pace that franchising has brought to his life. He says it has improved his lifestyle and offered more flexibility in the way he lives and spends his time. The turn to franchising also suited his business skills well, and his real estate and site selection skills have helped him grow the business to more than 60 locations in just a decade.

Clancy says his goal is to have 50 Smoothie Kings and 37 Planet Fitness locations opened by the end of 2020. At that pace, it’s no wonder he has no exit strategy in place. “We’re just building too much to even have that conversation right now,” he says.

PERSONAL First job: I was a stock boy at a supermarket called Food Town in Massapequa, N.Y., on Long Island.

Formative influences/events: I read Think and Grow Rich when I was around 13 or 14. I started studying goals and masterminding with my friends on how we could get rich when we got older. I was thinking a little differently than the average kid, that’s for sure.

Key accomplishments: I got into investment banking right out

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Profile - John Clancy of college because, frankly, I couldn’t get any other job. I graduated in 1989 and took a sales job. I interviewed with probably 15 different people at different places, and they all told me “No.” Even some of the sales people told me I wasn’t cut out for sales.

In fact, in the second-to-last interview I ever had in my life, the hiring manager told me I wasn’t cut out for sales. Two years later, I was making half a million dollars, and the year after that another $2 million as a salesman (100 percent commission). The crazy part about it at first: I believed him. This is the guy with the better job than me, better suit than me… so yeah, I believed him at first. However, I was blessed enough to get out of sales in 2009 when I was introduced to Planet Fitness. My lifestyle changed: I got married, found Christ, and I just didn’t want to be in sales anymore. I prayed that God would show me something where I wouldn’t have to sell anymore, and he did… that’s for sure.

Biggest current challenge: In really strong markets, the biggest challenge is finding that right piece of real estate; and making sure you’re not going to get out-positioned is key.

Next big goal: To have a $100 million franchise real estate portfolio.

First turning point in your career: I go back to that second-tolast interview with the hiring manager who told me I was never going to make it as a salesman. What that conversation made me do was push myself to be even better than what was expected of me. When I got my first sales job, I was expected to make 200 calls a day. So based on that previous interview, I thought, “Well, I have to make 400 calls then.” I got into the office at 7 a.m. and would leave at 10 p.m. every night. I just doubled most people’s input. Rejection was a huge motivating factor.

Best business decision: Becoming a franchisee of Planet Fitness.

It took me away from a sales position where I was so focused on just chasing the dollar to having a steady cash flow, an improved lifestyle, and greater flexibility to pursue other franchise opportunities like Smoothie King. As a salesman, it made it difficult to enjoy the kinds of things I enjoy today. Getting involved in franchises like Smoothie King and Planet Fitness where you have residual cash flow opened the door to the kind of lifestyle I was looking for. That was the turning point.

Hardest lesson learned: Trying to build my business without God. Jesus and his wisdom are the key to my success.

Work week: I get up in the morning around 5 a.m., pray, read, clear my inbox, get my hit list done, write down some daily goals, get a workout in, grab a protein shake, and then I’m out the door and into the day by 9 a.m. On a general workday, I’m on the phone with my attorney, people I’m doing real estate deals with, etc., for a large portion of the day until around 4 or 5 p.m. That’s when I try to get off the phone and spend quality time with my family.

Exercise/workout: I do something pretty much every day. It’s usually attending the gym. I used to play soccer. Unfortunately, I’m a little hobbled in my knee right now, but I’ll get back to it. If I can’t get to the gym, I’ll just bang out 50 to 100 pushups. I have a pull-up bar, so I’ll get some of those in, too. It’s tough when I’m traveling, but if I have to get down on the ground and knock out 100 pushups, I will.

Best advice you ever got: Find the right people to surround yourself with. Absolutely critical. That’s from a business standpoint.

The best life advice I ever received came from my mother-in-law, my father-in-law, and my girlfriend at the time (now wife), all of whom told me to humble myself and accept Jesus, and I did. That is the key to my success.

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John Clancy, 53 Managing member

Company: Smoothie King Midwest, Planet Fitness Midwest No. of units: 30 Smoothie King, 31 Planet Fitness Family: Wife and 3 children, son 19, daughter 17, son 15 Years in franchising: 10

What’s your passion in business? To create generational cash flow through my businesses (Smoothie King, Planet Fitness, and real estate) to help people who need to be helped and advance the gospel of Jesus Christ.

How do you balance life and work? It takes a lot of discipline.

You have to know when to shut it off and take a break. It goes back to surrounding yourself with the right people. If I’m on vacation and have to take three or four calls because they’re critical, I may take those calls, but I schedule them strategically. As soon as they’re done, the phone goes away and I’m hanging out with my wife and kids. I have a goal book, and one of my main goals every day is to be present with my wife and my kids.

Guilty pleasure: Pizza. I’m from New York, a Long Island kid.

Favorite book: The Bible.

Favorite movie: “Schindler’s List” because it’s a very educational movie about where human nature can go wrong. It’s a brilliant piece of art. I think it should be shown in every school. Every person needs to watch it. I watch it once every 5 years, and it puts things in perspective for me.

What do most people not know about you? I’m a very transparent guy. What you see is what you get, almost to a fault. When I negotiate, I’m an open book—almost always.

Pet peeve: People who are impatient behind the wheel. People who are disrespectful while driving, that drives me crazy. I learned patience recently. I fell off a ladder from 10 feet. I had to get an operation three months later, and I lost feeling in a good portion of my hand and couldn’t move it for six to eight months.

I had a grueling rehab, and I’m only recently back in the gym. I started with 20-pound military presses and just moved up to 55 pounds. That was quite a challenging comeback, but it did teach me the value of patience.

What did you want to be when you grew up? I knew I wanted to do something in real estate, but I didn’t have anything specific in mind. As I got into investment banking and mortgage banking, I knew I wanted to own cash-flowing real estate. When I was young, though, I didn’t really know what I wanted to do.

Last vacation: I just took one to the Bahamas.

Person I’d most like to have lunch with: Jesus Christ. Also, George Washington.

MANAGEMENT Business philosophy: To make sure I’m doing something I love, creating cash flow from that, and using it to provide a great lifestyle for my family and those in need. It’s important to give back.

Management method or style: I rely heavily on data to make my decisions. I’ve always been that way, it’s in my DNA. In the past three or four years, the strides that have been made with how we gather and use data are incredible. From a real estate standpoint it’s exciting, the tools I now have.

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Profile - John Clancy How do others describe you? Professionally, I would say data-based and analytical, for sure. Personally, straightforward and honest.

One thing I’m looking to do better: I would go back to managing my lifestyle, managing my pipelines more efficiently because, essentially, that’s what I do for stores and real estate projects.

Learning how to manage those more efficiently and spend more time with my family. Also, spending more time on the golf course!

How I give my team room to innovate and experiment: The way I do that is with discipline. I am a professional delegator and delegate a lot of authority to my team. In fact, from an operational standpoint, there are things I have no idea how to do. However, I don’t need to know how to do those things because my partners are the best at it, and I trust them. Just because I’m managing member doesn’t mean I make all the decisions. I try to empower my team and delegate to them. We make decisions as a team.

How close are you to operations? I’m pretty far, geographically.

However, because I have such great operational people I don’t need to be in close proximity.

What are the two most important things you rely on from your franchisor? First, appropriate support; and second, an open ear. It’s important to hear what the franchisees have to say, and I’m blessed enough to have that with both of the franchises I’m a part of.

What I need from vendors: Reliability, quality products, and competitive pricing.

Have you changed your marketing strategy in response to the economy? How? No. How is social media affecting your business? It’s huge. We put a lot of money into social media for both Smoothie King and Planet Fitness. It’s affected our business positively. We’re huge believers in marketing, especially on social media.

How do you hire and fire? I’m not the operator at either of the businesses, but I can tell you how we hire and fire. We hire slowly and we fire quickly.

How do you train and retain? That’s a better question for my operators. However, with both models, we are by the book. We’re not trying to reinvent the wheel. If we feel the wheel needs to be modified, we work with franchisors that are open and willing to listen, which is great.

Fastest way into my doghouse: Disrespect someone on my team, or lie to someone or me.

BOTTOM LINE 2020 goals: To have 37 Planet Fitness locations open by December 2020, and 45 open by December 2021. For Smoothie King, to have 50 open by December 2020, and 75 open by December 2021.

Growth meter: How do you measure your growth? They’re two totally different businesses. With Planet Fitness, we measure it by our growth in EBITDA. At Smoothie King, it comes down to how many stores can we open as quickly as possible and still reach that 15 to 20 percent EBITDA margin.

Vision meter: Where do you want to be in 5 years? 10 years?

I want to be done in 5 years. By then, God willing, I’ll have over 200 Smoothie Kings open and over 60 Planet Fitness locations.

Then I’ll be done.

Do you have brands in different segments? Why/Why not? I do, and it’s because I liked the Smoothie King brand. I consumed the product and believed in the brand and the management,

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especially CEO Wan Kim and Chief Business Development Officer Kevin King. Those two things were the key. With Planet Fitness, Chris Rondeau is an A-plus CEO too. He listens and is brilliant. He realizes his franchisees are the gas that keep the franchise going. Planet Fitness and Smoothie King are both run by top-notch people.

How is the economy in your regions affecting you, your employees, your customers? The economy is doing very well right now. However, we built our first Planet Fitness location in 2009 during the Great Recession. I believe we have a recession-proof business with Planet Fitness. With Smoothie King, it’s not like it’s a luxury item. As long as we’re picking the right markets and strategically building the stores the way they should be built, we’re going to do great.

Are you experiencing economic growth in your market? N/A. How do changes in the economy affect the way you do business? Because of the scale, having as many units as Smoothie King has, we’re able to keep the cost of goods sold at a number we can make our margins with. I don’t see any negative impact right now.

How do you forecast for your business? With Planet Fitness, we’re buying a lot of real estate and building aggressively. We had a similar spike about 2 years ago, and the same thing is going to happen in the next 18 months, God willing. Smoothie King is going to be pretty consistent, opening 10, 15, or 20 units a year.

What are the best sources for capital expansion? Existing cash flow and great banking relationships.

Experience with private equity, local banks, national banks, other institutions? Why/Why not? We’re not involved in private equity. We do have regional banking institutions for both brands, and we have great relationships with them.

What are you doing to take care of employees? My operators could speak to this better than I could. One thing for sure is my partners know how to retain and take care of strong employees.

What laws and regulations are affecting your business, and how are you dealing with them? There really aren’t any.

How do you reward/recognize top-performing employees?

Bob Viani, our Smoothie King Midwest COO, and Mike Hamilton, our Planet Fitness Midwest COO, are the best in the business and both have set up reward and incentive systems I trust.

What kind of exit strategy do you have in place? We do not have an exit strategy in place yet for either brand. We’re just building too much to even have that conversation right now.1

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On a Roll!

Catching up with McAlister’s Deli's largest franchisee

Written By KERRY PIPES

A

dam Saxton is co-CEO and owner of The Saxton Group, a family business that has become the largest McAlister’s Deli franchisee in the country. Along with his father Kelly (founder and executive chairman) and his brother Matt (co-CEO), Saxton has created not only a profitable and successful company, but one with more than 35,000 employees working in a culture that embraces philanthropy and community connections.

When we last spoke with Saxton in 2016, he had just been recognized with Multi-Unit Franchisee magazine’s MVP Award for Community Involvement Leadership. “We have a comprehensive approach that covers everything from small local fundraisers to big company-wide charity programs,” he said at the time.

“However, I think the most important thing is that we empower our employees and managers to take action on their own. If they see a need in their community, they have the ability to step up and do their part to help.”

Saxton was the first franchisee to bring the sandwich chain to the Dallas market. When we spoke in 2016, his company had 67 units and was working to open another 10. Since then, The Saxton Group has grown to 83 McAlister’s in 6 states, with a couple more under construction; and annual revenue has grown from $132 million in 2016 to $160 million in 2019.

Saxton says the company has funded its growth through traditional lenders and by teaming up with a private equity firm focused on the restaurant industry, allowing more rapid expansion.

He has always understood that to remain competitive, his company must continue to evolve and adapt to market changes.

“Like many in the industry, we have continued to see the growth of third-party delivery and off-premise sales. In 2016, 44 percent of our business was off-premise,” he says. “Today, that number is 51 percent and climbing. In 2016 we were doing $25,000 a week in sales on third-party delivery platforms and today we are doing $225,000 a week on them.”

With his next big goal of 100 restaurants, Saxton says he’s ready for the challenge—and the payoff. “My passion is growth because it allows us to do more of what we love and to continue to provide an opportunity for our people,” he says. “We’re proud of our 100 percent promote-from-within culture at the general manager level and above. We would not be able to do that if we were not constantly growing!”

PERSONAL First job: I started working in my family’s restaurants when I was 15. Back then, you could get a driver’s license at 15 if you had a job, so I said sign me up! I delivered pizzas.

Formative influences/events: I grew up in the restaurant business, so talking about our restaurants and our customers was a part of my daily life. I can recall a specific experience at a very

Adam G. Saxton, 38 Co-CEO & Owner

Company: The Saxton Group No. of units: 83 McAlister’s Deli Family: Twin boys, Patrick and Harry, 5 Years in franchising: 15

“I’m especially proud of the company’s growth in our hometown, Dallas-Fort Worth. We brought McAlister’s here, developed the brand here, and today we operate more locations in DFW than any of our direct competitors. Dallas is an emergent and dynamic place to develop a business and will always be a core piece of our future growth strategy.” young age when I was eating at one of our pizza restaurants and noticed the poorly kept salad bar. Within minutes, I approached the front-of-house employee and told her that the salad bar was unacceptable. Imagine her surprise when she heard that from a 10-year-old! Shortly thereafter, my parents took the opportunity to teach me a lesson about how and when to speak to employees.

That sticks with me today, and I try to lead by example with the mentality of a team member.

Key accomplishments: I’m especially proud of the company’s growth in our hometown, Dallas-Fort Worth. We brought McAlister’s here, developed the brand here, and today we operate more locations in DFW than any of our direct competitors. Dallas is an emergent and dynamic place to develop a business and will always be a core piece of our future growth strategy.

Biggest current challenge: Any business that serves the public has to be ready to evolve, and our industry is seeing unprecedented change. We continue to look for ways to innovate and serve our customers in the manner they wish to be served.

I’ve often heard that the growth of third-party delivery, online ordering, digital apps, etc. all boil down the customer service experience. However, I disagree. I believe getting our food into the hands of customers through the channel that’s convenient for them at the time they’re ordering is an incredible service offering. I find innovation to be the most challenging, but like most things that are challenging, it is also the most rewarding.

Next big goal: 100 restaurants!

First turning point in your career: When I was elected to the McAlister’s Deli franchise advisory council and then had the honor of serving as president, it was definitely a turning point.

I have learned that the best franchise systems are those with a healthy and active dialogue between franchisor and franchisee.

One can’t be successful without the success of the other.

Best business decision: Our belief in operating in territories where we are the only McAlister’s franchisee has served us well. It’s allowed us to set the standard and create a brand of McAlister’s that has a distinctive “Saxton Group” touch.

Hardest lesson learned: Growing through times of adversity.

Work week: During the work week, I start my day reading through the New York Times, Wall Street Journal, and the Financial Times. I spend half of my week in the office working closely with our company’s leaders, and the other half out in the field searching for new communities to introduce McAlister’s Deli to.

Years in current position: 5 Multi-Unit Franchisee

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Reconnect Profile - Adam Saxton Exercise/workout: I spin at SoulCycle, which feels more like mental health wellness, and I strength train at Equinox with a former Marine who never cuts me any slack! I like exercising around other people. I would fail miserably at a home gym.

Best advice you ever got: My dad always says, “Slow don’t pay,” which implies that being busy means being productive. It’s simple but very true!

What’s your passion in business? My passion is growth because it allows us to do more of what we love and to continue to provide an opportunity for our people. We’re proud of our 100 percent promote-from within-culture at the general manager level and above.

We would not be able to do that if we were not constantly growing!

How do you balance life and work? I acknowledge that life doesn’t stop, and work doesn’t either. There’s no clear distinction between the two for me. I grew up in an entrepreneurial household while my dad was building a company that would later become The Saxton Group. Our life was our work, and because of that it never felt like work. I’m lucky to do what I love with people who give me an enormous sense of pride.

Guilty pleasure: The 2-Cheeseburger Meal from McDonald’s.

Favorite book: The Catcher in the Rye. Favorite movie: “Good Will Hunting.”

What do most people not know about you? I can be shy if you don’t know me.

Pet peeve: Negativity.

What did you want to be when you grew up? I’ve always wanted to work in our family’s business.

Last vacation: Nantucket.

Person I’d most like to have lunch with: Howard Schultz, because I’m fascinated by the way Starbucks grew to such massive scale but maintained a tight, recognizable culture. I consider that a true feat that I haven’t seen replicated by other brands.

MANAGEMENT Business philosophy: Negotiation doesn’t mean someone wins and someone loses. I always look for common ground.

Management method or style: I like to hire talent and give them enough room to let their talent shine. The Saxton Group doesn’t micro-manage our leaders. I believe leaders come from all backgrounds. Experience and education count, but they aren’t everything. We have people performing at a really high level in roles you might never expect to see them in.

“The pace of change in our industry has never been faster. You have to look beyond what’s happening now...and try to prepare for what comes next. That can be very difficult in a hyper-competitive environment flush with innovation. Some days we feel like we are treading water in this business, but the best brands have to continue to look forward.”

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Greatest challenge: The pace of change in our industry has never been faster. You have to look beyond what’s happening now (sometimes it seems everything is happening now) and try to prepare for what comes next. That can be very difficult in a hyper-competitive environment flush with innovation. Some days we feel like we are treading water in this business, but the best brands have to continue to look forward.

“Innovators need guardrails and support, but too much management can stifle innovation. Let people experiment.

Let them fail. I often say, ‘It’s just sandwiches, what’s the worst that can happen?”

How do others describe you? I hope they say I am cooperative and easy to work with. I also hope my passion for the McAlister’s brand is apparent.

One thing I’m looking to do better: Prioritize. I would like to do a better job of recognizing what needs to be done now and what could be done later.

How I give my team room to innovate and experiment: Get out of the way! Innovators need guardrails and support, but too much management can stifle innovation. Let people experiment.

Let them fail. I often say, “It’s just sandwiches, what’s the worst that can happen?” The restaurant industry is supposed to be fun.

We aren’t curing cancer. You can’t come up with a great idea if you aren’t willing to try some things that won’t work.

How close are you to operations? Our company is led by my brother, Matt Saxton, and myself. In our co-CEO roles, Matt is closer to operations while I focus on real estate, marketing, legal, and the franchise relationship.

What are the two most important things you rely on from your franchisor? Supply chain and product innovation.

What I need from vendors: Be nimble and quick! It’s a fast industry and entrepreneurs like to adapt, which means our vendors have to adapt.

Have you changed your marketing strategy in response to the economy? How? Yes. How McAlister’s Deli is integrated into people’s lives is shifting. They aren’t just dining in at lunch anymore. In 2019, our marketing focus and dollars have been directed toward off-premise. Our marketing strategy is focused on meeting guests where they are through online ordering and our grab-and-go units, and through promotional and email marketing campaigns directed at our catering clients, as well as seasonal promotions with our third-party delivery partner, DoorDash. We’re about to launch an e-commerce site and feature merchandise that we hope will increase brand loyalty. We hope the site also will lead to a new revenue source for us. In 2020 our marketing focus, strategy, and efforts will be largely centered around digital. Reaching, engaging, and interacting with guests through the thing they can’t live without has never been more important to us.

How is social media affecting your business? We view social media as the outlet to continue the relationship we have with our

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Of those, 319 constituted freestanding Restaurants and 295 of them have operated for more than one year. Of the 295 Restaurants, 143 Restaurants (48%) had sales in excess of the $1,511,379 average. See item 19 of our May 2019 Franchise Disclosure Document for more information. There is no assurance that you will do as well, a new franchisee’s results may differ from the represented results.

Reconnect Profile - Adam Saxton

“We view social media as the outlet to continue the relationship we have with our guests. Our approach to social media is to bring online the same personal touches and genuine hospitality a guest receives within our restaurants.” guests. Our approach to social media is to bring online the same personal touches and genuine hospitality a guest receives within our restaurants. Social media is also how we inform our guests about new menu items, upcoming promotions, and local community fundraisers. Social media has allowed us to reduce the amount we spend on materials within our restaurants and redirect those funds in a more targeted approach through Facebook ads. Social media also is another channel to receive guest feedback. We get over 1,500 reviews each month about experiences our guests are having in our restaurants across Google, Facebook, and Yelp. The expectation is to respond to every single review we receive—and to respond within 24 hours. The guest left the review for a reason: they want to be heard. In 2017 we received 6,539 reviews, and in 2018 we received 16,876 reviews. Our marketplace is competitive and we have to fight for every single guest.

Not responding to reviews is easily interpreted by guests as your brand not caring. Last, more research is coming out about guest engagement driving sales.

How do you hire and fire? There is no question that hiring great restaurant operators and team members is more of a challenge now than ever. When it comes to hiring, we train our supervisors to hire for attitude, personality, work ethic, and passion. Most important, we are looking for the right culture fit. Generally speaking, we can train and develop almost anyone to serve our guests, operate the POS system, and prepare our food. But more often than not, what we are unable to train and develop are the intrinsic values that make someone a good fit for the McAlister’s Deli brand and The Saxton Group. Our recruiting, training and development, and human resources teams continually evaluate our internal processes, procedures, and resources to ensure they are adequate and sufficient for our restaurant-level operators to make a great hire. Letting someone go is one of the toughest things a leader has to do. If a unit-level leader believes they need to let someone go, they are required to contact their regional director to discuss the potential workplace separation. Our human resources department is always available for support and is here to guide our leaders through the process of an involuntary termination.

The crux of our employee relations systems is to always be fair and treat our people with dignity and respect even when we have to part ways.

How do you train and retain? We have an internal training department here at our corporate office. Our Manager of Training and Development Megan Burleson is responsible for the communication and implementation of the training systems and operations within our restaurants. She oversees all quarterly rollouts, pre- and post- new restaurant openings, and our Manager in Training program. She also created our Certified Training Store

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and Certified Deli Trainer Programs. Our training department and its programs have improved overall restaurant operations, guest satisfaction, and increased employee retention. Our Vice President of Operations Stephen Lee and our Vice President of People Matt Heston created a leadership develop class for our assistant managers this year. The one-day course covers all things restaurant operations, human resources, and what leadership skills are crucial in becoming a general manager at one of our restaurants.

How do you deal with problem employees? Attracting and retaining the best talent has to do with encouraging our people to be their best. It’s about leadership, fairness, and a willingness to address problems and issues head-on. If we have a team member who is struggling, we train our supervisors to coach first and, if necessary, move toward progressive discipline while following the elements of due process and just cause. Our goal with progressive discipline is to communicate problem issues directly and in a timely fashion so our people can involve themselves in the problem-solving process. However, proper communication—both verbal and written—can be difficult to accomplish without a framework for structuring a supervisor’s thoughts and sharing their suggestions with their people. As such, our human resources team provides our leaders with the tools they need to manage and lead their people. We also offer leadership development classes throughout the year for our supervisors where we develop their employee relations skills.

Fastest way into my doghouse: Treat a guest poorly.

BOTTOM LINE Annual revenue: $160 million.

2020 goals: We will open around five new restaurants, launch new digital capabilities, and accelerate our remodel strategy.

Growth meter: How do you measure your growth? Unit count, total sales growth, and same store sales growth.

Vision meter: Where do you want to be in 5 years? 10 years?

We want to add a second brand to our portfolio and grow our McAlister’s count to over 100 units.

Do you have brands in different segments? Why/why not? Not currently, but we are exploring additional opportunities with different brands. We very much want to continue to provide growth and development opportunities for our people and leverage our strength in additional markets. A second brand makes more and more sense to help us accomplish those goals.

How is the economy in your regions affecting you, your employees, your customers? Our heavy concentration in Texas has always served us well. We have benefited tremendously from

“We can train and develop almost anyone to serve our guests, operate the POS system, and prepare our food. But more often than not, what we are unable to train and develop are the intrinsic values that make someone a good fit for the McAlister’s Deli brand and The Saxton Group.”

Reconnect Profile - Adam Saxton the growth in our hometown of DFW and the larger Texas market as a whole.

Are you experiencing economic growth in your markets? Yes. How do changes in the economy affect the way you do business? A growing economy generally means that consumers are willing to eat away from home more often, which is positive for us. However, McAlister’s has an option for everyone and performs well even when the economy is not doing as well. Low unemployment and rising wages can compress operating margin at the store level unless it is made up elsewhere.

How do you forecast for your business? We start at the restaurant level. We believe the leader closest to the operation, the general manager, must play a key role in writing their budget.

What are the best sources for capital expansion? Running an efficient, growing business and reinvesting your profits into that business is the best source for organic capital expansion. We also have great banking partners that have helped us increase our working capital and optimize our company’s cash flow.

Experience with private equity, local banks, national banks, other institutions? Why/why not? CapitalSpring, a private equity firm focused on the restaurant industry, has had an equity investment in The Saxton Group since 2012. We have found them to be great partners, and their confidence in our team and our brand has allowed us to grow faster. Our current senior lender is BMO Harris Bank.

What are you doing to take care of your employees? This year, we’re proud to launch a tuition assistance program to help aid in the educational goals of our employees. Many key employees are working nearly full-time while going to school. They play a key role in serving our customers, and we want to serve them too.

The initial reaction among our employees to launching a tuition assistance program has been very positive.

How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? Strategically. Sometimes the solution is short term and sometimes the solution is long term. Our executive and senior leadership team will analyze an abundance of data before pulling the trigger on a change.

Whatever strategy we choose it often comes with some sort of risk, so we always look for a balance that is best for our guests, our internal stakeholders, and the organization as a whole. For example, we may need to implement new technology or software, consolidate vendors, or increase menu price to mitigate the financial impact rising employee costs have on the business.

“This year, we’re proud to launch a tuition assistance program to help aid in the educational goals of our employees.

Many key employees are working nearly full-time while going to school. They play a key role in serving our customers, and we want to serve them too. ”

What laws and regulations are affecting your business and how are you dealing with it? Minimum wage hikes, DOL regulations modernizing the FLSA (e.g., overtime, tip pooling, etc.), state legalization of marijuana, paid family and sick leave laws, workplace immigration laws, health care reform, predictive scheduling laws… the list goes on. Our human resources team stays abreast of the ever-changing world of employment law and trains the leadership team on what employment laws are in the pipeline and how they will affect our business in the future.

How do you reward/recognize top-performing employees?

We have a monthly employee recognition program where two employees at every McAlister’s Deli restaurant are selected as their restaurant’s “Team Member of the Month.” The employees are awarded a t-shirt to wear at work that publicly recognizes their achievement in front of the guests they serve daily. Today, over 6,000 employees have been recognized through the program. Also, whenever an employee is mentioned in a review left on Google, Yelp, or Facebook, we like to commend that employee’s efforts on their restaurant’s local Facebook page. We include a photo of them and a brief write-up on why we’re thankful to have them on our team. It is a way of publicly recognizing the employee and often results in other guests talking about their interactions and experiences with that particular employee as well. We’re also currently working on a tuition assistance program, “TSG Tomorrow,” for our employees. All employees who have worked for The Saxton Group for a least a year will be able to receive monetary assistance for courses. This includes team members, shift managers, assistant managers, general managers, regional directors, and our corporate office staff. Our people are our future.

What kind of exit strategy do you have in place? This is a family business and a legacy business. We hope to do this forever! 1

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Athlete Profile - Chauncey Billups

R

etired Detroit Pistons star Chauncey Billups has never shied away from a challenge. That’s not surprising when you consider the five-time NBA All-Star and three-time All-NBA player was nicknamed “Mr. Big Shot” for making crucial late-game shots when he was a guard with the Detroit Pistons (think 2004 NBA Finals where the Pistons defeated the Los Angeles Lakers).

After 17 seasons in the NBA playing in cities including Boston, Toronto, Denver, and Orlando, Billups was savvy enough to think about his future and plan a career off the court.

Today, along with a role as an NBA analyst with ESPN, Billups has been putting his entrepreneurial skills to work building his own post-basketball business portfolio. In 2013, he teamed up with former NBA player Junior Bridgeman to purchase 30 Wendy’s in the St. Louis market. Last summer he added a new brand, Salon Plaza, a franchise that allows independent stylists and cosmetologists to rent a fully equipped private studio and run their own business in an upscale environment. He opened his first location in Southfield, Michigan, in August and says there will be more to come, in places ranging from Washington, D.C., to Baltimore and Atlanta.

Billups says Salon Plaza was a clear choice as he looked to break into the fast-growing salon sector. The brand’s philosophy is similar to his own of making a difference with community-driven personal and professional values. “I remember my aunties, cousins, and others close to me who had their own businesses, but they were doing it out of their basements,” he says. “Now, we’re making it possible for people to get into a business of their own in a one-of-a-kind environment with fantastic amenities and top-notch design.”

If he weren’t already busy enough, Billups is also testing the waters with Rise Nation, a fitness club that offers cardio climbing equipment and workouts that Billups uses himself. “Our Rise Nation locations are in Denver. It’s an active community and our business is doing well there,” he says.

Though Billups admits “running a business is far more challenging than basketball,” he sees the similarities—and value—in doing both right. “Team, processes, and systems are critical,” he says. Because of that, he says, he’s in a position to win with all of his business ventures.

PERSONAL Formative influences/events: 2004 NBA Championship with the Detroit Pistons beating the Los Angeles Lakers and named Finals MVP. Earned nickname “Mr. Big Shot” following the series.

Key accomplishments: Played 17 seasons in the NBA. Star at the University of Colorado, and selected third overall in the 1997 NBA draft by the Boston Celtics; five-time NBA All-Star and three-time All-NBA selection.

Biggest current challenge: Given my competitive spirit and the edge I like to have in everything I do, I want to have my whole self involved. However, I balance a lot and I am able to do it well thanks to the team I work with. With all of that said, no matter what you get into, it’s always a risk, and at the end of the day, for me, you have to be willing to lose. But I now have a team, processes, and systems that mitigate threats to our businesses and we’re in a position to win with all of our business endeavors.

Hardest lesson learned: When I first began to invest, I was attracted to businesses and opportunities that I jumped at way too quickly. I thought these opportunities were one thing and they turned out to be another. I have bumped my head a few times—I didn’t know my partners well enough. Now when I look

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Chauncey Billups, 43 Multi-brand franchisee

No. of units: 40-plus Salon Plaza, Wendy’s, and Rise Nation Family: Wife Piper, 3 daughters, Cydney, Ciara, and Cenaiya Years in franchising: 7 Years in current position: 7

into investing in a business, I am patient. I go through a thorough due diligence process and turn over every stone.

Exercise/workout: Check out the Rise Nation classes. It is a fantastic workout.

Best advice you ever got: During an off-season I attended a seminar geared toward NBA players considering entrepreneurial endeavors as the next phase of their career. Junior Bridgeman presented. I was drawn to him because of his approach with people and how he inspires others through the businesses he owns. I followed up on that presentation with Junior multiple times and stayed persistent, trying to get more time with him so I could learn from him.

As a result of my persistence, I established trust and he invited me to spend time with him in Louisville for three straight summers. I am sure a lot of guys have reached out to him, but didn’t have the intensity or willingness to put the time and effort into being great— they just wanted to be great. We spent a lot of time at his stores. It was during this time that I realized thanks to Junior that we are not in the business of selling food, salon suites, or workouts… we’re in the people business. Junior made it clear that if you provide solid opportunities for others to make a living and advance their lives, along with inspiration, motivation, and mentorship, they’ll remain loyal and become the team members you want to surround yourself with every day. I cherish what I have learned from Junior. We are still very closely connected, and we’re partners in our Wendy’s investment in the St. Louis market.

What’s your passion in business? Because of our “people business” approach, we have several team members who have reached higher levels in the company than they ever thought. Their families, friends, and colleagues are proud of them. It’s what makes business worth every minute. With Salon Plaza, what I love about our opportunity is the impact we can have on the individuals who rent suites with us. I’ve discussed with them that their success comes down to how they treat their clientele. It’s all about the relationship, and that relationship is why their customers will continue coming back. I think about why I still go to the barber that I’ve gone to forever—it’s the relationship. I don’t even have hair, but I still go… now for my beard. My wife Piper says the same thing. She goes to her salon because of the bond she shares. We’re coaching the individuals who rent suites with us to establish those types of relationships and giving them a platform to do it.

How do you balance life and work? Family is most important, that’s rule number one. So for me, I have to set boundaries when it is time for family because between business and my NBA broadcasting, I can be pulled in a lot of directions. You just need to set clear lines.

What do most people not know about you? Life comes full circle. Now, a lot of players come up to me and ask about what it takes to make it in business. They hear my story and they reach out to me and ask advice. What I say to them is, “It’s on you.”

Athlete Profile - Chauncey Billups One thing you can’t do is count on something just falling into your lap. Far too many people exiting professional sports lose a lot of money by not doing their due diligence. You have to be very patient; nothing happens overnight. When you play, you are so used to those checks being so big—you are making a million dollars a month. There is no business out there where you are going to get that kind of money. It’s a slow boogie.

What did you want to be when you grew up? Playing the highest level in basketball was always my focus. And when it came time to think about my post-playing days, I honestly didn’t know what I wanted to do. Midway through my career, I knew that I wanted to stay in basketball. But I also grew a desire, an entrepreneurial desire. It came out of my goal to help others. Helping others also goes beyond business for me. I started and have grown what has become a successful leadership academy that helps kids who need more direction in getting life figured out. My parents and grandparents were always there for me. They made the sacrifices needed to support my goals. Without their help, there was no way I would have made it. I want to pay it forward, and I do that through business and in other meaningful ways.

MANAGEMENT Business philosophy: I am especially drawn to our franchise investment with Salon Plaza because of our ability to foster business ownership through salon suite rentals. We’re able to guide and mentor small-business owners in the salon industry through support programs that offer pathways to success. We support their flight in life by giving them the right platform to achieve prosperity. Help others reach their goals and they’ll help you get to yours.

How do others describe you? I bring a strong work ethic to everything I do. I am driven and competitive, but really enjoy working with others. I thrive in leadership opportunities and have an ability to guide a team through selflessness, cooperation, and inspiring motivation.

SPORTS & BUSINESS What do find more challenging, sports or business? The day-to-day of running a business is far more challenging than basketball. I played basketball starting at age 10. I’m still relatively young in business, and I know I have so much to learn.

What skills/experience from sports have carried over to operating a business? Leadership on the floor translates well into business. I was a leader for all the teams I played on and I know how to take accountability. I also learned through sports how to treat people. Also, you have to have good mentors to teach you what you don’t know. Plus my work ethic carried over.

I was always very detailed, having a clear understanding of the game plan, the competition, and the strategy to win. Today I talk business with a lot of my former teammates. Many of them are successful in other industries. We talk about their successes and challenges and I share the same. We learn from each other.

How did you transition from sports to franchising? When I first retired I went to work for ESPN right away, so I still haven’t completely removed myself from sports. But when my playing days ended, I was ready for the next phase in life. I had a blessed run, and I am truly enjoying where I am today.

BOTTOM LINE Annual revenue: N/A. 2020 goals: I want to continue to grow. The Salon Plaza investment is done with a team we refer to as the “Dream Team.”

We have an ambitious franchisee group and we’re aiming to open more than 100 locations as franchisees. Our first is in the Detroit market, and it is going so well. We opened this past summer. As franchisees with Salon Plaza, we’re focused on bringing the concept to urban environments where we know that hair, skin, and beauty are prioritized. Ironically, those destinations are in many of the NBA cities I am familiar with, having played in them for 15-plus years. Salon Plaza appealed to me because we could affect lives so well. I remember my aunties, cousins, and others close to me who had their own businesses, but they were doing it out of their basements. Now we’re making it possible for them to get into a business of their own in a one-of-a-kind environment with fantastic amenities and top-notch design.

Growth meter: How do you measure your growth? Growth can be measured in countless ways. For me, I look at the impact had on people pursuing their dreams. For instance, with Salon Plaza, we have put dozens of people into business ownership in a really inspiring environment. Likewise, as mentioned, I am thoughtful about the investments I make and need to spend a lot of time getting to know the parties involved. Each year I look at opportunities and make calculated moves. Being strategic is key, and I look back over each year and ensure that I am sticking to my plan as I grow with new concepts.

How is the economy in your regions affecting you, your employees, your customers? We are in fantastic segments.

The quick-serve category with Wendy’s is outstanding. We are a top choice in the communities we serve in St. Louis, so there are no issues at all there. If anything, the strong economy and employment are helping business. Denver is a really fit area serving an extremely active audience. That is where we have our Rise Nation locations, so those do very well also. And our Salon Plaza open in Southfield, Michigan, just outside Detroit, has fantastic demand. Stylists love having affordable space to rent in an environment that breeds confidence and appeals to consumers.

What are you doing to take care of your employees? As a management team we know how to empower others to take ownership of their work. It comes down to outstanding leadership and training. So providing opportunities for growth through new responsibilities and promotion has become very common. 1 Multi-Unit Franchisee

ISSUE 1, 2020

39

R

unning a pool service repair and maintenance company, working in the family property management business, and serving as a reserve deputy for the sheriff ’s department made for a diverse career path for 29-year-old Mike Sasseen.

Today, he operates two locations of America’s Swimming Pool Company (ASP) in Central Missouri.

The Show Me State native says he had always wanted to be a police officer when he was growing up and went through the police academy when he was only 20. “I loved everything about it,” he recalls. “But I quickly realized I wouldn’t be able to support a family the way I wanted to.” A year later he was lured away by a better-paying job in Alabama before returning to Missouri a few years ago.

When he got back he became a reserve deputy for the Miller County Sheriff ’s Office to keep his post-certifi cation.

He con-tinued to be involved with his family’s property management business, overseeing more than 8,500 properties.

Taking the Plunge

One of his ongo-ing challenges was finding a reliable pool service company. He knew he could do better, and during an

At 29, Michael Sasseen is swimming in pool service success Written By KERRY PIPES

online search he discov-ered ASP, part of Authority Brands.

He remembered studying The Dwyer Group in college and had read “Live R.I.C.H.,” a book by CEO Dina Dwyer-Owens.

He knew how well the franchising model worked and opened

his own ASP franchise in 2016.

“I picked ASP because it was the best choice for a pool franchise. It has the best software, trainers, advisors, and all around I just knew ASP was going to guide me to success,” he says. As a young entrepreneur, he recognized that he needed guidance and says ASP delivered that. Within 2 years he was doing $850,000 in annual revenue.

After opening his second unit and with his business growing, Sasseen realized that running his company and working for the sheriff’s department was taking him away from his family. He let go of his deputy job last January and today concentrates exclusively on his ASP business.

“I love everything about what I do,” he says. “I love seeing people’s faces when we do a major renovation on their pool and it looks like an entirely new paradise.”

PERSONAL First job: Sales with my father’s tractor company.

Formative influences/events: My father, who passed away, was a great salesman and the biggest influence of my life. He would tell me to always be honest to my customers and treat them like family; to always follow up and make sure they are happy.

Key accomplishments: Going way beyond expected revenue in my second year. We went from $250,000 our fi rst year to $850,000 in our second year.

Biggest current challenge: Weather plays a big role right now.

We lost four months of our spring “key renovation time” because of rain, but we made up for a large part of that. Another big challenge is finding employees who will love what they do and give the same passion to our customers.

Next big goal: Expanding to another large city.

First turning point in your career: The realization that owning a company is about much more than yourself; the moment I realized that my employees depended on me to make sure they could provide for their families. It brought a whole new light to how I manage and treat my employees that I really didn’t think of before owning my business.

40

Multi-Unit Franchisee

ISSUE 1, 2020

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Under 30 Profile – Michael Sasseen

Michael Sasseen, 29 Owner

Company: America’s Swimming Pool Co. Central Missouri No. of units: 2 Family: Wife and 2-year-old child Years in franchising: 3 Years in current position: 3

Best business decision: Joining a franchise. It was a huge decision when I wanted to start a pool company but knew very little about the industry. I decided that the franchise model was the most logical choice that could guide me to success.

Hardest lesson learned: Making sure you keep up with family life. Owning a business takes a lot of time, sometimes on weekends and 14-plus hours a day. Making sure you keep your family time is very important.

Work week: Generally during the summer it’s 8 to 14 hours a day during the week and sometimes on weekends. During off-season I generally work just 5 to 8 hours a day.

Exercise/workout: I get quite a workout at work.

Best advice you ever got: Treating your customers with respect like they are your family. Making sure you set expectations and follow up.

What’s your passion in business? I love everything about what I do. I love meeting new people and getting new challenges. I love seeing people’s faces when we do a major renovation on their pool and it looks like an entirely new paradise.

How do you balance life and work? I make sure I find time every week to take my son somewhere, whether it’s the park or just going out as a family. Finding that time sometimes can be hard during busy season, but it’s so important. We always make sure my son gets plenty of his dad.

Guilty pleasure: Starbucks and candy. Sometimes I’m just a kid when I go into a candy store.

Favorite book: I love reading to my child—so many children’s books.

Favorite movie: “Good Morning, Vietnam.”

What do most people not know about you? I have three brothers and three sisters.

Pet peeve: When employees do not respect and take care of your equipment you buy to make their lives easier.

What did you want to be when you grew up? A police officer (which I did for a few years), and a tractor salesman with my dad.

Last vacation: I went to Las Vegas with my best friend a few months ago.

MANAGEMENT Business philosophy: “Do not make excuses, make improvements” and “There are never problems, only solutions.”

Management method or style: Generally, I give my employees as much freedom as I can to do their jobs. Many of our employees came from pool companies that were always looking over their shoulders and never gave them the trust they deserve. I let them

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Multi-Unit Franchisee

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solve their problems, and we have had nothing but success from that. Our employees feel like they are a part of the company and can do what they feel is right. We do not push to get done too fast. We want our employees to take their time and do things right the first time. Our customers have given us a great response from that.

Greatest challenge: Keeping up with paperwork and organization.

How do others describe you? A great guy, caring, and always will give his shirt off his back for you if you need help (from an employee).

One thing I’m looking to do better: I look forward to learning better organizational skills and improving my processes to make less stress in my life.

How I give my team room to innovate and experiment: I give them freedom to do things the way they think is right. I send them to train anywhere in the United States. I have sent employees to Texas, Florida, and several other states to learn new methods. I also do online training, in-house training, and training with Pentair in state.

How close are you to operations? I handle most of the operations myself. I am currently looking for a manager to help me with operations to take some load off my back and to give me more time to spend with my customers.

What are the two most important things you rely on from your franchisor? One of the major things I depend on is a great image, from everything to how we look showing up to your door, to our advertising and marketing. I love how consistent it is when customers from other states or locations that have a house here know what to expect already. Another thing is making sure we are profitable and looking over our financials, which would normally take me much longer to do myself.

What I need from vendors: I use different vendors for many aspects of my company—payroll, design software for pools, my product reps with questions and warranty, concrete vendors, plaster, and many more. The biggest thing I ask for with every vendor is to be honest with me and show up when they say they will. I tell them all it’s a partnership, if my customers are not happy with their performance I have to find someone else. All my vendors love the way I work with them and have a check for them the second they are done. They always show up when they say they will and go above and beyond.

Have you changed your marketing strategy in response to the economy? How? Pricing generally changes one or two times a year if needed. I always make sure we are profitable with everything we do. We explain why to the customers as needed (generally it’s shipping costs or tariffs) and they are 99.9 percent of the time okay with those changes.

“I love everything about what I do. I love meeting new people and getting new challenges. I love seeing people’s faces when we do a major renovation on their pool and it looks like an entirely new paradise. ”

Under 30 Profile – Michael Sasseen How is social media affecting your business? Social media is the biggest investment I put in marketing. A vast majority of customers will search for you on Google or social media. I make sure we stay up-to-date, and so does our franchise to make sure we stay relevant in that field.

How do you hire and fire? I give my employees a few chances and we try to make it work any way we can. We have a surprisingly low turnover rate because we treat our employees like family. We give them benefits, including insurance. We hire mainly based on attitude and how they relate with people. It is more important to me to have an employee who customers like, rather than one who has experience but is rude to our customers. It’s all about their passion. We fire if necessary if performance is dropping, not looking good on returning, or not following our core values.

How do you train and retain? We are consistently training our employees. We even move them to different positions and let our maintenance techs ride with our service techs to help learn the ins and outs of equipment. We are always looking to improve our relations with our employees, from having Christmas dinners with their families to just giving a thank-you card. We also feel insurance and benefits play a huge role with the employee because it shows we care, and it helps shape in their mind that this is a career, not a job.

How do you deal with problem employees? Generally, I try to shape our employees the best I can by starting with verbal warnings and showing them myself the correct way to do things, if necessary. Then we go to written write-ups, which I try to avoid because we do like to retain our employees. Then we terminate if all else fails.

Fastest way into my doghouse: Being rude to our customers or other employees.

UNDER 30 How did you get into franchising at such a young age? I got into franchising when I was 27 because my family owns a property management company and we couldn’t find a reliable pool company. I said I could do it better (which I did) and looked into options. I ran across ASP when searching on Google. I decided franchising was a great move because it would guide me to success.

Was becoming a franchisee something you’d planned on? Not at the start. But when looking on the side of statistics, I found that franchising would be a better move.

What jobs, skills, and experience have helped you operate a franchise business? Business management and people skills were my best skills.

What kinds of obstacles did you face in franchising at such a young age? Getting people to respect you and know that you know what you are talking about. A lot of people will look down on you because of your age. Also, a lot will give you congrats on doing great things at your age, but then decide to go with someone else because they think someone else will have more experience.

How would you describe your generation? I think all generations are similar and every generation will say the new generation is lazy or don’t want to do anything. So I can’t really describe that well.

Do you see franchising as a stepping-stone or a career for you? I think it’s both. My ultimate goal is to sell my business, but it’s a career to me.

“I got into franchising when I was 27 because my family owns a property management company and we couldn’t find a reliable pool company. I said I could do it better (which I did) and looked into options... I decided franchising was a great move because it would guide me to success.”

BOTTOM LINE Annual revenue: $750,000 to $1 million.

2020 goals: $1.25 million.

Vision meter: Where do you want to be in 5 years? 10 years? I want to grow our business to $3 million in this location, expand into other locations in my territory, and get into building.

How is the economy in your region affecting you, your employees, your customers? Lake of the Ozarks, Missouri, is very seasonal. With over 80 percent of the homes being summer homes, it is greatly affected by time of year. Our population generally during winter is 4,000 to 5,000 and during summer it’s 300,000 to 500,000. Such a large jump dramatically affects us.

Are you experiencing economic growth in your market?

Definitely. We have a lot of development in our area and lots of new tourists because of TV shows and the growing popularity of our area.

How do changes in the economy affect the way you do business? It doesn’t really change it too much for us, other than renovations. If the pool is built the customer will want someone to take care of it regardless.

Experience with private equity, local banks, national banks, other institutions? Why/why not? Yes, we use our local bank for all of our loans. We trust them greatly, and they are always willing to help us.

What are you doing to take care of your employees? Making sure they are taken care of with medical and retirement. It is a struggle these days to get medical, and it is so important to us and our employees. Also our employees having a 401(k) is a big deal to them.

How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? We raise our costs as needed to make sure we take care of our employees and stay profitable.

What laws and regulations are affecting your business and how are you dealing with it? Missouri has very little to no regulations in our industry.

How do you reward/recognize top-performing employees?

We give them bonuses and handwritten notes thanking them.

What kind of exit strategy do you have in place? We plan to sell our franchise when the time is right. 1

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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 brands

RANK

1 2

COMPANY

UNITS

BRANDS

NPC INTERNATIONAL

1,599

PIZZA HUT, WENDY’S, KFC

FLYNN RESTAURANT GROUP

1,239

APPLEBEE’S, ARBY’S, TACO BELL, PANERA BREAD

3

CARROLS GROUP

1,093

BURGER KING, POPEYES LOUISIANA KITCHEN

4

SUN HOLDINGS

1,053

BURGER KING, POPEYES LOUISIANA KITCHEN, ARBY’S, CICIS, GOLDEN CORRAL, GNC, ARBY’S, KRISPY KREME, TACO BUENO, T-MOBILE, MCALISTER’S DELI, 3 AIRPORT

5

TARGET

946

PIZZA HUT

6

DHANANI GROUP

844

BURGER KING, POPEYES LOUISIANA KITCHEN, LA MADELEINE FRENCH BAKERY CAFÉ

7

KBP FOODS

789

KFC, TACO BELL, PIZZA HUT

8

769

PIZZA HUT, WENDY’S, TACO BELL

ARAMARK

628

CHICK-FIL-A, EINSTEIN BROS. BAGELS, SUBWAY, PANDA EXPRESS, OATH PIZZA, WHICH WICH, DUNKIN’, PAPA JOHN’S, PIZZA HUT, MOE’S SOUTHWEST GRILL, STEAK ‘N SHAKE, FRESHII, JAMBA, QDOBA MEXICAN EATS, TACO BELL, CHILI’S, TIM HORTONS, ERBERT & GERBERT’S, MCALISTER’S DELI, MOOYAH, QUAKER STEAK & LUBE, QUIZNOS, WENDY’S, CARIBOU COFFEE, KFC, PJ’S COFFEE OF NEW ORLEANS, BURGERFI, COSI, DUNN BROTHERS COFFEE, PANERA BREAD, THE EXTREME PITA, BEEF ‘O’ BRADY’S, DENNY’S, FIREHOUSE SUBS, IHOP, LA MADELEINE FRENCH BAKERY CAFÉ, NATHAN’S FAMOUS, PINKBERRY, THE COFFEE BEAN & TEA LEAF, WAHOO’S FISH TACO, WINGSTOP

10

PILOT TRAVEL CENTERS

620

SUBWAY, CINNABON, WENDY’S, DUNKIN’, ARBY’S, DQ TREAT, TACO BELL, MOE’S SOUTHWEST GRILL, PIZZA HUT, HOT STUFF PIZZA, KFC, CARVEL, IHOP

11

HEARTLAND AUTOMOTIVE SERVICE

532

JIFFY LUBE

9

44

such as business services (tax preparation), consumer services (automotive), and lodging. 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 2020.

MUY BRANDS

12

ARMY & AIR FORCE EXCHANGE SERVICES

529

SUBWAY, BURGER KING, CHARLEYS, POPEYES LOUISIANA KITCHEN, TACO BELL, ARBY’S, EINSTEIN BROS. BAGELS, QDOBA MEXICAN EATS, MANCHU WOK, BASKIN-ROBBINS, DUNKIN’, BLIMPIE, WING ZONE, PIZZA HUT, TACO JOHN’S, DENNY’S, SLIM CHICKENS

13

SPEEDWAY

497

DUNKIN’, SUBWAY, WENDY’S, BOJANGLES’

Multi-Unit Franchisee

ISSUE 1, 2020

MULTI-UNIT OWNERS NICK CROUCH & GLEN JOHNSON

YOU’LL VALUE ALL WE BRING TO THE TABLE. TropicalSmoothieFranchise.com | 770-629-9450

830+ CAFES FROM COAST-TO-COAST WITH OVER 120 OPENED IN 2019

$1,096,062 AVERAGE NET REVENUES FOR THE TOP 25% OF CAFES**

**Top 25% of Cafes. Based on calendar year for 2018, 52 of 142, or 37%, of the Cafes gained or surpassed this sales level. This information appears in Item 19 of our Franchise Disclosure Document. Your results may differ. There is no assurance that you will do as well.

This information is not intended as an offer to sell or the solicitation of an offer to buy a franchise. It is for information purposes only. The offering is by prospectus only. Currently, the following states regulate the offer and sale of franchises: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota (File No. F-4953), New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. If you are a resident of or want to locate a franchise in one of these states, we will not offer you a franchise unless and until we have complied with applicable pre-sale registration and disclosure requirements in your state. New York State Disclaimer: This advertisement is not an offering. An offering can only be made by prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law.

CALIFORNIA DISCLAIMER: THESE FRANCHISES HAVE BEEN REGISTERED UNDER THE FRANCHISE INVESTMENT LAW OF THE STATE OF CALIFORNIA. SUCH REGISTRATION DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION OR ENDORSEMENT BY THE COMMISSIONER OF CORPORATIONS NOR A FINDING BY THE COMMISSIONER THAT THE INFORMATION PROVIDED HEREIN IS TRUE, COMPLETE AND NOT MISLEADING. ©2020 Tropical Smoothie Cafe, LLC. Tropical Smoothie Cafe, LLC 1117 Perimeter Center West, Suite W200, Atlanta, GA 30338.

8 CONSECUTIVE YEARS OF POSITIVE SAME-STORE SALES TOTALING MORE THAN 53%

2020 MEGA 99 RANKINGS

RANK

BRANDS

14

LOVE’S TRAVEL STOPS & COUNTRY STORES

478

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

15

MANNA

425

WENDY’S, CHILI’S, FAZOLI’S, GOLDEN CORRAL, BLAZE PIZZA

16

GPS HOSPITALITY

411

BURGER KING, POPEYES LOUISIANA KITCHEN

17

AMPEX BRANDS

409

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

18

HARMAN MANAGEMENT

393

KFC, A&W, LONG JOHN SILVER’S

19

SUMMIT RESTAURANT GROUP

388

IHOP, APPLEBEE’S

20

ROTTINGHAUS

382

SUBWAY

21

SIZZLING PLATTER

357

LITTLE CAESARS, SIZZLER, WINGSTOP, DUNKIN’, BASKINROBBINS, RED ROBIN

22

BODDIE-NOELL ENTERPRISES

345

HARDEE’S

23

JIB MANAGEMENT

343

JACK IN THE BOX, DENNY’S, TGI FRIDAYS, SIZZLER, EL POLLO LOCO, CORNER BAKERY CAFE

24

MERITAGE HOSPITALITY GROUP

318

WENDY’S

25

K-MAC ENTERPRISES

301

TACO BELL, KFC

25 27

301

COVELLI ENTERPRISES SOUTHERN CALIFORNIA PIZZA

PANERA BREAD, DQ GRILL & CHILL, DQ TREAT

299

PIZZA HUT

28

COMPASS GROUP USA

295

EINSTEIN BROS. BAGELS, SUBWAY, BLIMPIE, PAPA JOHN’S, PANDA EXPRESS, DUNKIN’, MOE’S SOUTHWEST GRILL, PIZZA HUT, JAMBA, SALSARITA’S FRESH MEXICAN GRILL, SMASHBURGER, STEAK ‘N SHAKE, TACO BELL, CARIBOU COFFEE, PJ’S COFFEE OF NEW ORLEANS, WENDY’S, WHICH WICH, QUIZNOS, TIM HORTONS, BURGER KING, CHILI’S, ERBERT & GERBERT’S, FRESHII, ILLY, MARCO’S PIZZA, NATHAN’S FAMOUS, SBARRO, BASKIN-ROBBINS, BEN & JERRY’S, BOJANGLES’, CALIFORNIA TORTILLA, DENNY’S, FREDDY’S FROZEN CUSTARD & STEAKBURGERS, IHOP, JASON’S DELI, JOHNNY ROCKETS, KFC, PITA PIT, PLANET SMOOTHIE, POPEYES LOUISIANA KITCHEN, SLIM CHICKENS

29

TACALA /BOOM FOODS

294

TACO BELL

30

PACIFIC BELLS

291

TACO BELL, KFC, BUFFALO WILD WINGS

31

MASON-HARRISON-RATLIFF ENTERPRISES

286

SONIC DRIVE-IN

283

POPEYES LOUISIANA KITCHEN, GODFATHER’S PIZZA, SUBWAY, TACO BELL, BURGER KING, DUNKIN’, ARBY’S, FAZOLI’S, A&W, FUDDRUCKERS, WENDY’S, BLACK BEAR DINER, CHARLEYS PHILLY STEAKS, BASKIN-ROBBINS, CARL’S JR., CHESTER’S, DQ GRILL & CHILL, HOT STUFF PIZZA, SUPER 8 BY WYNDHAM, TACOTIME

32

46

UNITS

COMPANY

TA OPERATING

Multi-Unit Franchisee

ISSUE 1, 2020

RANKING THE COUNTRY’S LARGEST MULTI-UNIT FRANCHISEE BY UNIT COUNT

RANK

COMPANY

UNITS

BRANDS

33

SODEXO

281

EINSTEIN BROS. BAGELS, CHICK-FIL-A, PIZZA HUT, DUNKIN’, JAMBA, ERBERT & GERBERT’S, QDOBA MEXICAN EATS, TACO BELL, PAPA JOHN’S, STEAK ‘N SHAKE, BURGER KING, BAJA FRESH, HOT STUFF PIZZA, COSI, GODFATHER’S PIZZA, SMOOTHIE KING, THE HABIT BURGER GRILL, TIM HORTONS, DENNY’S, MOOYAH, QUIZNOS, SBARRO, WHICH WICH, SUBWAY, MOE’S SOUTHWEST GRILL, MCALISTER’S DELI, BASKIN-ROBBINS, BLAZE PIZZA, DQ TREAT, PANERA BREAD, TIM HORTONS, GARBANZO MEDITERRANEAN FRESH, CARIBOU COFFEE, CHESTER’S, THE COFFEE BEAN & TEA LEAF

34

RPM PIZZA

280

DOMINO’S PIZZA

35

36 37

38

G&M OIL COMPANY CAFUA MANAGEMENT DESERT DE ORO FOODS EYM GROUP

278 271

265 261

CHEVRON, EXTRAMILE, TEXACO DUNKIN’, BASKIN-ROBBINS TACO BELL, PIZZA HUT PIZZA HUT, BURGER KING, DENNY’S

38

ADF COMPANIES

261

PIZZA HUT, PANERA BREAD

40

CIRCLE K STORES

249

SUBWAY, BLIMPIE, HOT STUFF PIZZA, CHURCH’S CHICKEN, HARDEE’S, DQ TREAT, DQ GRILL & CHILL, HUDDLE HOUSE, NOBLE ROMAN’S, CHEVRON, TEXACO

41

MITRA QSR

247

KFC, TACO BELL

42

FUGATE ENTERPRISES

244

PIZZA HUT, TACO BELL

42

HMS HOST

244

BURGER KING, SBARRO, POPEYES LOUISIANA KITCHEN, QUIZNOS, CHILI’S, ROY ROGERS, NATHAN’S FAMOUS, PIZZA HUT, CHICK-FIL-A, FAMOUS FAMIGLIA PIZZERIA, GREAT STEAK, SMASHBURGER, MANCHU WOK, PANDA EXPRESS, JOHNNY ROCKETS, LA MADELEINE FRENCH BAKERY CAFÉ, PINKBERRY, A&W, BLAZE PIZZA, BLIMPIE, BURGERFI, CARL’S JR., EINSTEIN BROS. BAGELS, FIREHOUSE SUBS, GODFATHER’S PIZZA, THE COFFEE BEAN & TEA LEAF, THE COUNTER, UNA MAS MEXICAN GRILL, BAJA FRESH, BURGER 21, KELLY’S CAJUN GRILL, PACIUGO GELATO & CAFFÈ, YEUNG’S LOTUS EXPRESS

44

D L ROGERS

236

SONIC DRIVE-IN

45 45

FOURTEEN FOODS JAE RESTAURANT GROUP

218

DQ GRILL & CHILL, DQ TREAT

218

WENDY’S

47

APPLE HOSPITALITY REIT

214

HILTON GARDEN INN, COURTYARD BY MARRIOTT, HAMPTON INN BY HILTON, HOMEWOOD SUITES BY HILTON, RESIDENCE INN BY MARRIOTT, SPRINGHILL SUITES BY MARRIOTT, FAIRFIELD BY MARRIOTT, TOWNEPLACE SUITES BY MARRIOTT, HOME2 SUITES BY HILTON, EMBASSY SUITES BY HILTON, MARRIOTT HOTELS

48

QUALITY DINING

212

BURGER KING, CHILI’S

Multi-Unit Franchisee

ISSUE 1, 2020

47

2020 MEGA 99 RANKINGS

RANK

COMPANY

UNITS

48

PALO ALTO

212

50 51

52

53

54 54 56 57

58

198

QUALITY HUTS MIDWEST

197

COTTI FOODS

195

FALCON HOLDINGS

186

BORDER FOODS NORTHWEST RESTAURANTS

186 179

FRESH ALTERNATIVES

176

MARWAHA GROUP

173

STARBOARD GROUP

TACO BELL, PIZZA HUT TACO BELL, LONG JOHN SILVER’S, KFC, A&W PIZZA HUT WENDY’S, TACO BELL, PIEOLOGY PIZZERIA CHURCH’S CHICKEN, LONG JOHN SILVER’S TACO BELL, CHURCH’S CHICKEN TACO BELL, KFC, A&W, PIZZA HUT, LONG JOHN SILVER’S SUBWAY SUBWAY WENDY’S

59

SUNDANCE

171

TACO BELL, KFC, PIZZA HUT

60

CELEBRATION RESTAURANT GROUP

170

PIZZA HUT, TACO BELL, KFC

61

BRIAD RESTAURANT GROUP

165

WENDY’S, TGI FRIDAYS

62

63 63 65

66

161

PJ UNITED

159

JRN

159

MERRITT GROUP SONIC

158

GHAI MANAGEMENT

157

HAMRA ENTERPRISES

PAPA JOHN’S KFC, PIZZA HUT SONIC DRIVE-IN BURGER KING, TACO BELL WENDY’S, PANERA BREAD, NOODLES & COMPANY

66

PACPIZZA

157

PIZZA HUT

68

BURGERBUSTERS

153

TACO BELL, PIZZA HUT, STEAK ‘N SHAKE, KFC, LONG JOHN SILVER’S

69

WENDPARTNERS FRANCHISE GROUP

152

WENDY’S

70

CARLISLE

151

WENDY’S

71

CALIFORNIA FOOD MANAGEMENT

145

BURGER KING

72

DOHERTY ENTERPRISES

142

APPLEBEE’S, PANERA BREAD, NOODLES & COMPANY

72 74 74

76 76 48

209

CHARTER FOODS

BRANDS

WING FINANCIAL SERVICES

140

HENLEY ENTERPRISES SUMMIT RESTAURANT GROUP PREMIER KINGS B & G FOOD ENTERPRISES Multi-Unit Franchisee

142

140

139 139 ISSUE 1, 2020

JACKSON HEWITT TAX SERVICE VALVOLINE INSTANT OIL CHANGE PIZZA HUT, LONG JOHN SILVER’S BURGER KING TACO BELL, KFC

AWARD-WINNING BURRITO FRANCHISE 2019 BEST WITH A TWIST FAST CASUAL VOTED

Innovative and crave-enducing creations Food made in small batches Unexpected and bold flavors from around the world Best ingredients available

RESTAURANT

IN WASHINGTON, DC by readers of Washington City Paper

Proven Concept

AUV

$1,023,268

Strong Corporate Culture

Number of Restaurants Greater than Average

37%

Customer Service Oriented

Highest Annual Gross Revenue

$2,266,638

Eco Friendly FOR MORE INFORMATION, CONTACT

Aaron Goldberg, Director of Development aaron.goldberg@californiatortilla.com | 301.545.0035 Ext. 105 franchise.californiatortilla.com *These figures represent the financial performance of the 27 franchised California Tortilla restaurants in operation for at least 12 months, as of December 31, 2018, as published in Item 19 of our 2019 Franchise Disclosure Document (“FDD�). [These franchised restaurants had an average annual gross revenue of $1,023,268 with 10 restaurants (or 37%) exceeding the average.] The median annual gross revenue of these restaurants was $826,025, and the lowest annual gross revenue was $534,384. You should review Item 19 of our FDD for additional information and details about these figures. Some outlets have sold this amount. Your individual results may differ. There is no assurance you will sell as much. This advertisement does not constitute a franchise offering or an offer to sell a franchise. It is for information purposes only. A franchise offering can be made by us only in a state if we are first registered, excluded, exempted or otherwise qualified to offer franchises in that state, and only if we provide you with an appropriate franchise disclosure document. Please contact the California Tortilla Group, Inc., located at 7825 Tuckerman Ln., Ste. 214, Potomac, MD 20854, to request a copy of our FDD.

2020 MEGA 99 RANKINGS

RANK

UNITS

COMPANY

BRANDS

78

WKS RESTAURANT GROUP

138

EL POLLO LOCO, WENDY’S, KRISPY KREME, DENNY’S

79

CAMBRIDGE FRANCHISE HOLDINGS

137

BURGER KING

79

METRO FRANCHISING COMMISSARY

137

DUNKIN’, BASKIN-ROBBINS, NATHAN’S FAMOUS

81

ALVARADO CONCEPTS

136

TACO BELL, KFC

81 81 81

HALLRICH (THE INNER CRUST)

136 136

TOMS KING AMERICAN PIZZA PARTNERS

136

PIZZA HUT BURGER KING PIZZA HUT

85

RMH FRANCHISE

135

APPLEBEE’S

86

MANNA DEVELOPMENT GROUP

134

PANERA BREAD

87

BAJCO

133

PAPA JOHN’S

88 89

90 90 92 92

94

95 95

131

DMSD FOODS

130

HAZA FOODS

126

LUIHN FOOD SYSTEM

126

AFC BRANDS

125

STARCORP

125

ADT

123

SSCP MANAGEMENT

121

BLD BRANDS (SERAZEN)

121

FOUR FOODS GROUP

JACK IN THE BOX WENDY’S TACO BELL, KFC, PIZZA HUT TACO BELL, APPLEBEE’S HARDEE’S, CARL’S JR. PIZZA HUT APPLEBEE’S, SONIC DRIVE-IN PAPA JOHN’S, HARDEE’S LITTLE CAESARS, KNEADERS BAKERY

97

NGP MANAGEMENT

120

DUNKIN’

98

MARLU INVESTMENT GROUP

119

ARBY’S, LITTLE CAESARS, CHURCH’S CHICKEN, JACK IN THE BOX

98

HOOGLAND FOODS

119

MARCO’S PIZZA

98

CAVE ENTERPRISES OPERATIONS

119

BURGER KING

98

HK ENTERPRISES

119

SUPERCUTS

99

DORO

118

HARDEE’S, TACO JOHN’S, HOLIDAY INN SOURCE: FRANdata, Franchise Update Media

50

Multi-Unit Franchisee

ISSUE 1, 2020

My day job is in wealth management. I always look for the strongest ROI, and with a one-price, same-day model and a $1.1M AUV* – ZIPS Dry Cleaners was it.

ZIPS IS A TOTAL DISRUPTOR and it was something I had to be part of.

TIFFANY HAWKINS

Multi-Unit and Multi-Concept Franchisee

DISCOVER.321ZIPS.COM 240-437-4752 *Refer to 2018 ZIPS FDD for details

18 MILLION EGGS A YEAR... & WE STILL GO HOME AT 3PM EVERY DAY!

FULL-SERVICE BREAKFAST & LUNCH 9-HOUR OPERATING DAY: 6AM - 3PM $1.96 MILLION AVERAGE AUV*

*2019 FDD, ITEM 19, AVERAGE OF ALL UNITS OPEN FULL CALENDAR YEAR 2018

STRONG SALES-TO-CAP RATIOS FLEXIBLE REAL ESTATE OPTIONS END CAPS AND CONVERSIONS/SECOND GEN

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GIVE AND TAKE Tips on site selection and lease negotiation

Written By HELEN BOND

Identifying specific issues early in the process can provide powerful leverage to help establish and sustain a franchisee’s success. The courtship of landlord and tenant is critical to defining the relationship. “You want to seem attractive as a prospective tenant and the landlord wants to sell you on inline, ‘behind’ space at the same price as a hard corner,” says Philips.

Consider the following advice and best practices to pave the way, before you get to the table.

LOCATION ALWAYS MATTERS When Bryce Bares opened Nebraska’s fi rst Dunkin’ Donuts in 2013, the real estate market was still reeling from the recession. “It was defi nitely a buyer’s market, and we were able to acquire some great locations for good prices,” he remembers. “Now we’re facing the reverse situation: it is very difficult to find prime locations for a good price.”

For Bares, who operates 12 Dunkin’ stores in Nebraska and Kansas, convenience and accessibility for his customers still top his must-have list when shopping for a new location.

“The challenge is that all of our competitors are looking for the same thing, so we end up competing for prime locations, which also drives costs up,” says Bares, who practiced real estate and employment law before turning to franchising.

Fundamentally, locations should meet all the franchisor’s site evaluation

Bryce Bares

“The number-one mistake I’ve seen franchisees make is to be lured to bad locations by a low price,” says Bares.

BE FLEXIBLE, BUT FIRM Most leases are negotiable.

“Right now, the market is great and you are going to get a lot more from a landlord today than you would have 10 years ago,” says Wireless Zone multiunit franchisee Christopher Severo.

“But as a franchisee who is focused on the bottom line, rent is very important.

Not overpaying is very important.”

With 46 Wireless Zone stores in six Northeastern states, Severo is wellversed in the art of negotiation. The Stamford, Connecticut-based franchisee enters every lease negotiation with a framework for a flat-rate agreement, options, no guarantee, six months of free rent, and TI money to build out the space. If Severo can’t get that, he looks to lock in a 10-year lease.

Mike Philip

“Interest rates have rema ined favorable for new development, and demand for new space has continued to grow,” says multi-brand franchisee Mike Philip, whose portfolio includes Tropical Smoothie Cafe and Einstein Bros. Bagels. “But inflated property values and the higher costs of building, site improvements, and TI have increased significantly with no signs of slowing.”

criteria. Use that information as a starting point and don’t settle on a location for the wrong reasons.

“Go in with a structure in mind, but you have to be flexible,” he says. “If you are going to grow to a multi-unit level, you will deal with all different sizes and types of landlords. If you think you are going to get everything you want every time, you are going to lose a lot of deals. I’ve learned that through trial and error.”

DO YOUR HOMEWORK Before you go to the bargaining table, do your homework. Ask up front what the landlord’s objectives are to learn what may drive the economics of the deal, suggests Bares. Are they a long-term holder or a developer?

Greg Vojnovic

W

hether you’re sealing the deal for your first franchise unit or are ready to re-up, location and lease negotiations remain a constant for franchise growth and longevity—whether it’s a buyer’s or seller’s market. Either way these days, the cost of doing business is going up.

For example, he says, if a landlord is planning on fl ipping the building to an investor, you know they are looking for high base rent because their property value is based on the rental stream. In that situation, you may be able to negotiate higher up-front tenant improvement contributions.

“Alternatively, if the owner is a longterm holder, they may be willing to accept a lower rent for a longer-term commitment perspective.”

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Lease Negotiations It is also helpful to know early on whether the landlord is so one-sided that they aren’t willing to negotiate on items critical to the franchisee, says Bares. “I don’t like wasting time negotiating with landlords who have unrealistic expectations about the economics.”

Negotiations are about building a relationship with the landlord or their representative. The most successful strategy creates a win-win scenario for both parties.

Understanding the landlord’s thinking can go a long way toward helping franchisees structure a winning agreement and avoid needless concessions, says franchise development veteran Greg Vojnovic.

“The landlord is not your enemy,” says Vojnovic, president and CEO of Vickery Creek. Formerly chief development officer for Inspire Brands, he has opened more than 2,000 restaurants and remodeled thousands more. “Try to get to know them,” he says. “Find out their goals and what they are trying to do with the property. This information will enable you to determine your objective. If it’s a big winner for you, tie it up for as long as you can. Rich people don’t get rich by saying okay.”

Finally, never talk proposal terms on the phone, says Vojnovic.

Face to face is best for negotiating a deal that works for both parties. “You are never as smart as you think you are,” he says.

“You have to be authentic and have credibility. You don’t want to walk from a deal point.”

DON’T SWEAT THE SMALL STUFF Philip says too often franchisees—under pressure and armed with a franchisor’s laundry list of requirements—get bogged down in the minutiae. “To get the deal done, worry about the big things,” he recommends. “How much am I going to pay? What are my renewals? Will there be a personal guarantee and does it burn off? And then, what is the turnover condition of the shell?

Don’t make it harder than what it is.”

Make a checklist of brick-and-mortar needs for the space. Look for hidden expenses. Careless lease negotiation mistakes can hurt you down the road.

“I have done that in the past where we have assumed incorrectly about maintenance on AC units, only to find that we didn’t budget, thinking the landlord was responsible for the roof unit outside our four walls,” says Philip. “We have eaten that cost.”

He now considers a clear work/shell condition letter part of every negotiation process that defines the condition of the space down to the size of the water line, utility locations, and dumpster responsibility.

Lease negotiations are also about give and take. It is vital to know your market and what concessions you can—or cannot—make without putting your business in jeopardy.

“Too many times a franchisor will provide a guideline that will chase any landlord away,” says Philip. “So compromise , put it in black-and-white, and attach it to the lease as a rider/exhibit.”

Sometimes it pays to practice patience. Severo has walked away from the table when talks have stalled with no middle or common ground, only to have the landlord reach out later to get

54

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the deal done. “Those have been incredible learning experiences,” he says. “You are going to get the best deal when you are willing to walk away. When you approach it that way, you might lose some deals, but today you are going to get more than you lose, and that piece is huge.”

RENEWAL: PLEASE RE-LEASE ME Many franchisees are missing out on a huge opportunity to enhance their position through lease renegotiation, says Vojnovic.

He recommends franchisees approach lease renewal as an entirely separate process and put resources behind it. He suggests using a spreadsheet to keep track and regularly update the base rent-tosales ratio for each location and have that information available to educate your landlord.

“When you renegotiate your lease after a period of time or when you buy, that is where the real money is. I call it dialing for dollars,” says Vojnovic. “Based on your size, there could be millions of dollars. But it’s not just about the money. It’s also about key components within the lease that you want to negotiate that are important to your business.”

Common requests include defined and fair rent/lease rates, tenant improvement packages, new base years for common area maintenance calculations, a burn-off of any personal guarantee, and other fee adjustments and operating expense caps.

Lease renewals are an organized part of Severo’s business strategy. He keeps all of his lease files in one place with calendar notices to give him plenty of time to start thinking about his approach. “You don’t want to miss those dates and have less leverage,” he says.

Generally, most retail lease agreements are up for renewal six months to one year before expiration and require the franchise owner to exercise the right to renew. Other opportunities to enhance your position include at the end of the initial term of a lease, before you negotiate options, when there are changes in the market, and before you remodel. You can also add value to your business by re-upping before you plan to sell.

“Renegotiating is one of those things that people don’t think about because it’s already done, and they just kind of go with it,” says Vojnovic. “Every time you get a chance, take another bite at the apple. You don’t just have to sign the contract.”

GREAT CONFERENCES are what we do best

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FRANCHISE MARKETING LEADERSHIP CONFERENCE www.franchisemarketingconference.com Intercontinental Buckhead in Atlanta, GA June 16–18, 2020

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Lease Negotiations MAKE YOUR PRESENCE KNOWN To secure prime spots and smooth lease negotiations, time on the ground locally can carry a lot of weight. To get the jump on a space, Philip makes sure he is a familiar face in every town he operates in—beginning with developing relationships with those in the know. He makes sure his Tropical Smoothie and Einstein Bros. brands are plugged into the local chamber of commerce, charity events, and area churches and schools for brand recognition.

“Find out where your local real estate board is meeting and sponsor breakfast. Talk to the Realtors and tell them who you are, what you need in a space, and the broker you work with so they can take new sites to that person fi rst,” he says. “We take bagels, coffee, and smoothies to real estate board meetings all the time. They know me, I know them, and I don’t want them to forget about me.”

Introduce yourself to local Realtors and tell them what you need in a space so they will think of you first with new sites.

GET PROFESSIONAL HELP Just because you are an excellent operator doesn’t mean you are a good negotiator.

Look to legal counsel and reliable real estate advisors where you need it, and have an attorney review your lease to protect your interest. Franchisees recommend choosing one or two trusted local brokers and using them for everything.

“Don’t bounce around,” Philip says. “They need a commission, and you need someone who will look out for you and work for you.

Use your franchisor as wise counsel, but no one knows your market like you and your local trusted broker.” 1

KNOWLEDGE IS POWER

When it comes to finding the right location for your business, franchise pros say that knowledge is power. And to gain that knowledge, any search begins with good old-fashioned footwork to identify the right—and wrong—types of locations for your business.

As the largest Verizon franchisor in the U.S., Wireless Zone’s intel is paramount to the success of Christopher Severo, whose 46 stores stretch from Pennsylvania to Massachusetts. “If Verizon has growth in the market or there is an underperforming store, the franchisor’s communication with me is ‘Hey, go find a great spot in this market’; or, more importantly, they may already have a spot in mind. I’m just picking up the conversation with the landlord,” he says.

Know your brand. Know your market. And get to know the folks who can help drive the site selection process.

Negotiating from a place of strength requires a franchisee to understand the local market based on what they are selling and the habits of their customers. Although the depth of their support varies, most franchisors will provide guidance on the type and size of ideal locations and may be able to provide real estate analytics and other location data based on the experiences of other franchisees in the system.

Depending on your business model, criteria often include demographics, the target customer, traffic count, parking needs, and the visibility and accessibility to the area from primary and secondary roads. A traffic nightmare can be a deal breaker for customers who only care about visiting your restaurant or retail location if it’s convenient.

Franchisees also recommend talking real estate with existing owners.

Find out how and why they chose their location and seek their advice for your own success.

Scout out the competition. With some restaurant and retail businesses it helps to keep good company. Other businesses may look to avoid the competition and oversaturation.

REMEMBER THE ECONOMICS Finding a location is just part of what goes into your search. The economics of a perfect spot must also be considered as part of the real estate package. What seems like a good deal won’t mean much if you don’t have any customers or it doesn’t meet your needs. On the flip side, if your franchisor offers more flexibility, there may be more than one creative way to afford a prime spot.

“In my world, I can make it work in different markets,” says Severo. “I could go to a market where the rent is a higher cost per square foot, but then my negotiation is to go to the landlord and say, ‘I don’t need 3,000 square feet, get me 1,500 square feet. How do I make that deal work? In today’s market, the landlord is looking to make deals.”

Real estate brokers with a strong local presence can also be a go-to source for the inside scoop on locations, future site availability, development insight, and leasing rate advice based on the market.

Finally, franchise tenants offer massive marketing appeal for those looking to attract top tenants. Educate a prospective landlord on the value and name recognition of your proven brand for added leverage. It just might be the competitive edge that lands you the perfect spot for your next location. 1

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FRANCHISE ONLY REAL ESTATE IS

CALL US AND ASK HOW

IF YOU HAVE A PERFECT REAL ESTATE PROCESS, NO NEED TO CALL.

#DisruptionIsNotForEveryone

TY BREWSTER | ANDREW LAPORTE | 602.9.KEYSER

Capital Won

How to get the funds you need Written By SARA WYKES

A

Dawn LaFreeda

Richard Pawlowski

fter decades involved in franchise fi nance from both sides of the desk, Rich Pawlowski knows there is no silver bullet for franchisees in search of capital. However, he does have a tried-and-true process of raising debt that he calls the “Six P’s,” and they make a handy list: preparation, planning, practice, pragmatism, perseverance, and patience.

“Whether it is your first or your 500th franchise or location, the underlying principles and approach broadly remain the same,” Pawlowski says, “although you might be speaking to different financiers, focused on different terms, and have access to different lending products.”

Pawlowski is now chief financial officer at Yadav Enterprises, which has a portfolio of more than 400 franchised restaurants representing seven brands. The company is one of the largest U.S. franchisees of Jack in the Box and Denny’s.

Dawn LaFreeda, another Denny’s franchisee, has 87 locations and an even longer history in franchising. She also has learned to refine her preparation before she goes in search of financing.

When she started out, however, it was not easy. “I was not able to negotiate my terms as I was learning to build credit and I was more of a risk,” she says.

Mitch Cohen remembers his early days as a Baskin-Robbins and Dunkin’ Donuts franchisee in the 1980s. “When you start out, you have only profit-and-loss projections,” he says. What can make the difference to prospective lenders is choosing a brand they will see as investment-worthy. He asks, “What does its category look like? Is it emerging? Is it a brand in a crowded category?

How successful have its franchisees been? How long do those franchisees stick with the brand?”

Mitch Cohen

BE PREPARED Then, says Pawlowski, comes the next step. “Preparing an effective pitch is going to be about 80 percent homework and about 20 percent execution. The factual documents alone—articles of organization, W-9s, leases, franchise agreements, etc.—won’t be what get you financed. They just need to be there and well-organized,” he says. “Understanding who you are, who you’re pitching, and how to refine your presentation and business plan is going be key to being successful in securing debt.”

Certain questions around your comfort with debt are important to answer, says Pawlowski, particularly in the early growth stage. “Are you comfortable signing a personal guarantee—and potentially having your significant other sign, too? If you are able to spend a little time thinking through issues like this, it will help you refine your approach.”

CHOOSE CAREFULLY Choosing the right lender is at least as influential in obtaining the capital you need, on the terms you can afford, as any other aspect of the process. LaFreeda has learned to focus her gaze on the ultimate purpose of the financing she seeks. “The first thing I do,” she says, “is determine which lender might be the best fit for the type of transaction I am doing—a new development, an existing location, a remodel, a conversion, or equipment upgrade.”

In her years of experience, she has developed a handful of preferred lenders that she keeps updated with information about her company so she can expedite financing approvals. If she considers

If you have no track record, knowing as much as possible about the brand becomes even more important when money is tight.

Cohen says lenders today are investing not just in individuals, but in brands. And that combination begins as a franchisee investigates who they want to be, he says.

“A lot of times you’re more interested in what the franchise brand concept is and how much time do you have to put in, how much work it is. I would suggest you ask, ‘How can I finance that? How do I make the numbers work?’” he says. “I ask franchisee candidates to spend a day with veteran franchisees—and to consider if the money is going to be affordable, if it will make all your hard work pay off.”

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59

Finance & Capital than national banks or non-bank lenders, and you should explore this channel,” he says. “They might be willing to stretch a little further to help a local operator, even if they have limited experience in lending to your specific system.”

While there are many other options, Pawlowski advises franchisees to be realistic about what those options might offer.

“There are programs intended for fi rst-timers—for example, SBA fi nancing—but the criteria are quite stringent,” he says.

“Understand the advantages and disadvantages of SBA financing and decide if you can live with the criteria. Also explore nonbank, non-traditional lenders and non-traditional sources of financing, like the immigrant investor program EB-5. But again, make sure you clearly understand the pros and cons of their lending products as well.”

new lenders, she gets references, making sure to find out how it is to work with them and the timeliness of their transactions.

In turn, she says, “I am up front about the lending terms I need.

After 35 years in business, I am particular about the deal points, and it is important to me to not be locked into terms that may handcuff or restrict my ability to do other things, other transactions, use other lenders, or release collateral.”

She has built relationships with lenders that have allowed her to have a line of credit she can access “on the spot, so I am able to act and fund a deal quickly.” That works when times are good, she says, but when they’re not—during the 2008 financial crisis, for example—she found that even with her background of success, “I had to pull out everything I had to sell myself to them that I was a good credit risk in very bad times.”

And from her side of the desk, LaFreeda makes sure to be prepared and ready to capitalize on new opportunities. “I always make sure to supply the information lenders request in a timely, professional, and organized fashion,” she says.

MORE CAPITAL IDEAS Pawlowski suggests a good source of ideas for approachable lenders can come from the franchisor. He also believes that a broader view of the lending landscape is useful. “It is important to understand and evaluate potential lending partners before you approach them. Different lenders focus on different industries and franchise systems, lending products, transaction sizes, geographies, lending criteria, and borrowers. It would be worthwhile to create a prioritized short list that marries up what you bring with what they offer.”

In general, he says, “Approaching lenders who have strong alignment with what you bring should ultimately result in a more successful outcome. In addition, the right lender can be, possibly should be, thought of as much more than just a source of capital.

Try to leverage them for more than just their money.”

That broader view might also include a lender close to home.

“Local community banks might have a slightly different mandate

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ISSUE 1, 2020

PAPERWORK: NEATNESS COUNTS Once that key homework (aka due diligence) on brands and lenders is complete, Cohen recommends making sure that certain financial documents are clean, particularly if a franchisee has been in business for some time. “We’re all in business to make money and want to be able to write certain things off,” he says. “But sometimes you get ahead of yourself and you’ve included too many expenses inside your balance sheet, so you have lot of explaining to do. You don’t want to have a large entertainment budget, for instance. Overall, you want to make sure that your income-todebt ratio makes sense so someone would want to invest in you.”

Showing, not just telling, lenders how the payback will play out can be most persuasive. “Your business plan should be robust, thoughtful, rational, and polished,” Pawlowski says, “and your supporting documents need to be well-organized. Lenders generally care more about how they are going to get their money back in the downside case, as they do not often share in any outsized upside. Your business plan should balance your optimism with a pragmatic view of what happens if it works out differently. The list of backup documents will likely surprise you, particularly the first time.”

And, as LaFreeda has found in her practice of being fully prepared well in advance, Pawlowski says, “It is worth putting these in one place as you’ll need them regularly throughout the process.”

Finally, he adds, by way of encouragement, “It gets easier with practice. You are going to speak to more than one lender and each interaction is an opportunity to learn, refine your presentation, and start building a relationship.” He also likes to cite a classic Rolling Stones song lyric. With preparation, planning, practice, and pragmatism, he says, “You can’t always get what you want, but if you try sometime, you’ll find you get what you need.” 1

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Customer Service

Building Relationships Digital intelligence up, emotional intelligence down

Written By JOHN R. DIJULIUS III

“Investing in technology without investment in your people is a waste of time.”

A

—Roger Simpson

s a result of the digital revolution, many members of the younger generations lack the necessary people skills of previous generations. Yet they are now leading start-ups that have developed quickly into leading companies. This will only accelerate the growing number of relationship-disadvantaged businesses.

In a TED Talk, hospitality entrepreneur Chip Conley addressed this phenomenon: “I believe, looking at the modern workplace, that the trade agreement of our time is opening up these intergenerational pipelines of wisdom so that we can all learn from each other. Almost 40 percent of us in the United States have a boss who is younger than us, and that number is growing quickly. Power is cascading to the young like never before because of our increasing reliance on DQ: digital intelligence. We are seeing young founders of companies in their early 20s scale them up to global giants by the time they get to 30, and yet, we expect these young digital leaders to somehow miraculously embody the relationship wisdoms we older workers have had decades to learn. It’s hard to microwave your emotional intelligence.”

7 TRAITS FOR EFFECTIVE INTERACTIONS So where to begin? You can start by looking for employees predisposed toward a high level of customer service. Consider, for example, these seven key traits that lead to effective interactions. Each of these should be incorporated into the soft training of your new and existing employees.

Compassion and empathy. Compassion is the ability to feel for another living being, which results in a desire to help. Having

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strong empathy for a customer’s situation means seeing and understanding it from their perspective—walking in their shoes.

Engagement and warmth. An employee with these traits is obviously happy in what they do and welcoming to the person they are doing it for. They seek eye contact, smile, and immediately put customers at ease by being friendly, cheerful, and caring.

A drive to serve. The employee is purposeful about focusing on the experience of the person they are serving above anything else.

Ownership. Ownership implies acting with the same care and thoughtfulness as an owner of the company, and doing whatever it takes to ensure that customers leave happy with their experience.

Charitable assumption. It’s important to act as if no customer has bad intentions.

After all, you do not want to punish 98 percent of your customers for what you are afraid the remaining 2 percent might do.

Presence. Effective employees cannot work on autopilot. Instead they are always fully in the moment, focused 100 percent on the person they are interacting with.

The desire to exceed expectations.

Those with a drive to go above and beyond are constantly looking for ways to surprise and delight customers.

THE RELATIONSHIP ECONOMY These 3 strategic tips will help your business dominate in today’s relationship economy: 1. Use technology to perform basic tasks or to provide alternative convenience for customers, enabling employees to focus on what is most important: building relationships that result in higher customer loyalty, retention, lifetime value, and job satisfaction.

ISSUE 1, 2020

2. Build a culture that creates emotional connections with your employees.

3. Incorporate relationship-building training for new and existing employees.

THE FUTURE OF CUSTOMER EXPERIENCE Being able to build true sustainable relationships is the biggest competitive advantage in a world where automation, artificial intelligence, and machine learning are eliminating millions of jobs and disrupting entire industries, businesses, and careers. In the digital revolution, human interaction, compassion, empathy, and communication skills become a premium advantage.

With the increase in the digitization and automation of customer interactions, your employees must be focusing on building relationships with customers. The most memorable customer experiences are the ones where an emotional connection was made, where both customer and employee felt something.

We are all social creatures and innately need relationships. The businesses that work at knowing their client as a person— with a family, concerns, and dreams—will be the ones who dominate their industries.

This column is taken from John’s newest book The Relationship Economy, Building Stronger Customer Connections in the Digital Age. 1 John R. DiJulius III, author of The Customer Service Revolution, is president of The DiJulius Group, a customer service consulting firm that works with companies including Starbucks, Chick-fil-A, Ritz-Carlton, Nestle, PwC, Lexus, and many more. Contact him at 216-839-1430 or info@thedijuliusgroup.com.

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29 6–7

People

More Than Money

3 ways to retain the modern hourly worker

Written By MATHIEU STEVENSON

T

he rise of the gig economy and recruitment platforms is changing the way businesses recruit and retain talent. Because of that, it’s becoming increasingly easier to find qualified candidates, hire individuals, and fill shifts.

But this on-demand economy doesn’t mean that your employees are content to stay at jobs where they’re seemingly satisfied, or that businesses are best served by treating hourly workers as replaceable resources. Rather, as an industry we must be looking to improve the employee experience, create a better workplace, and keep these qualified individuals on the job.

In our 2019 State of the Hourly Worker Report, we found that modern hourly workers are no longer motivated solely by money or the lifestyle promised by hourly work. Instead, they are overwhelmingly seeking opportunities that promote flexibility, workplace relationships, and career benefits similar to those of full-time employees. These workers greatly vary by generation and the industries they’re employed in, but they’re all looking for an improved experience, and the jobs that will give them one.

With this in mind, here are three ways hiring managers and on-the-job leaders can adapt to these new expectations, drive retention, and heighten the employee experience overall.

CREATE A GREAT CULTURE Culture can no longer be dismissed as a buzzword for businesses relying on hourly work. In fact, more than half of surveyed workers listed relationships with peers as having the greatest influence over their work satisfaction. Further, 37 percent of surveyed workers found their current job through a referral or personal recruitment from someone who already worked there. The takeaway is clear: business

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leaders have to meaningfully invest in and understand the processes that drive great culture.

Fortunately, there are simple steps you can take to do this. If you haven’t already, start by setting up daily meetings to start the day. This helps keep all employees in the loop, up to date on the latest developments, and most important, feel as if they are part of a larger team. Connections among staff are imperative, and you can further develop this sense of camaraderie by taking the time to set up team-building activities or special outings outside of work hours.

LISTEN TO EMPLOYEES Beyond the benefits promised by steady shift-based work, employees want input into the development of their careers and workplaces. Some are motivated primarily by paychecks, but others desire more responsibilities and recognition. In each of these cases, you must be willing to ask and understand what your employees are saying.

Communication issues were consistently cited as being major problems for hourly employees, and by extension, a driver of turnover. Almost one in four (23 percent) of surveyed workers report quitting as a result of not receiving the shift or schedule they wanted, while only 39 percent of satisfied surveyed workers say their supervisor takes employees’ best interests into account when making decisions.

Start by scheduling time to speak with each employee individually and brainstorming larger initiatives and incentives with your workers as a group. These don’t have to be overly time-intensive discussions, but they will go a long way toward ensuring your employees feel heard.

PROMOTE FROM WITHIN Some of the most well-known and successful brands are staunch supporters ISSUE 1, 2020

of promoting internally. If you’ve eaten at Chipotle recently, it’s highly likely the location was managed by an employee who once worked on the burrito line alongside their teammates. By training and promoting internally, you can ensure that these individuals mesh well with their co-workers, possess the necessary skills to succeed, and understand the intricacies of your business.

You can meaningfully avoid turnover by training front-line managers and creating an environment where it’s clear that advancement is possible—and, more important, achievable. In doing so, employees know that their hard work is building toward something, and that they have the opportunity to earn greater responsibility and higher pay.

For organizations light on resources and time to train upper-level staff, don’t be afraid to seek outside help. There are resources and training programs readily available to advance employees’ leadership and communications skills. Investing in several days of training is well worth the short-term cost.

LOOKING AHEAD While it might be comfortable to continue with the status quo, it’s clear that now is the time to evaluate your practices for hiring, managing, and retaining valuable employees. The needs of these hourly workers are vastly different from 5 years ago and evolving every day. Savvy employers can help themselves in the short and long term by working to understand their workers and offering the benefits they want to keep them happy and on the job. 1 Mathieu Stevenson is CEO at Snag. For more information, visit snagajob.com.

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Finance

4 MultiUnit Myths Dispelled It’s not what you thought, really!

Written By ROD BRISTOL & BARBARA NUSS

F

or franchisors and franchisees alike, growing through multi-unit ownership seems like a no-brainer.

Today’s great operators know how to be successful in the model. Why not expand their reach to more territories and grow together? Franchisees will have to work harder, but they’ll make more money and increase their ROI (and we all know that profits are the key to franchise happiness). Franchisors will have fewer people to support, better operators, and fewer headaches. The hardest part is getting the financing in place. Once that’s done, the rest falls into line. Right? Wrong on four counts. It’s time to bust four great myths of multi-unit franchising.

Myth #1: The hardest part is getting the financing. Clearly you need a business plan that demonstrates where the money will come from and how it will be paid back. It’s your road map to building business value. This includes a source of cash flow (cash reserves or a credit line) dedicated for the new territory. Many expansions have failed because owners robbed the cash flow and financial capacity of their first unit to support the second.

Getting the necessary financing is essential, but it is not difficult to accomplish with a track record of profitability from Unit 1 and a solid business plan for Units 2+. Getting the financing is not the hardest part—it’s giving up control of operations, a necessary step in enterprise development. Micro-managing operations of multiple locations doesn’t work, no matter how much financing you have.

Myth #2: Your best operators will make great multi-unit owners. Some people are just great operators. They run a tight ship, pay attention to detail, submit information and respond to requests on time,

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embrace the ops manual, etc. These habits check most of the boxes of franchisor checklists designed to establish criteria for expansion. Yet, many great operators struggle to be great multi-unit owners.

Why? Because to successfully manage multiple locations one must let go of dayto-day operations. For some this means relinquishing control of the things they like best and trusting others who are not as good at it.

Successful multi-unit operators are great communicators and active listeners. They would rather talk with their franchisor about systems than support.

They brainstorm with their business management consultant about achieving targeted metrics and growth, rather than to monitor results and coach up perforthe details of operations. They talk more mance. No more spinning plates, being about people than products. These traits busy just being busy. Work/life balance is are clues that an individual possesses the now within reach. enterprise mindset required to lead. If a great operator doesn’t have these traits, Myth #4: It takes fewer franchisor they can still succeed if they are willing resources to support a multi-unit to learn leadership skills and a new way six-pack than six single-unit ownof managing. These things can be learned. ers. Multi-unit owners are not buying a Franchisors seeking to grow through job, they are investing in a portfolio and multi-unit ownership need a clear strat- expect to earn impressive returns on their egy for identifying leaders: either target investments. While they may have good individuals with strong leadership skills or business savvy, they expect the franchise provide leadership training and coaching. model to work for them and typically rely Myth #3: Multi-unit franchisees must heavily on franchise resources (including work harder than single-unit owners. support teams) to train and support their operations staff. Support teams work with A good franchise provides systems and structure that promote efficient and con- non-owner location managers who are not sistent results. This includes marketing “invested” and may not be as motivated and operational systems as well as infor- as single-unit owners doing the same job. mation systems that enable multi-unit And non-owner managers leave. Turnover operators to manage teams remotely. in operational management requires addiCloud-based CRM or POS systems that tional training and support that would not be needed in an owner-operated location. measure the drivers of success (the key things franchisees must get right) are While we’ve dispelled four myths, one essential for scalable, remote manage- great truth survives: multi-unit expanment. Technology investments can pay sion is a “no-brainer” when the franchise huge dividends to franchisors seeking to model and the franchisee possess the grow through multi-unit ownership. competencies, capacity, and capital to The multi-unit owner’s most important replicate scalable operations, build strong task is to select, place, nurture, and sup- teams, and manage remotely. port their operations teams and ensure My colleagues and I will be presenting the franchise recipe is followed. If it’s a a full-day session, Advanced Financial good model with good systems for mon- Essentials: Driving Profitable Growth itoring KPIs, this approach works. No Through Multi-Unit Expansion, at the ICFE longer is the owner tempted to work into special sessions on Saturday, February 8th the wee hours to make operational dead- at the IFA conference in Orlando. 1 lines, because it’s not their job. Instead Rod Bristol is the director of business they rely on their mastery of KPIs and development and a presenter at Profit Soup, communication skills to build a strong a financial education organization specializing in franchised companies. He can be reached team. They define expectations through at rod.bristol@profitsoup.com or at 206written, measurable goals and established 427-5333. Barbara Nuss is the founder and effective meeting agendas and cadence president of Profit Soup.

ISSUE 1, 2020

Investment Insights

2020 Foresight

Risk is a necessary part of life

Written By CAROL SCHLEIF

R

Permanent loss of capital. (Not downdrafts that last a day, a week, a quarter, or even a year or two). Those with staying power and the wherewithal to lean into downdrafts are typically well positioned for long-term growth—in the same way companies with clean balance sheets and solid cash flow can often buy competitors that are less well capitalized when the economy is wobbly.

Loss of purchasing power. Ironically, trying to minimize risk too much can lead to lack of growth and the inability to outpace inflation. Keep in mind that while headline inflation as measured by the CPI has been very low for years, inflation in things that facilitate quality of life (food, energy, health, and education) has been much higher than “average.”

Lack of sufficient liquidity to fund ongoing or specific needs.

isk is of ten thought of as a “four-letter word,” misunderstood and maligned. Yet it is tough to accomplish anything worthwhile in life without it. Risk is an especially pertinent topic relative to markets these days given the amplitude of worrisome headlines and late cycle nature of both the economic and market expansions. Fears of a recession “Optimistic people play a lead many to believe they can jump out of markets ahead of time with the presumpdisproportionate role in tion that economic and market downturns are coincident, which has historically not shaping our lives. Their been the case. Numerous studies have decisions make a differshown market timing to be unproductive.

The process involves being right—on a tax ence; they are inventors, and cost-adjusted basis—on both the sell entrepreneurs, political and the buy transactions. and military leaders—not From a behavioral finance standpoint, the constant barrage of negative headlines average people. They can leave us in a dour mood and desirous of taking action in an attempt to avoid volgot to where they are by atility, which is often perceived as the #1 seeking challenges and risk. But long-term successful investing is a discomfiting activity by definition. It taking risks.” requires staying power, and an ability to —Daniel Kahneman recognize and capitalize on unrecognized value disparities; to be able to sell when others are buying and buy when all the High costs. Either taxes or transaction, herd is looking to sell. The key to having the result of poor asset location or inelestaying power, both psychological and gant planning. practical, is to clearly define the true risks most pertinent to your specific situation, SPECIFIC MOVES TO CONSIDER insulate your financial wherewithal to While market timing doesn’t work in incorporate those risks, and prepare your your favor and staying put for long hauls psyche with a healthy dose of visioning typically does, there are moves you can and prep work to enable you to maintain undertake to help make choppy markets perspective when headlines get overly “feel” a little more comforting. bullish or overly bearish.

• Consider carving out (perhaps even in a separate account) assets that need to IDENTIFYING TRUE RISK be decked against specific needs, e.g., Each of us has a different tolerance for 3 years’ spending, the next X quarters’ specific risks. Further, our risk-absorbing tax payments, funds needed for an offcapacity may shift throughout our lives spring’s education, vacation, property as our financial and time frames change. taxes, etc.

Core risks include:

• Consider paying forward on multi-year charitable contributions (of course you’ll need to consult with your accountant and lawyers on this to synch amounts with income).

• Consider pay ing some lifetime bequests you have written into your estate planning documents now, while you have a chance to see your funding put to good use.

• Line up a credit line on your account to prevent having to sell securities during a short-term downdraft (e.g., tax payments that were pulled in 4Q 2018, for example when markets had pulled back nearly 20 percent before rallying a like amount a few weeks later).

• Rebalance regularly by trimming outperforming asset classes and rounding up allocations in classes that haven’t borne up as well yet.

• Turn off the financial media. Headlines are only going to accelerate toward the even more negative. We are now into 2020, when presidential election rhetoric, ads, and angst will truly kick into high gear.

Stock markets have a way of powering through optimistically, and the very long-term trend has been upward. For example, when I began my career in the early 1980s, the DJIA had just crossed the 1,000 threshold. This is not to say that there are not periodic drawdowns that are gut-wrenchingly brutal (every year tends to have a drawdown of double-digit magnitude). But for those who can lean into a drawdown, short-term market volatility is not risk. It may, in fact, represent opportunity to rebalance, reposition, or deploy sidelined cash.

BOTTOM LINE Risk is a personal topic, but one well worth exploring. Understanding what risks you can take and having a plan to provide as much buffer as you can around those risks to your personal well-being should leave you well teed up to go confidently into the future. 1 Carol Schleif, CFA, is deputy chief investment officer at Abbot Downing, which provides products and services through Wells Fargo Bank and its affiliates and subsidiaries. She welcomes your questions and comments at carol.schleif@abbotdowning.com.

Multi-Unit Franchisee

ISSUE 1, 2020

69

Succession Planning

Passing It On

Navigating the complexities of succession Written By EDDY GOLDBERG

I

n the early 1990s, to support his growing family, Tony Lutfi purchased two Long John Silver’s and two Arby’s from his employers, who were also his mentors in those early days. Over the next 25 years, he grew his business to more than 213 units across 11 states, employing more than 5,000 people with revenues topping $300 million.

“Franchising was designed for folks like me who are willing to learn from others, work to duplicate success, and use their talents to focus on the attributes that matter most for any business,” he says.

“A lot of us get older in this industry, and at some point you have to have an exit or transition plan,” he says. But when he started thinking about this some years ago, he realized he had no plan, nor a clear idea of where to begin.

There was always plenty of advice on how to build a franchisee organization, but it was a different story when it came to selling or passing it on to the next generation.

“While you are growing, there’s no one who teaches you about succession planning or what to do about exit strategy,” he says.

“I thought I could just give the business to my children, but it turned out to be more complicated,” he says. From issues such as fairness and the individual appetites and capabilities of his family, to tax and legal issues, he faced an entirely new set of challenges to do the best for himself and his family.

Working with an attorney, he established a roadmap for succession, had the documents prepared, and found an appraiser to value the business. “It couldn’t be too high or low, and along with that, we had to establish how much of that money would be gifting, how much a sale for money, and how much an installment sale—and how to finance that distribution to service the debt they owe me and their mother, as well as their own debt service.”

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Multi-Unit Franchisee

His goal was to pass the business to were hoops to jump through to give them his three sons and nephew, who were a fair chance of moving forward,” he says. no strangers to franchising. “We lived “The brands we were involved with did not in a town where we had one restaurant have a second-generation program,” he nearby. As soon as they approached 13 or says. They also insisted that the franchi14, I took them with me when I visited the sees-to-be had the net worth required of restaurant or office. They cleaned floors, a franchisee. dumpsters, fi xed one thing or another, and “Getting them approved with the helped me,” he recalls. “As soon as they franchisor and the bank was a lot more became 16, they learned how to work in complicated than just filling out a form,” the restaurant, starting with the register,” he says. Also, to price the transfers corand then continued through high school. rectly, Lutfi had to consider the tax “We had a rule at home: never to discuss consequences of selling to a related party: working in the company until after col- if he sold too cheaply it might raise flags lege and they got a degree,” he says. And with the IRS; too high and he’d have to pay if they decided to come back and work for capital gains taxes. the family business, “So be it.”

LESSONS LEARNED After years of building a business, Lutfi CAME THE TIME As skilled as he’d become as a multi-brand said it was surprising to realize how operator, transferring ownership was an much he had to learn. “Most franchisees entirely new venture for Lutfi . In 2016, should be prepared more than I was,” he with a new administration in the White says, adding that it would have been even House, “We decided we would try to take more complicated if he’d sold to managadvantage of gifting that became avail- ers or a third party. “We learned in the able,” he says. process that we could have started 5 or 6 years earlier.”

His plan was not to give one business to all the children to divide or share. Instead, He also had to deal with surrendering he gave each a separate brand. “I gave control. “There were times it was very difficult. As a father who loves his children each a kingdom of their own. Each one has their own company that they control you always want to help them avoid the pitfalls,” he says. “But there are times and make all the decisions,” he says. when they have their own opinion, I have Metri, his eldest son, now 34, got the mine, and neither is necessarily wrong. I Jack in the Box business. When Stephen, think it’s very difficult for someone who his middle son, now 32, graduated from college, Lutfi had recently acquired 42 has had control for a period of time to let go and move forward,” he adds.

Arby’s and sold some to him. His Little Caesars holdings went to his youngest son “The satisfaction I get today is from Ramsey, now 27. And his Sizzler business having a dream some years ago that my went to his nephew Nader, 42, who had children would grow up and want to work worked with Lutfi for decades. with me. I didn’t know if they’d want to, Lutfi knew he would be there to men- or if they’d be good at it,” he says. Now, almost 4 years later, he says, “It has been tor his sons and nephew and, through his a blessing. It’s worked almost exactly as management company, assist them with we hoped it would.” 1 administrative duties. Easier said than done. “While the idea was great, there ISSUE 1, 2020

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

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Exit Strategies

Economic Downturn?

What franchisees can do now to be ready

Written By CARTY DAVIS

S

igns over the last few months have shown that an economic downturn may be on the horizon. The federal government’s policies in China are creating imbalances and disconnections in trade and global economic uncertainty.

An inverted yield curve in the U.S., unpredictable global flash points, Brexit, and a contentious 2020 U.S. presidential election are all factors contributing to uncertain business conditions and hesitation around intermediate and long-term plans.

With more than 759,000 franchise businesses contributing $451 billion to the U.S. GDP, the franchise sector undoubtedly will be affected by an economic downturn.

While many franchise leaders are taking a cautious approach toward the upcoming economic cycle, there are things franchisors, franchisees, and suppliers can do now to better position their business if a downturn does occur.

Communicate with key financial stakeholders. Transparency is important, especially during an economic downturn.

No one likes surprises. Key financial stakeholders are much more forgiving and willing to be part of a solution if they are aware of problems early. Franchise businesses in need of cash flow relief can look to extend maturities and rework

credit facilities to allow for interest-only payments. Now is also a great time to review loans and credit lines for opportunities to adjust pricing, collateral, term, and interest rate protection. Franchisees should communicate with their franchisor if they are at risk of missing development or remodel requirements or defaulting on financial obligations; franchisors may be able to offer temporary relief.

Owners should also review their lease portfolio for opportunities to renegotiate leases or have landlords provide tenant improvement dollars for remodel projects. Marginal stores with no likely path to economic sustainability should look to actively renegotiate leases and/or make the hard choice to close the location (see feature, page 52).

Use tools to improve employee retention. While one of the positives of an economic downturn typically is reduced turnover, our next downturn may be different as unemployment is currently at a 30-year low. Talented employees may begin looking for new opportunities. To combat this, business owners can use behavioral hiring tools to help ensure they’re hiring the right person for the right position and improving retention. There also are tools and technology available to help maximize employee shift flexibility, reduce overtime, and upgrade staff. The pace of technological change in the franchise and restaurant industry is creating winners and losers.

Embrace new ways to hire, retain, and satisfy employees. New technology is enabling smart operators to better manage a challenging labor environment.

Engage a cost-savings firm. Cost-savings firms review business expenses and contracts to determine where owners can save money. These firms review such costs as electricity, gas, insurance, bank fees, trash disposal, and service fees. By engaging such a firm, QSRs, for example,

can typically save between $200 and $400 or more per unit per month. Even small savings can add up considerably over time, which can improve profitability during a downturn. Cost-savings firms generally share in the savings over a set period of time and generally don’t charge up-front fees. While finance executives may be reluctant to admit they missed a cost-savings opportunity, it’s important to remember that it’s difficult to monitor every opportunity. The best CFOs engage third parties to help improve the financial performance of their business.

Use a zero-based budget. Business owners often fall into the trap of budgeting for the same line items year after year. Just because you spent money in an area one year doesn’t mean you need to spend it the same way this year or next. Every year, owners should look at each area of their business—utilities, inventory, contracts, etc.—to determine which costs are truly needed and which can be eliminated.

Consult a CPA or tax advisor. Many business owners aren’t taking advantage of every tax credit available to them. A CPA or tax advisor can tell a business owner if there are any missed opportunities, like work opportunity tax credits, new opportunity zones, and other credits.

Look for growth opportunities. For franchisees with modest debt and strong liquidity, an economic downturn can be an opportune time to expand their business by acquiring assets and markets, as they have the advantage of being able to move quickly. They should look for expansion opportunities in desirable markets that may have been too expensive or unavailable previously. Business closures also can provide conversion opportunities.

Franchisees who work with their franchisors early on can find closure and new build opportunities before others do.

While there may or may not be an economic downturn in 2020, there’s no question that, if a downturn does come, it is beneficial for every franchise business to start preparing now. 1 Carty Davis is a partner with C Squared Advisors, a boutique investment bank that has completed hundreds of transactions in the multi-unit franchise and restaurant space.

Since 2004 he’s been an area developer for Sport Clips in North Carolina with more than 70 units. Contact him at 910-528-1931 or carty@c2advisorygroup.com.

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Multi-Unit Franchisee

ISSUE 1, 2020

Market Trends

PE Buys Into Franchising

From unicorns to warhorses, M&A is on the rise Written By RITWIK DONDE & DARRELL JOHNSON

P

rivate equity (PE) funds awash in capital face a growing need to put large amounts of money to work.

Despite the strong pace of investment since 2014, PE dry powder, or uncalled capital, has been on the rise since 2012 and hit a record high of $2 trillion in December 2018 across all fund types.

• Across all transactions and industries (franchise or otherwise), 4,754 deals worth $849.7 billion closed in the first half of 2019.

• In the past 3 years, more than $600 billion of capital has been invested into buyout funds.

• The number of U.S.-based sponsor-backed companies has grown by 5.3 percent CAGR over the past decade.

• More than three-quarters of M&A executives at large private companies, and close to 87 percent of M&A leaders at domestic PE companies, expected to close a larger number of deals in 2019 than in previous years.

In recent years, PE in franchising has increased significantly. Our research services have been used by a growing number of PE firms as they seek to gain market insights to find brands (often in earlier stages of development), for due diligence information during the bidding process, and for business intelligence for strategic change following an acquisition.

Our research indicates that the number of franchise brands acquired by PE firms rose from 24 in 2012 to 60 in 2018.

Over the same period, 87,488 franchised businesses were involved in PE-led M&A transactions.

Year

Franchise brands acquired by PE firms

Franchised units involved in PE transactions

15,404

2012

24

2013

15

4,895

2014

29

15,300

2015

48

5,944

2016

35

14,003

2017

57

10,956

2018

60

20,986

Total

268

87,488

FROM UNICORNS TO WARHORSES Until early 2018, many PE firms targeted smaller, non-franchised “unicorn” chains with an eye toward consolidating them into their existing portfolio and franchising the concept at a later stage. Take the case of Fuzz Wax Bar, a Canadian concept with little presence. In 2018, Clear Summit Group (whose brands include Tutor Doctor and WSI) acquired a partial interest in the company intending to franchise the brand in the U.S. and beyond. In a crowded franchise space, which adds close to 350 new brands each year, it can be difficult for PE investors and their partners to spot unicorns with the best market potential.

The period since early 2018 has been one for “old warhorses.” In 2017, the number of brands franchising for 10 years or more acquired by PE firms was about 64%.

That rose to 69% in 2018 and 83% as of Q3 2019.

FRANCHISEES, TOO! It’s not just franchisors that are popular among PE companies. We are increasingly being asked by PE and hedge fund managers to assess large single-brand and multi-brand operators. Here are five examples of big ticket franchisee deals in the past few years:

• Argonne Capital Group has invested close to $530 million in various franchises, including the sole master franchisor for IHOP in Florida, and two franchisees in the system with operations in Texas and seven Western states.

• Bandon Holdings, one of the biggest franchisees in the Anytime Fitness system, received a majority investment from the PE firm Fireman Capital Partners to help fuel its growth.

• Health care real estate investment firm InvestSouth acquired in-home and hospice care provider Interim HealthCare of Greenville.

• Chalak Growth Capital Fund acquired KFC/Taco Bell units in the Northeast.

This transaction included 78 KFC units, 39 KFC/Taco Bell co-branded units, and 3 KFC/Long John Silver’s co-branded units.

• NPC International, one of the largest Pizza Hut franchisees, was acquired for $190 million by Olympus Partners.

CONCLUSION Franchisees have gained the attention of PE firms attracted by the proven business concept, the potential for organic and rapid growth or an expansion (given the rise in resale activity among franchisees), together with the goodwill and strength of an established brand that franchise systems can provide. We do not see this trend slowing anytime soon. 1 Ritwik Donde is a senior research analyst at FRANdata. Darrell Johnson is CEO of FRANdata, an independent research company supplying information and analysis for the franchising sector since 1989. He can be reached at 703-740-4700 or djohnson@ frandata.com.

Examples of Legacy Brand Acquisitions by PE Firms (as of Q3 2019) Brand

PE Firm

Started Franchising

Years in Franchising

Servpro

Blackstone Group

1969

50

Intelligent Office

Incline Equity Partners

1999

20

Jenny Craig

HIG Capital

1985

34

Hooters

Nord Bay, TriArtisan

1986

33

Budget Blinds

JM Family Enterprises

1994

25

Perkins

Elysium Management

1964

55

Jimmy John’s

Roark Capital Group

1993

26

Multi-Unit Franchisee

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