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FRANCHISE UPDATE

Franchise update BUSINESS INTELLIGENCE FOR

GROWING

FRANCHISORS

Q4 | 2016

2 0 1 7 A N N U A L F R A N C H I S E D E V E L O P M E N T

2017 ANNUAL FRANCHISE DEVELOPMENT REPORT ✔ CLOSING RATIOS

R E P O R T

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2017 ANNUAL

FRANCHISE DEVELOPMENT REPORT

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ISSUE IV 2016

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BUSINESS INTELLIGENCE FOR

GROWING

FRANCHISORS

Q4 | 2016

4 From the Editor’s Desk Disruptive innovation: threat or opportunity?

Leadership 6 10 CEO Profile: Mark Kartarik Managing by walking around – a lot! – at Sport Clips 12 CEO Profile: Mike Whalen From toy trains to a real empire at Heart of America Group 14 Feature: Anatomy of a Brand Oxi Fresh celebrates 10 years of growth and giving

Consumer Marketing 16 18 CMO Q&A Donna Josephson leads a cross-functional strategy at Fazoli’s 22 CMO Roundtable “How do you balance national brand campaigns with local store marketing?” 24 Customer Service Do you have the nerve to post all your customer reviews? 26 Millennials Gen Z: Millennials are like soooo last generation!

Growing Your System 28 30 Feature: 2017 AFDR Annual Franchise Development Report Highlights from our in-depth benchmarking survey of 167 brands 36 Feature: 18th Annual Leadership & Development Conference Sales pros and CEOs gather in Atlanta to “Amplify” their growth 42 Feature: Mystery Shopping Results Learn how it’s done—and how to do better! 48 Feature: STAR Awards Recognizing the top performers in franchise development 54 Growth Strategies Going abroad? Be prepared to make some changes! 56 Supplier Spotlight Silvercrest Advertising’s LMap tool helps brands market locally 58 Challenge the Pros “How do you measure the ROI from your annual franchise recruitment budget?” 59 Sales Smarts Evaluate your franchise opportunity as if you were buying it! 60 Market Trends Adjusting to disruption is not only possible—it’s necessary 62 International The latest trends in overseas expansion by country and region 64 It’s Closing Time Healthy tips for sales pros on how to manage burnout 2

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Fromtheeditor’sdesk BY KERRY PIPES

Franchise update|Q4 CHAIRMAN Gary Gardner CEO Therese Thilgen

Disruptive Innovation

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t the Franchise Leadership & Development Conference this September, I was struck by a theme that has grown from a small clattering to a loud drumbeat in recent years. You’ve no doubt heard the term “disruptive in-

novation.” Coined about 20 years ago by Clayton Christensen, it’s essentially the idea that innovation can create a new market or service by improving on and displacing an existing market or service provider—and the companies that provide them. The result is a new player with a new product or service and an older, established organization gasping for sales, market share, and even life. Thought leaders within the franchising community understand this concept. They know it could happen just about anywhere and to any brand. It’s why brands must keep their finger on the pulse of changes in their markets, changes in their customers, and more important with each passing year, with technological change. No one wants to wake up one day and find they’ve been replaced simply because they refused to recognize the inevitable—and act on it—before it was too late. There are a lot of cabbies around who interpret Uber as a dirty word and have experienced the mega start-up disrupting their market and ability to generate income. Forbes magazine publisher Rich Karlgaard, a keynote speaker at the conference, had a number of great observations, one of which was related to this idea of disruption. He said that with the pace of disruptive change accelerating, some franchise brands will be blindsided by upstart competitors who have their finger on the pulse of today’s changing marketplace and consumers. See the Oxi Fresh story on page 14, for example. To stay healthy, he said, companies must have strong values internally and be adaptable externally. Author of The Soft Edge, a book emphasizing the importance of a company’s values as a competitive edge, Karlgaard told attendees that without a healthy internal culture characterized by purpose, loyalty, passion, and commitment, brands really have no chance of surviving into the future. For newer brands competing for a slice of the market pie, this kind of disruptive, innovative thinking is exactly what they need. For legacy brands hoping to stick around, some serious reckoning should take place internally on a regular basis. What is the purpose of your brand and its products and services? What role is change playing around your brand, products, or services? Do you have an eye on technological innovation? What do your customers say they want (or don’t want)? These questions are just the tip of the iceberg. It’s not just recognizing that change is always in the air, it’s being prepared to respond effectively to that change with innovations and adaptations of your own. Or else you might want to start preparing to be disrupted. n

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EXECUTIVE VP OPERATIONS Sue Logan EXECUTIVE VICE PRESIDENT Diane Phibbs VICE PRESIDENT BUSINESS DEVELOPMENT Barbara Yelmene BUSINESS DEVELOPMENT EXECUTIVES Jeff Katis Judy Reichman EXECUTIVE EDITOR Kerry Pipes MANAGING EDITOR Eddy Goldberg CREATIVE DIRECTOR Peter Tucker DIRECTOR OF TECHNOLOGY Benjamin Foley WEB DEVELOPER Don Rush WEB PRODUCTION ASSISTANT Esther Foley TECHNOLOGY PRODUCTION ASSISTANT Juliana Foley SENIOR SALES, EVENT & OPERATIONS SUPPORT MANAGER Sharon Wilkinson SENIOR PROJECT MANAGER, MEDIA AND BUSINESS DEVELOPMENT Christa Pulling MARKETING ASSISTANT, SPEAKER LIAISON Katy Geller FRANCHISEE LIAISON, SUPPORT COORDINATOR Leticia Pascal CREATIVE MANAGER Kevin Waterman PRODUCTION DESIGNER Phi Le VIDEO PRODUCTION MANAGER Wesley Deimling CONTRIBUTING EDITORS Kay Ainsley Jim Bender John DiJulius William Edwards Darrell Johnson Todd Juneau Steve Olson CONTRIBUTING WRITERS Helen Bond Debbie Selinsky ADVERTISING AND EDITORIAL OFFICES Franchise Update Media 6489 Camden Avenue, Suite 204 San Jose, CA 95120 Telephone: 408-402-5681 Fax: 408-402-5738 SEND ARTICLE INQUIRIES TO: editorial@fumgmail.com Franchise UPDATE magazine is published four times annually. Annual subscription rate is $39.95 (U.S.) SUBSCRIPTIONS sharonw@franchiseupdatemedia.com or call 408-402-5681 REPRINTS Foster Printing at 800-382-0808 www.fosterprinting.com

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2016

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Leadership FRANCHISE LEADERSHIP AND MANAGEMENT

10 CEO Profile: Mark Kartarik

Managing by walking around – a lot! – at Sport Clips

12 CEO Profile: Mike Whalen From toy trains to a real empire at Heart of America Group

14 Feature: Anatomy of a Brand

Oxi Fresh celebrates 10 years of growth and giving 6

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ceoprofile

BY KERRY PIPES

GROWTH MINDED Mark Kartarik manages by walking around – a lot!

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wo years ago, when Georgetown, Texas-based Sport Clips prepared to enhance its corporate team and boost growth it called on Mark Kartarik, a salon industry veteran. Kartarik had established himself as a top executive with Minneapolis-based Regis Corp., where he served for more than two decades as Regis expanded worldwide. At Regis, he served as executive vice president and president of its franchise division for Supercuts, Cost Cutters, ProCuts, First Choice Haircutters, Magicuts, City Looks, and We Care Hair. Kartarik not only knows the hair care franchise business inside and out, he has a reputation for working alongside franchisees, listening to and learning from them to get a real sense of how things are going, what they need, and what customers want. In fact, he is on the road constantly, visiting the brand’s salons and says he’s been to more then 500 in the past 18 months and may get even busier: Sport Clips expects to open as many as 200 stores in the next 18 months. Technology is at the forefront of the brand’s strategic initiatives. Kartarik says Sport Clips is in the midst of launching a new mobile check-in tool that should be fully functional by next summer. The new tool will give clients the ability to go online and check in using their mobile devices, tablets, or desktops to view wait times and choose their favorite stylist at the touch of a button.

Leadership What is your role as president? I’m responsible for overseeing our CIO Dan Miller, VP of Operations Gordon Edward Logan, VP of Marketing Martha England, and VP of Real Estate Greg Smith. I report to CEO Gordon Logan. Describe your leadership style. Calm, relaxed but intense, get the facts, make a decision, solution-oriented, strategic. What has inspired your leadership style? Great leaders I have worked with: Gordon Logan at Sport Clips and Gordon Nelson and Paul Finkelstein at Regis.

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Where is the best place to prepare for leadership: an MBA school or OTJ? An MBA is theoretical, even when you attend business school after some previous business experience as I did. OTJ is practical and not replaceable. The best combination in my experience is that one accelerates the other. Any sort of education is good for any executive, and I am a firm believer in lifelong learning and incurable curiosity. (I’m even curious about who left the “u” out of curiosity.) Are tough decisions best taken by one person? How do you make tough decisions? One person should make the tough decisions after consulting with the most thoughtful advisors and team members. Get input, make the decision, and take responsibility.

NAME: Mark Kartarik TITLE: President COMPANY: Sport Clips NO. OF UNITS: 1,587 (U.S. and Canada) AGE: 60 YEARS IN FRANCHISING: 20-plus YEARS IN CURRENT POSITION: 2

What is your biggest leadership challenge? Communicating across a highly diverse, remotely located group. How do you transmit your culture from your office to front-line employees? We visit our stores on a regular basis. I have been in more than 500 of our stores in the past 18 months. We attend quarterly field leadership meetings for team leaders (franchisees), store managers, and assistant managers. In addition we have our annual huddle where we bring all our managers and team leaders together with the support team (home office team members) to a single location for three days of education, communication, team building, and motivation. Last year we were in San Antonio and next April we will host more than 2,700 associates in Las Vegas.

Do you want to be liked or respected? I’ve learned people will tend to like the people they respect. I would answer both. Advice to CEO wannabes: Know yourself. Seek first to understand, then to be understood. Learn to help and believe in those around you.

Management Describe your management style: Managing by walking around (MBWA, Tom Peters). People will tell you far more in person than they ever will in writing. Have high expectations of people. Expect they will do well and they usually will. What does your management team look like? Kind of good looking with really great haircuts. ;-) How does your management team help you lead? They are each far better at their respective jobs than I am and they lead their teams very well, which helps me immensely. They also give me feedback and information, which also helps guide everyone toward the same outcomes. Favorite management gurus: Do you read management books? Tom Peters, Jim Collins, Ken Blanchard, Gary Keller,

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Harry Nilsson, Simon Sinek, Malcolm Gladwell. What makes you say, “Yes, now that’s why I do what I do!”? Helping provide a safe, fun environment for all stylists where they can make a good living with career options such as assistant managers, managers, area managers, technical trainers, business coaches, marketing specialists. It is so rewarding to hear “I love my job.” I am also inspired by encouraging and mentoring those who are interested and have the grit to succeed.

Market What trends are you seeing with consumer spending habits in your stores? More attention to beards and beard oil. More awareness of men to new products and a willingness to spend to look good. Has the economic recovery reached all of your customers? We have been fortunate overall and the vast majority of our guests have weathered the storm, but there are still challenges in certain industries and regions of the country. How is the economy driving consumer behavior in your system? We seem to be in a sweet spot of a high-value, highquality service in the affordable category. Our clients value our “affordable luxury,” which is way more than “just a cut” at a really good price point. We have our team members to thank for that. And the economy seems to be making affordable cool. What are you expecting from your market in the next 12 months? We are optimistic our same stores sales will remain strong as we are doing very well, but there is always room to improve. Are your franchisees bullish or bearish about growth and adding additional units? We are projecting 160 to 180 North American units. This is in line with our steady growth plan. Are commodity/supplies costs any cause for concern in your system? All costs are a concern but this is an area we are managing well.

Personal What time do you like to be at your desk? As I mentioned earlier, I don’t like

to be at a desk. We are a people business, and when I am at the support center I walk around and continually check in. The rest of the time I am out in the field. My desk is a stand-up desk we found at an antique shop in Georgetown. It was originally in a railroad station in south Texas and was used as a ticket counter almost 100 years ago. Even they knew we should be standing up at the “office.” Do you socialize with your team after work/outside the office? Many conventions include social activities, as you know, so I participate with my team there. We also occasionally will have a beer after work on a Friday at the local biker bar, Hardtails, which I renamed “Hogwarts.” That moniker happened when I first arrived here and couldn’t recall the exact name of the place. Last two books read: Big Data by Viktor Mayer-Schönberger and Kenneth Cukier and Contagious by Jonah Berger. What technology do you take on the road? iPad, iPhone, iWatch, Dell Latitude. How do you relax/balance life and work? I play guitar and write and record songs. I attend concerts and listen to bands and still have an extensive vinyl collection. A couple of years ago I accidently bought the remaining inventory of a record shop in St. Louis, so I have 8,000 to 9,000 LPs. I also don’t believe balance is the right word. Today, with all of the technology in our lives, the best we can hope for is a healthy “blend” of our lives, and that is what I strive to do. More like blending a fine wine, not balancing on a seesaw. The problem with the seesaw is when one side is up the other is down. Therefore your life is set up to be win-lose with work and family on opposite sides of the scale. Favorite vacation destination: My lake cabin in Minnesota. (No, I don’t fish.) Favorite occasions to send employees notes: I send a note when they need personal support or a pat on the back and it is important to them that I do it in writing. Favorite company product/service: Our MVP haircut service, including a legendary hot towel/shampoo experience, is the best anywhere. Experience is the last differentiator in the digital world. And it takes great people to provide great experiences.

Bottom Line What are your long-term goals for the company? Our goal is to continuously get better at what we do and continue to provide the best environment we possibly can for our stylists. We even have a fund that provides money and support to stylists who are going through difficult or extraordinary struggles as a result of sickness, hurricanes, tornadoes, or other personal or natural disasters. It is funded by all of us through donations and independently managed by a third party as a nonprofit. It is unique in our industry as far as I know. Living our values. As we get better, bigger will take care of itself. How has the economy changed your goals for your company? The economy hasn’t really affected our goals. We see any challenge as an opportunity to be more competitive. Is capital getting easier to find? Finding capital is not a constricting variable for us. Money is attracted to well managed, predictable, recurring revenue streams that are not directly affected by Internet sales. How do you measure success? I measure success based on the positive impact we can have on those around us. If their lives are better, happier, more fulfilling in some way and I have helped to make that possible, then I see that as success. The short version: “Exceeding your dreams.” What has been your greatest success? Mentoring executives and people who attain their dreams. Any regrets? Should have signed more leases in 2009. What can we expect from your company in the next 12 to 18 months? We are excited to be launching our new mobile check-in software/hardware package and plan to have it fully functional by next summer. The ability to have our guests go online/phone and see wait times, pick their favorite stylist, and get in the queue will be really good for our experience. Basically, if there is a wait we will be using the latest technology to allow our guests to plan accordingly and in essence “wait” wherever they choose. In 18 months we will also be approaching 1,800 units in North America. n

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BY KERRY PIPES

ceoprofile

THE ULTIMATE TRAIN SET Mike Whalen scales his childhood passion into franchising and more

H

eart of America Group is a diversified company that operates hotels and restaurants across the Midwest as both franchisee and franchisor. The company, which began in 1978 as a single restaurant, also is a successful design, construction, and management firm, with more than $100 million in development at any given time, says founder and CEO Mike Whalen. Since the beginning, nearly 40 years ago, Whalen, an Iowa native and Harvard law school graduate, has led the company to its current heights. But his sense of wonder for how to build and scale things began long ago. “As a child, my favorite toy was my Lionel train set. I loved to build it, take it apart, and redo it to make it better,” says the 62-year-old president and CEO. “As an adult, I realized Heart of America Group is like my train set. Now I play with hotels, restaurants, and retail complexes. Our developments have become our ultimate train sets.” Today, Whalen oversees a business em-

pire that employs more than 1,500 across dozens of restaurants, hotels, and retail outlets throughout 7 states. While juggling hotel and restaurant developments as a franchisee, Heart of America also operates its own restaurant concepts, including The Machine Shed Restaurant, Wildwood Lodge, Thunder Bay Grill, and the brand they are busy franchising, Johnny’s Italian Steakhouse. The company’s four hotel groups are Marriott, Holiday Inn/IHG, Hilton, and Choice Hotels. In his 38 years at the helm, Whalen has NAME: Michael Whalen TITLE: President, CEO COMPANY: Heart of America Group NO. OF UNITS: 37 (13 as franchisee) AGE: 62 YEARS IN FRANCHISING: 35 YEARS IN CURRENT POSITION: 38

learned plenty about what works and what doesn’t in business. One big lesson, gaining buy-in from his team members, involves reminding them regularly that “they are a part of our team for more than what they do on a day-to-day basis—that they make a difference in the big picture at Heart of America Group. That engenders engagement. Engagement yields excellence.”

Leadership What is your role as CEO? To take the lead on development, and to make sure we are in a good place operationally. I let good people do their jobs and intervene only when necessary. Development and operations are equally important to me. Describe your leadership style. I’ve spent nearly 40 years in hospitality and have held onto a sense of childlike adventure. While business is serious, I feel sorry for those who don’t get to have fun with their work. What has inspired your leadership style? As a child, my favorite toy was my Lionel train set. I loved to build it, take it apart, and redo it to make it better. As an adult, I realized Heart of America Group is like my train set. Now I play with hotels, restaurants, and retail complexes. Our developments have become our ultimate train sets. What is your biggest leadership challenge? Finding people who want to be excellent, who want to do more than just collect a paycheck, who see beyond the day-to-day and focus on the bigger picture. How do you transmit your culture from your office to front-line employees? The biggest challenge is to maintain the existing culture, developed from our roots. The book The Coming Jobs War by Jim Clifton notes that unengaged people are a company’s biggest liability. Two years ago, we extensively surveyed our staff at all levels of our restaurants and hotels and found that we have a high level of engagement relative to most other companies. We have to continue to show them that they are a part of our team for more than what they do on a day-to-

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day basis, that they make a difference in the big picture at Heart of America Group. That engenders engagement. Engagement yields excellence. Where is the best place to prepare for leadership: an MBA school or OTJ? To be a good leader you need foundations in business and accounting, but this can be learned through an MBA or on the job. The most important thing is to understand what numbers you have to reach to achieve success, and how to go about achieving those numbers. MBAs can focus too much on numbers, and not enough on how to assess what makes a business successful and what opportunities to pursue. People need an educational foundation but need to apprentice to become a leader themselves. Are tough decisions best taken by one person? How do you make tough decisions? We have an open culture, where decisions are made by debating. I believe in the Socratic Method. Perhaps this stems from my days at Harvard Law. We encourage people to ask questions, and to argue and discuss the answers. That open debating always yields a better decision than what I would determine on my own. Do you want to be liked or respected? Are they mutually exclusive? I don’t think so. Advice to CEO wannabes: I’m not a patient person, I’m a persistent person. I’d be a liar to tell you that most things move too slowly for me. To those aspiring CEOs, persistence pays off.

Management Describe your management style: I realized one day when we were about to open one of the hotels that it’s like my big train set, but I get to pick a whole bunch of people to play with. What does your management team look like? We have a very collaborative but debating environment. I’m fortunate to have a creative and talented management team, and that means you’d better have them in the process. I encourage my team to bring their own ideas to the table. How does your management team help you lead? While I like getting involved in the details, I don’t micromanage. Instead, I try to breed a sense of adventure and entrepreneurial spirit among the ranks.

Favorite management gurus: Do you read management books? I have two books that drive my management style. Good to Great by Jim Collins, which stresses that “good” is the enemy of “great.” Simple concept, but most businesses don’t get it. Also, The One Minute Manager by Ken Blanchard for the simple reason that if you help people understand their role and its importance, and if you explain to them the “whys,” they will work harder. Everyone wants to be a champion. What makes you say, “Yes, now that’s why I do what I do!”? We don’t crank out prototype, cookie-cutter things. At this stage in our business careers, we’re trying to do something that we think is cool. They’re kind of like toy sets to us—big toy sets.

Personal What time do you like to be at your desk? My morning doesn’t start at my desk. With today’s technology you can work from anywhere. Do you socialize with your team after work/outside the office? Yes, especially those who have worked with me a long time, as they have become friends. Last two books read: The Hundred-Year Marathon by Michael Pillsbury and In Trump We Trust by Ann Coulter. What technology do you take on the road? iPhone and iPad. How do you relax/balance life and work? I spend weekends flipping through trade magazines and surfing the web for food, fixtures, furniture, and construction ideas. When I travel, I’ll tour a few hotels and restaurants to get ideas. If I spot an interesting bathroom sink or a nice couch, I take note. It’s not that uncommon for me to flip over a piece of furniture to see where it was made. My life is integrated, not siloed. Favorite vacation destinations: We have two vacation homes we like to visit, one on the lakefront in northern Wisconsin, the other in North Palm Beach. Favorite occasions to send employees notes: When they have done something extraordinary. Favorite company product/service: Our company reflects how my brain thinks: I

need many moving parts or I would get bored. Strategically it may be confusing to others, but I can’t imagine it any other way.

Bottom Line What are your long-term goals for the company? The train set I get to play with here is the coolest, most dynamic, most talented train set I’ve ever had. We have the best products and the best leaders throughout Heart of America that we have ever enjoyed. And we have the financial resources to make it happen. Why quit playing? Some peoples’ vision is to retire and play golf. My vision is to continue to expand the Johnny’s Italian Steakhouse brand and to build really cool hotels in Fort Worth, Madison, Moline, and Des Moines. The list keeps growing. How has the economy changed your goals for your company? “Damn the torpedoes, full speed ahead!” I bristle when I hear the “new normal.” Business has never been easy. Where can capital be found these days? I have never seen so many banks eager to lend money for “good” projects. Years ago, I was turned down by 27 banks on one project. Now the banks are calling us. How do you measure success? You’re either growing or dying, there’s no status quo. What has been your greatest success? Making it through the first year. We opened our first restaurant during the hard winter of 1978 and 1979. It snowed every Friday, and in the restaurant business Friday snow is way worse than Monday snow. We barely made it through, but we did, and we are stronger for it. Any regrets? Of course, only an unthinking person would not. But I don’t dwell on them. I think about where we are going, not where we have been. What can we expect from your company in the next 12 to 18 months? Ten years ago, we were doing one project at a time and our development arm could afford to be less sophisticated. Now, however, we have more than $100 million in development at any given time, and we have to treat it in a more sophisticated manner. We will continue to focus on better technology and logistics to ensure our “Delta Force” has all the ammunition it needs. n

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ANATOMY OF A BRAND BY JONATHAN BARNETT

CLEANING UP FOR 10 YEARS Oxi Fresh grows up and gives back

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never want to stand still. I always want to be working on something and find ways to improve it, expand upon it, and to be innovative. Oxi Fresh Carpet Cleaning has been my focus since I founded it in 2006. I started my company because I knew carpet cleaning had a low barrier to entry, is excellent for creating repeat business, offers a service in high demand, and has the potential to net millions of dollars. Today, a decade after launching my dream, I still lead the brand as its CEO, directing its growth and pushing the boundaries of an old-school industry with new-school thinking. It certainly keeps me busy, which is what I love. How did I get here? The story of my company really starts with my family. My mother, Natalie, always pushed me to work hard, to never give up, and to never take the easy path. Combine that with the inspiration of my grandfather, an entrepreneur and inventor, and I began

my college career at Oral Roberts University in 1999 knowing that business was going to be my forte. For a lot of students, studying for a BS in business administration would be enough to keep them busy. Not me. In 2000, using money I inherited from my grandfather, I opened my own summer business, Johnny B’s Fireworks. Every summer, I expanded to new locations and then sold the business when I graduated. These stands helped me pay my way through school. The stands were a great introduction to the business world, but they weren’t enough to occupy my time. You see, I loved basketball, and so I joined the Oral Roberts D1 team. I even served as the team chaplain for two years. My experience with the team and my faith led me to create Crossover International in 2001, a nonprofit basketball outreach that used the sport as a platform to make a positive impact on youth. With all that, I still graduated from Oral Roberts a full year early. Like I said, I like to stay busy. However, I wanted more than

just three years of business education, so I decided that graduate school was the right path for me. In 2003, I began courses at Colorado Christian University (CCU), at the same time moving Crossover International’s headquarters to Denver and working to launch their first international tour, which went to France, Germany, and the Czech Republic. In early 2005, I also purchased a professional basketball franchise in the International Basketball League, naming it the Colorado Crossover. Owning the team for two seasons increased my interest in franchising, so when I graduated from CCU in mid-2005, I kept my eyes open for franchise opportunities. A breath of fresh air There was a gap in the carpet cleaning industry, an opportunity for a business willing to give customers something different. People wanted cleanings that were convenient, and they had grown tired of long dry times and harsh chemicals. Working with a team of experts, we de-

Jonathan Barnett

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ANATOMY OF A BRAND veloped an innovative and environmentally friendly carpet cleaning system that uses green solutions, leaves no sticky residue, and is safe for children and pets. Perhaps its biggest selling point, though, was that it dried fast. Unlike old-fashioned methods that used 40 to 50 gallons of water per home, our oxygen-based system needed only 2 gallons per home. That cut down the old 12- to 24-hour dry time to about 1 hour. In 2006, I launched this system with just one location in Denver, but by the end of that first year, we already had 17 franchises in 5 states. I gave the first five franchises away free, including one to my mother who quickly made it into a top-performing location. The following year, we had a total of 85 franchises in 23 states. Next year? One hundred and thirty franchises in 38 states, a remarkable accomplishment when you consider that less than 700 of the nearly 3,800 active franchise systems in the U.S. have more than 100 units, and less than 90 of those reached the 100-unit mark in under 10 years. We reached that milestone in less than three years. Needless to say, we were very busy as more and more entrepreneurs joined the Oxi Fresh family. In the years since then we’ve continued to grow and develop. We’ve expanded our service portfolio to include upholstery, wood floor, and tile and grout cleaning. We got the mark for “The World’s Greenest Carpet Cleaner.” We built custom software for our franchisees. Yet that’s just a fraction of what we’ve done to make Oxi Fresh a major player in the industry. With every project we complete and feature we add, our goal is to provide our franchisees with the best support systems and tools possible so they can achieve their financial dreams and goals. Centralized, superior support “Speed through systems.” That mantra has been key to Oxi Fresh’s growth. I am always looking for ways to automate support systems for our franchisees so they can grow their business instead of just working in it. The Scheduling Center is the most notable example. We’re one of the only carpet cleaning franchises to have a centralized call center answering consumer phone calls, scheduling appointments, maintaining a customer database, and serving as the face of the business. With our franchisees free from the phones, they can focus on business development instead of getting lost in day-to-day details. Powering the Scheduling Center. which currently handles approximately 2,500 calls

every day, is our FAST software. This custom-built program is a live, online platform that allows franchisees to easily manage their business. Of course, we have even more support systems and automated marketing tools for our franchisees, and all of these programs are a major part of our success. Giving back But business can be about more than systems and money and plans. Entrepreneurship enables philanthropy, and a business that gives back sends a powerful message. When a company donates to a worthy cause, it says, “We aren’t just an earnings machine. We are a partner with you. We are in it with you. We care.” That’s why last year we started focusing on more than selling franchises and cleaning carpets and began supporting Water.org. This nonprofit organization, co-founded by Gary White and actor Matt Damon, is

working to fight the global water crisis that affects 1 in 10 people around the world. Water.org helps communities get access to sustainable solutions to their water and sanitation needs. To support their efforts, we donate $2 every time a customer books a job online through www.oxifresh.com, and we continually encourage our customers to book online. So far, we’ve booked more than 15,000 jobs online and donated more than $30,000 to the cause. Water.org has used these funds to help more than 1,000 people, and I couldn’t be more proud of that fact. Looking ahead In 10 short years, Oxi Fresh has expanded to more than 300 locations across the U.S. and Canada, more than one-third of which have opened in the last three years alone. With our innovative and environmentally friendly carpet cleaning method, we’ve completed more than 700,000 jobs and have conserved 30 million gallons of water. Still, just like back in college, I want to do more. Our goal is to reward franchise opportunities to qualified leads in even more locations, 50 a year if possible. We want to add more features and support systems for our franchisees. We want to introduce the world to our sister brands, Midtown Chimney Sweeps and Elephant in the Room Men’s Grooming Lounges, two amazing concepts that could revolutionize their markets. I want to make Oxi Fresh Carpet Cleaning the #1 cleaner in the world and for it to become a household name. Hopefully, this should keep me nice and busy. n Jonathan Barnett is the founder and CEO of Oxi Fresh Carpet Cleaning.

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Consumer Marketing CONSUMER MARKETING INITIATIVES

18 CMO Q&A

Donna Josephson leads a cross-functional strategy at Fazoli’s

22 CMO Roundtable “How do you balance national brand campaigns with local store marketing?”

24 Customer Service

Do you have the nerve to post all your customer reviews?

26 Millennials

Gen Z: Millennials are like soooo last generation! 16

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CONSUMER MARKETING

CMOQ&A Team Player

Cross-functional strategy drives Fazoli’s new CMO

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BY KERRY PIPES

n mid-2015, Sentinel Capital Partners acquired Fazoli’s from Sun Capital. Sentinel, which had scooped up Checkers and Rally’s, Newk’s Eatery, and TGI Fridays the year before, targeted an aggressive growth strategy for the nearly 30-year-old brand. And this past February, Fazoli’s announced the hiring of a new CMO and vice president of operations. The CMO was Donna Josephson, who was tapped for her two decades of marketing experience at brands that included McAlister’s Deli, Wendy’s, Applebee’s, and Chickfil-A. At Fazoli’s Josephson is spearheading marketing strategies aimed at supercharging the brand’s growth across its 220 units. But it’s a team approach from top to bottom, says Josephson. “Marketing strategies are developed to support the key initiatives in conjunction with our agency partners and then shared with cross-functional leaders to ensure alignment,” she says. “There is ongoing communication of the plan throughout the year, and we have a cross-functional execution that brings the plan to life.” Plans also are shared with the franchise advisory board and then with the entire system. Josephson has a track record of marketing success. As vice president of marketing at McAlister’s, she led the executive team in redefining the sandwich chain’s brand positioning and recruited and built a team to support it. At Chick-fil-A she pioneered local marketing programs, and in the marketing office at Wendy’s she was awarded the R. David Thomas Outstand-

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ing Management Award. She understands how marketing affects the performance of the brand and is well aware of its relationship to a brand’s operations and balance sheet. That’s why she believes it’s important to be “bottomline focused while building programs that appeal to consumers.”

Describe your role as CMO. I lead overall brand strategy development, brand management, national and local initiatives, as well as research and development, and menu innovation. My team is responsible for driving profitable sales growth for our 220 franchise and company locations.

What’s the most challenging part of being a CMO today? One of the biggest challenges is ensuring that the team is up to date on technological advancements and how consumers’ needs and wants are evolving within this rapidly changing environment. Technology has enabled marketers to have more information in regard to consumer behavior than we have ever had. Interpreting that data to create products and meaningful experiences that meet our guests’ needs and increase demand for Fazoli’s is key. We are adding new technology that will enable the organization at all levels to better serve our customers. This new technology will provide better data for decision-making, better communication and training for associates, and help us provide a better overall guest experience. What are the 3 most important keys to being an effective CMO leader today? Assuming the basic foundations of solid brand positioning that resonates with consumers and a high-functioning marketing and R&D team are in place, first it is crucial to understand the guests’ journey as they interact with your brand. Data provides insights into the everchanging needs and wants of our guests. At Fazoli’s, developing great-tasting products and meaningful programs to fill those needs across all touch points of their journey with the brand helps us deliver a consistent and rewarding dining experience that drives both trial and repeat business. This leads to the second key, which is being able to work well and partner across all levels of the organization. It is not enough to create great products and demand for them. From advertising to the delivery of the product, the CMO needs to work cross-functionally with other departments in the organization to ensure the guest experience is brought to life in a meaningful way. This requires develop-

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ing trusting partnerships and creating an environment that respectfully challenges the status quo to encourage growth and change. Finally, it is important to understand and have sensitivity to the bottom line. Marketing has a major impact on the performance of the brand. Balancing being bottom-line focused while building programs that appeal to consumers is necessary to be successful. How is your marketing/branding strategy developed, and how does it flow through the system? The planning process begins with revisiting the results and performance of current initiatives. At Fazoli’s, I am fortunate to work with a great peer team of strong leaders. Led by our chief executive officer, Carl Howard, we meet regularly to discuss the progress of our key initiatives, results to date, and problem-solve hurdles that may arise. The teams are constantly course-correcting to keep results on track, and our marketing team does the same through weekly meetings. Key brand strategies and initiatives do not change radically year to year as there is a longterm vision for growth with approved initiatives to achieve that growth. How do you prepare a marketing plan and execute the strategies? This focus on our overarching goals and brand strategies allows each team to concentrate on building solid execution plans. Marketing strategies are developed to support the key initiatives in conjunction with our agency partners and then shared with cross-functional leaders to ensure alignment. Plans are then shared with our franchise advisory board and finally with the system. There is ongoing communication of the plan throughout the year and we have a cross-functional execution that brings the plan to life. How do you measure marketing results and effectiveness? We have daily reporting of year-over-year sales, traffic, and check performance. We also benchmark our performance to the industry. Reporting includes sales performance of promotional items and guest measures of satisfaction. This gives us insight as to whether promotional products added to

“It is not enough to create great products and demand for them. From advertising to the delivery of the product, the CMO needs to work cross-functionally with other departments in the organization to ensure the guest experience is brought to life in a meaningful way.” the guests’ overall satisfaction and revisit intent in addition to overall menu and service satisfaction. With the introduction of social media, we have various measures in place to track brand sentiment, engagement, and the overall growth of our fan base. Brand tracking research is employed to monitor the health of the brand. Discuss your core consumer marketing strategies and objectives. The objective is to drive traffic, sales, and overall brand growth. Our strategy is to offer great tasting Italian fare at affordable prices while making our entrées fresh to order and providing table service, and of course, fresh, hot, unlimited breadsticks for our dine-in guests. It has proven to be a winning formula. Describe your marketing team and the role each plays. The team is organized into four areas. 1) Our brand team oversees the development and execution of the brand strategies and testing, promotional calendar, and all of the programs. 2) R&D is accountable for new product development, product upgrades, and continuous improvements. 3) Our social and PR team oversees all social media and community management, PR, and cause marketing. 4) Our field marketing team is responsible for all local marketing initiatives for our company and franchise restaurants. This team develops and executes local media and promotional programs in conjunction with the national marketing and promotional plan. How do you work with other internal departments, and how does technol-

ogy help? Creating solid partnerships with internal departments is essential to moving Fazoli’s forward to achieve our business goals. As mentioned earlier, leaders from the cross-functional team meet regularly, and while we use technology to communicate milestones on project plans and to house key elements, these regular meetings are where the key decisions and action plans take place. How do you manage costs and budgets? Very closely! Fazoli’s is a small brand and does not have a large marketing and R&D budget. We must be extremely efficient and effective using the existing budget. While we have an agency of record, we also have in-house creative services and social community management. This helps us manage costs and provide added value to our franchise community. Do you see vendors as business partners? Why/why not? Absolutely! We rely on our vendor partners to understand our key initiatives and bring new ideas to the table. They are essential in helping us provide a great experience to our guests and delivering value. How have marketing strategies and tools changed over the past decade? The impact technology has had on consumers and how they interact with brands is amazing. Today social and digital media tools are essential for communicating with your consumers. Social media happens to be one of the most cost-effective tools in reaching customers where they live, work, and play. Our guests have let us know that they want to engage with us through social media, and we are jumping in on those conversations. Social media is included as a key tactic in all our marketing promotions. Consumer usage of online and mobile ordering also has spiked. We are in the process of introducing a completely new online ordering platform as we upgrade our catering program. Consumers have the option to place a phone order through Fazoli’s call center or they can order online, which gives them the ability to control how they interact with our brand. Since we began the rollout, we have experienced growth in the early stages of the program. n

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CONSUMER MARKETING

CMOroundtable

HOW DO YOU BALANCE NATIONAL BRAND CAMPAIGNS WITH LOCAL STORE MARKETING? Mike Richard National Marketing Director Weed Man USA For any national campaign, we must keep in mind that the need for our services can vary on the regional and hyper-local level depending on climate and extreme weather. If a lawn care mailer gets buried under a pile of snow that is a wasted effort. So while we continue to fund national advertising campaigns and initiatives, we have to be careful that they don’t fall on deaf ears when funneled down to the local level. We try to focus our local marketing initiatives on moving the needle and meeting specific benchmarks for improvement from the previous year. Before rolling out a new national campaign, we test it in our flagship operations and look to our leading franchisees to report back and give us measureable feedback. If it’s not measurable, it’s not worth doing. While a franchisee may say they want to increase their revenue by 15 percent over the previous year, we work with them to create a business plan that can be measured in more nuanced ways, say for example increasing contact rates, closing rates, etc. For it to work, there must be consistent and thorough tracking of results. I have found that the franchisees who have the most success in executing a local market-

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ing initiative are thorough and consistent with their statistical analysis. That realtime feedback allows us to work together to make any necessary adjustments. Finally, the best way for our company to balance national brand initiatives and local marketing has been an optional marketing program with a comprehensive reporting structure that really focuses in on the process. The success of having the opt-in program has corralled the most growth-oriented franchisees in our system to serve as the example. Their commitment has been the most influential aspect of testing the effectiveness of our campaigns and how they contribute to an overall business plan. The program has been wildly successful, creating doubledigit revenue growth of overall revenue in the U.S. and propelled us from $8 million in annual revenue to nearly $100 million in the past decade. KT Remus Vice President of Marketing Retro Fitness One of the greatest challenges for any franchisor marketing department is not just getting your franchisees to understand the importance in spending on their advertising, but to inspire them to invest energy into their advertising and not make it another “to-do” item on their master checklist: “Order direct mail. Check! Approve Pandora script. Check!...” I see our corporate marketing role as our franchisees’ coach, cheerleader, and even water boy. We will play whatever role is needed to ensure our team on the field is winning. As our franchisees’ marketing coach, I believe in investing ad fund dollars in professional equipment and tools to ensure my players are fierce and polished when they walk onto the field. We support 100 percent of our franchisees’ artwork needs, so each piece of marketing they do on their own looks like a Madison Avenue agency produced it. We invest in communication, platforms, and tools to ensure we

are a team and on the same page, always. As their coach, we ensure they are strong in the basics and following the play cards we practice every day. As the marketing cheerleader, we know the importance of having high energy, and that nothing makes a player more excited to be playing their best game than when they see their “name in lights.” We believe that investing in national (and sometimes regional) advertising is like chanting “Go Retro Fitness!” in our franchisees’ ears as

they are driving to their gym, watching TV, or searching the web. It is a constant reminder that we have their back and are excited to have them on our team. The marketing water boy is not the most glamorous job, but we know how very important it is. There are times when a franchisee takes a knee and needs some specialized help to get rehabilitated and back in the game. We know how important every single player is to our network and we do invest, as needed, in markets where we know the fight is going to be harder, the odds are going to be greater, and we know our franchisee is the sure bet to break all records and win the game for us. We are a team. We spend the ad fund dollars intelligently based on what is best for the whole in this ever-changing game we call franchising. n

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CONSUMER MARKETING

Customer service

Let It All Hang Out!

Have the nerve to post all your customer reviews? BY JOHN DIJULIUS

W

hat if you had your customers review all associates, locations, or the products on your menu directly to your website? I am not talking about raving fan testimonials. I’m talking about all of your customer reviews, about allowing customers and potential customers to see your highest and lowest rated stores, employees, and products. Customers would see things like, “Jeremy at the Hudson store was unsympathetic about our food coming out cold.” As Richard Brandt pointed out in his book about Amazon, One Click, “The Internet offers two-way communications.” No one realized this better than Amazon founder Jeff Bezos, who saw he could get customers to do some of the editorial work themselves while indulging their passion for books and their desire to share their feedback. Originally, this feedback from customers was controversial. They were allowed to write bad reviews of books, and competitors couldn’t understand why a bookseller would allow such a thing. It was all part of Bezos’ vision “to create the world’s most consumer-centric company.” Within a few weeks after starting the customer review process, Bezos said, “I started receiving letters from wellmeaning folks saying that perhaps you don’t understand your business. You make money when you sell things. Why are you allowing negative reviews on your website? But our

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point of view is we will sell more if we help people make purchasing decisions.” Uber reviews customers Did you know that you have a rating as an Uber customer? That is right. Every time you use Uber, you rate your driver. At the same time, Uber drivers are rating you. You can look up your own customer rating in your Uber app. This is genius. Uber will stop picking up a customer that falls below a certain score. No one wants to be blacklisted from Uber. Besides that, it has made me be nicer to my Uber drivers because I want the higher customer score. Total transparency Arnie Malham, president of CJ Advertising, allows all his employees and custom-

ers to publicly post their satisfaction scores and share feedback. All his employees can see what their co-workers are posting and how the company is doing with regard to overall satisfaction. He does the same thing for his clients. Each quarter they are asked to fill out a survey stating their level of satisfaction (1 to 5) and share any and all comments they have. All of his customers can see what his other customers are saying, and how CJ Advertising is being rated. I have never heard of such transparency! I asked Arnie about this and he said, “Most people say I need to have my head examined for doing this. However, we like the pressure of knowing that if we don’t take care of our customers, or don’t react when something goes wrong, it will be made public.” I have seen and read the comments and have interviewed several of CJ’s clients, and they say this is one of the reasons they love to do business with the company. “CJ is a forward-moving, robust company largely as a result of Arnie’s appetite for critical feedback. While most companies adopt the ‘head in the sand’ approach with regard to criticism, Arnie actually goes looking for it. By asking his clients what they can do better, he puts CJ in a better position to actually get better! CJ rocks,” says Carter Mario, owner of the Carter Mario law firm and a long-time customer. Do you think your brand’s customers’ experience would improve if you were brave enough to post all of your customer reviews about your employees and products? ■ John R. DiJulius III is the author of The Customer Service Revolution and president of The DiJulius Group, a customer service consulting firm whose clients include Starbucks, Chick-fil-A, The Ritz-Carlton, Nestle, PwC, Lexus, and many more. Email him at john@thedijulius group.com.

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CONSUMER MARKETING

Millennials Gen Z on the Rise

Millennials are sooo last generation BY TODD JUNEAU

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oday’s media darlings, the Millennials (Gen Y) were born beginning in the 1980s. For better or worse, we all seem to get a generational label these days to describe who we are, and how we should be dealt with from business, economic, and social perspectives. I am in the group labeled Generation X (born in the 1970s) and have contributed two individuals to Gen Z. As progressive, controversial, and populous as Gen Y is today, they may be no match for the coming Generation Z, which is poised to change everything once again. Gen Z is on the verge of becoming the next big spender and driver of business and social change. Outnumbering Millennials by more than 1 million according to recent census data, Gen Z members are the first truly digital natives. The context in which I now describe and opine about Gen Z is based mainly on looking at my own children, aged 11 and 13. Born after the 9/11 terror attacks, they are smack in the middle of the Gen Z age group. My kids, like many, influence mom and dad’s purchasing decisions and have access to real-time information that energizes their needs and wants like no generation before. To understand them, we must first acknowledge how these digital natives are engaging with online content: their expectation is to have it available across all their devices, wherever

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they are, 24/7. Augmented reality, thanks to Pokémon Go, is becoming part of their everyday reality (and it’s just begun). Virtual reality experiences are becoming more common as technology, devices, and content evolve. Their expectations as consumers are fueled by 360-degree virtual views of places to go and make purchases. Wherever they are, they can pinch and pull visual imagery to explore and zoom in on something of interest, and everything is romanced in high-definition. Think next of the buying habits being created by the immediacy and realtime nature of goods and services fulfillment. My kids can order what they want through Amazon Prime and have it the same day. They can order food from an app and have it delivered anywhere they are. And soon they will be the first generation of drivers who may not rush to get their licenses and instead be taking autonomous cars hailed from an app to get them where they need to go—without parking hassles and those expensive monthly car and insurance payments. How they communicate is evolving, with texting currently their default. Apps such as Snapchat and Whisper allow them to have private conversations that are not public-facing or influenced by advertising (yet). Yes, they still watch TV, but streaming on their laptops or phones, with on-demand as a standard expectation, preferably with the ability to upgrade and skip ads. They listen to music on paid, ad-free subscription services instead of terrestrial radio. And apps that create entertainment and utility are eclipsing webbased usage.

To truly intersect with this next generation of consumers, advertisers will have to invest time and research to understand the technology ecosystems Gen Z uses— and go far beyond their current methods of promoting a product or service on a website or search engine. As this generation enters the workforce, factors that didn’t exist or matter before will be significant for businesses of the future. This generation is already ahead of all others for producing entrepreneurial activity: more kids under 20 have their own companies now than any other generation before them. Their experiences of what a company should be will be greatly influenced by technology and global information. They are keenly aware of being raised in a time of war and economic uncertainty. They believe companies should have a purpose and social responsibility as part of their everyday practice, and it had better be about making the world a better place. Never before has a generation placed so much emphasis on social awareness and global issues. They will seek more balance in their workplace environment, and will be critically aware of their options to improve on what is most desirable to them. To fulfill their hunger for hyper-paced development and innovation, virtual work options and collaboration will be commonplace. The 9-to-5 job and slow-to-react business practices will not suffice for Gen Z. Companies will have to accept this change and evolve their business model and operations to account for this coming entrepreneurial and labor stream. Their expectations will be different, and if met will likely yield one of the most passionate and productive generations ever seen. Born with technology at their fingertips, they will change what consumers and entrepreneurs are. Today’s companies must go deep to understand how to communicate their advertising message and how to offer up entrepreneurial opportunities that will engage and resonate with Gen Z. n Todd Juneau is managing director at Mindstream Interactive in San Diego. To learn more, call 614-754-2035 or email biz@ mindstreaminteractive.com.

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Growing Your System FRANCHISE DEVELOPMENT INTELLIGENCE

30 Feature: 2017 AFDR Annual Franchise Development Report

Highlights from our in-depth benchmarking survey of 167 brands

36 Feature: 18th Annual Leadership & Development Conference

Sales pros and CEOs gather in Atlanta to “Amplify” their growth

42 Feature: Mystery Shopping Results Learn how it’s done—and how to do better!

48 Feature: STAR Awards

Recognizing the top performers in franchise development

54 Growth Strategies

Going abroad? Be prepared to make some changes!

56 Supplier Spotlight

Silvercrest Advertising’s LMap tool helps brands market locally

58 Challenge the Pros

“How do you measure the ROI from your annual franchise recruitment budget?”

59 Sales Smarts

Evaluate your franchise opportunity as if you were buying it!

60 Market Trends

Adjusting to disruption is not only possible—it’s necessary

62 International

The latest trends in overseas expansion by country and region

64 It’s Closing Time

Healthy tips for sales pros on how to manage burnout 28

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Franchise Update’s Annual Multi-Unit Buyer’s Guide

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BY EDDY GOLDBERG

2017AFDR IT’S BENCHMARKING TIME!

R

167 BRANDS DELIVER ACTIONABLE RECRUITMENT DATA

esults from the 2017 Annual Franchise Development Report (AFDR) were unveiled in late September at the 18th annual Franchise Leadership & Development Conference in Atlanta. The 2017 AFDR is based on responses from 167 franchisors representing 60,989 units (51,789 franchised and 9,200 company-owned). Participants in the survey consisted of franchisors that completed an online questionnaire. Responses were aggregated and analyzed to produce a detailed look into the recruitment and development practices, budgets, and strategies of a wide cross-section of franchisors. The data and accompanying commentary and analysis provide the basis of the 2017 AFDR. Highlights from the report were presented in a general session at the conference by Franchise Update Media CEO Therese Thilgen. Among her observations based on the AFDR data were: • Franchisees are getting younger. Are you prepared? • The two most important factors for development are franchisee validation and a strong sales process.

2017 ANNUAL

FRANCHISE DEVELOPMENT REPORT

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• Recruitment budgets were up in 2016. • Half of ad spending for recruitment is for digital. • Four in 10 brands still don’t track cost per lead or cost per sale. • 44 percent of food brands exceeded their goals in 2016. • International expansion for U.S. brands continues to grow. Growth plans for 2017 from the 167 respondents target a total of 6,536 additional franchise units, 1,966 through existing franchisees and 3,843 from new franchisees. For comparison, last year’s growth plans from 134 brands targeted a total of 6,442 additional units; and for 2015 those numbers were 6,063 total new units from 139 brands. Below are additional highlights from the 2017 AFDR. Ordering information can be found on page 33. • Recruitment budgets. Average budget plans for 2017 for franchise sales and recruitment (advertising and media expenses, not including brokers and employee compensation) among respondents was $181,510, with a median of $125,000. This is an increase from last year, when the corresponding numbers were $162,821 and $120,000. This could indicate more intense competition not only for quality candidates, but also higher internal costs stemming from salaries and commissions for the best salespeople.

• Where the money goes. Planned allocation of respondents’ 2017 recruitment budgets remained essentially the same as in previous years, with some variation in print and trade show spending. At 49 percent, spending on digital continues to increase and is expected to continue growing and account for half or more of all recruitment spending next year as prospects’ use of mobile devices to explore franchise opportunities continues on its own growth trajectory. Spending on print has stabilized after a few years of decline, while budgeting for trade shows (17 percent) and public relations (13 percent) remained about level with 2016.

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“Responses were aggregated and analyzed to produce a detailed look into the recruitment and development practices, budgets, and strategies of a wide cross-section of franchisors.”

• Where the digital money goes. We also asked franchisors to break out their digital spending. Franchise opportunity sites, the largest category by far, accounted for one in three dollars in this category (33 percent), down slightly from 36 percent last year. Pay-per-click remained steady at 18 percent, while SEO (12 percent) fell slightly from 15 percent last year. Together, PPC and SEO accounted for three in 10 dollars spent on digital (30 percent). Email marketing, social networking, and remarketing together accounted for about one in three dollars (28 percent) spent on digital marketing in 2016.

• Top sales producers. After taking the lead in 2012 as the top sales producer, digital continues to dominate, holding steady at 42 percent over the past 5 years. The other sources, which accounted for about six in 10 sales, have remained fairly steady over the past 6 years (except for “Other” in 2011, which has fallen by more than half as franchise brands have become better at tracking the sources of their sales). Referrals, considered by most to be the strongest source of leads, remain responsible for three of 10 sales (30 percent). However, when it comes to attributing sales to online or digital sources, it’s important to keep in mind that, as Gary Gardner, chair of Franchise Update Media, pointed out at last year’s conference, “The last click gets the credit.” He urged attendees to consider the extent to which their other efforts contribute to the more easily measured digital share of spending on sales.

• Top digital sales producers. With digital spending accounting for more than four in 10 sales and holding steady for the past 5 years, we asked respondents to segment their digital spending as it relates to sales. With the numbers for 2016 nearly identical with those of the previous year, we can surmise that, after an uneven beginning as franchisors learned the ropes of online recruitment, digital has settled into place as a source for franchise sales (that is, until the next disruptive technology appears on the scene). Over the past 3 years, ad portals led the way as a source for franchise sales, accounting for about one in three sales over the past 3 years. The next two leading digital sales sources, SEO and PPC, also have held steady for the years 2014 through 2016.

• Measuring costs. About six in 10 respondents said they track cost per lead (61 percent, compared with 60 percent last year) and cost per sale (57 percent, compared with 58 percent last year). This means that four in 10 respondents still do not track cost per lead and cost per sale, a number that franchise recruitment experts continue to shake their heads over, wondering how any professional sales team can set a budget, spend the money, and not measure the effectiveness of that effort. On a positive note, the number of brands tracking cost per lead and cost per sale has improved from several years ago (52 percent in 2014, about the same in 2013, and 65 percent in 2012). Why 100 percent of brands don’t track these critical metrics remains a mystery. The average cost per lead reported in this year’s survey was $109, up from $97 last Franchiseupdate I S S U E I V, 2016 

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2017AFDR “We’re hearing that greater uncertainty stemming from the sluggish economic recovery has dampened the appetite for risk among candidates.” year, while the average cost per sale of $7,558 also was up, from $6,300 last year.

• Sales closing ratios. Again, not much change from the previous year. Although the ratios for 2015 and 2016 were lower than those in 2014, our panel of experts for that year categorized the 2014 figures as unusually high, more of an aberration than a norm. At 2 percent, the lead-to-sales ratio in 2016 was more in line with the numbers from the past 5 years. The applications-to-sales ratio, at 20 percent, is in line with 2015 and 2013, and much improved from 2011 and 2012. While the discovery days-to-sales ratio held fairly steady compared with the two previous years, those ratios dropped noticeably from 2011–2013. Last year we wondered if more unfit candidates were getting through to discovery days, if franchisors were becoming more selective in the final stage of the award process, or if the economy or financing issues were the reason for the decline. This year we’re hearing that greater uncertainty stemming from the sluggish economic recovery has dampened the appetite for risk among candidates, and that increased competition for prime real estate sites for the many brands that have similar footprints are contributing factors to the decline here. In the legal panel at the Franchise Leadership & Development Conference, many questions were about external threats to the franchise business model coming from regulators and legislators. Whether the threats are real or not, this could be another factor as candidates question the long-term viability of a brand’s profit model in light of possible future restrictions. Franchisors must examine their discovery day process to see where candidates are dropping out and conduct exit interviews with those who drop out, asking why.

• Franchisors exceeding goals. Several clear trends are apparent among brands that exceeded their goals in 2016. Their cost per lead, at $76.50, was significantly lower than the average cost per lead of $109 reported by all respondents. Cost per sale, at $6,266, also was much lower than the average of $7,558. This would indicate that the franchisors exceeding their goals are much more efficient in their recruitment spending. Interestingly, the “exceeders” had a lower applications-to-sales ratio than the entire survey group (15 percent, compared with 20 percent). However, the discovery day-to-sales ratio of 80 percent for those who exceeded their goals was much higher than the average of 63 percent for the entire group. This could indicate that the most successful brands weed out non-viable candidates earlier in the process, rejecting more applicants before they get to discovery day. Looking at money as a factor, 57 percent of those with an investment per unit above $250,000 exceeded their goals, compared with 71 percent the year before. There seems to be increasing evidence building that although lower-cost concepts are easier to afford for those starting out in franchising, the food sector is overcrowded and the big action is coming at the higher end, driven by ever-larger multi-unit operators. More brick-and-mortar service concepts, however, exceeded their goals in 2016 than the year before. A comparison of the “exceeders” with last year’s respondents by industry segment shows the following: Segment Food Retail non-food Service (brick & mortar) Service (territory/pop.) Retail food

2016 2015 44% 59% 9% 11% 30% 15% 9% 11% 9% 4%

• How multi-unit franchisees find new brands. About six in 10 (58 percent) multi-unit operators said they attend trade shows to find new opportunities, down from 67 percent last year. Other ways they find new brands include: trade magazines (50 percent, up from 36 percent last year); personal experience with a brand (47 percent, up from 36 percent last year); and referrals from associates (47 percent,

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2017AFDR “The 2017 AFDR is packed with timely information and benchmarking data that can help your franchise system grow faster and close more deals.” up from 28 percent last year). Multi-unit operators at our annual Multi-Unit Franchising Conference overwhelmingly say that networking opportunities with their peers to learn about new brands, along with the opportunity to meet with new brands in the Exhibit Hall were among the top reasons they attend. ■

10

DIFFERENTIATORS The following are 10 of the most important things the more successful brands have seen or done that make their franchise offering more attractive to prospects and candidates: • Telephone leads are more important than online submissions • Quality of leads is up • Involvement in trade associations to connect with franchise prospects • Provide FPRs • More multi-brand franchisees • Unit-level performance • Modification of fees • Resale agreements in FDDs • Lower resale rate • Higher compensation packages for sales executives

T

2017 AFDR NOW AVAILABLE !

he 2017 Annual Franchise Development Report (AFDR) delivers data collected from 167 franchisors representing 2017 ANNUAL 60,989 units, with responses organized by industry, unit investment, system-wide sales, and more. The annual report provides franchisors with the ideal tool for studying their development practices, benchmarking their sales and recruitment budgets against their own industry categories, and setting goals and budgets for the year ahead. The report also includes research into online recruitment practices, the growing use of mobile and social tools by prospects, and best practices by franchisors. The AFDR, the only sales and lead generation benchmark report available in franchising, identifies industry sales trends and top lead generation sources for meeting sales goals. For example: • How does your sales budget compare with other brands in your segment? • Are your closing ratios in line with your industry and investment level? • What conversion rates should you expect from your website? • Is your online spending paying off? How do you know? • Are your brokers delivering—and is their price per deal

too high? • Are you using referrals, and how much are you paying for them? • How are franchisors using social media to recruit candidates? • Some franchisors are exceeding their sales goals. What are they doing differently from those falling short? The 2017 AFDR is packed with timely information and benchmarking data that can help your franchise system grow faster and close more deals—while saving thousands of dollars in cost per sale. Based on in-depth surveys from 167 franchise companies, this thoroughly researched report reveals the success drivers that are sure to PRODUCED BY boost the output and quality of your sales department. Filled with the most comprehensive sales and lead generation data in franchising, the 2017 AFDR, at more than 250 pages, is a must-buy tool for franchisors, development consultants, and advertising, marketing, and technology suppliers—and is ideal for benchmarking and building budgets and media plans. The complete 2017 AFDR, with analysis and benchmarks, is available for $345. For ordering information, call Sharon Wilkinson at 800-289-4232 x202, email sales@franchiseupdatemedia, or visit http://afdr.franchiseupdate.com.

FRANCHISE DEVELOPMENT REPORT

Franchiseupdate I S S U E I V, 2016

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OW MORE. SELL MORE. KNOW MORE. SELL MORE. KNOW

THE

2017 ANNUAL

FRANCHISE DEVELOPMENT REPORT Unique Information Source “This is the only place we can get a benchmark—the numbers to give us an idea of how we’re doing. It shows us where we are, where the industry is, and where it’s going.” Pete Lindsey, Vice President of Franchising, Sport Clips

Metrics and Spending “I use the AFDR to analyze my individual metrics: my request-to-application ratio, applications-to-‘join the flock’ day (discovery day) ratio, and lead conversion. I also look at how we’re spending money as a percentage of our advertising budget compared to others.” Paul Pickett, Chief Development Officer, Wild Birds Unlimited

PRESENTED BY:

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HOW DO YOUR SALES MEASURE UP IN TODAY’S ECONOMY? Franchise Update’s 2017 Annual Franchise Development Report is packed with timely information and benchmarking data that can help your franchise system grow faster and close more deals.

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your

GROWTH

BY KERRY PIPES & EDDY GOLDBERG

Amped for Growth!

18th Leadership & Development Conference raises the volume

H

undreds of franchise development professionals gathered in Atlanta this past September for the annual Franchise Leadership & Development Conference (FLDC), one of the year’s must-attend events for brands looking to improve their sales, share ideas, and learn more about today’s best practices in franchisee recruitment. The theme this year was, fittingly, “Amplify Your Growth.” This year, 463 total attendees representing 285 franchisor executives from almost 200 franchise brands across the food, retail, and service sectors were on hand for the event, along with 74 supplier companies sponsoring the event. Two full days and a final morning provided plenty of opportunity for expert speakers and panelists to interact with attendees in large settings, small sessions, and roundtable groups. The educational sessions, developed by the FLDC Advisory Board, were packed, lively, and well-received. No FLDC would be complete without thought-provoking and inspiring keynote speakers. This year’s keynoters were Rich Karlgaard, publisher of Forbes magazine, and Seth Mattison, workforce strategist and management “trend spotter.” The Exhibit Hall, sold out again, is another high point at the FLDC. Thirdparty suppliers and franchisor executives mingled freely to discuss business strategies, solutions, and products and services to help brands grow. This year’s Platinum Sponsor was FranchiseGrade.com. Gold Sponsors were Benetrends, Hot Dish Advertising, Pango Financial, and Franchising.com. The STAR Awards Banquet was sponsored by eKomi.

36

FLDC Conference Chair Shelly Sun

2016 CONFERENCE NUMBERS 463

TOTAL ATTENDEES

285

FRANCHISOR PROFESSIONALS

200

FRANCHISOR BRANDS

74

SPONSORING COMPANIES

Amped for Day 1 The conference swung into action Wednesday morning in the the familiar hallways of the InterContinental Buckhead in Atlanta as attendees gathered for registration and breakfast. The day’s educational sessions consisted of two strategic tracks. The morning session of the Grow with the Right Franchisees track was called “Geo-Targeting for Franchisee Recruitment.” Lori Merrall, senior director of franchise sales at BrightStar Care, facilitated a panel that discussed recruitment marketing strategies and how to more efficiently and effectively reach prospects, as well as how to support hyper-local franchisee recruitment initiatives. Panelists were Georgia Chasen, director of franchise development at Sylvan Learning; Jennifer Durham, chief development officer at Checkers & Rally’s; and Jack Humbert, vice president of franchise sales and finance at J.D. Byrider. After lunch, the afternoon session of this track reconvened in a session called “Growing Franchisees To Grow Your Brand.” Facilitated by Dan Doulen, director of franchise development at Buffalo Wings & Rings, the panel discussed how to reach the right franchisees once you’ve defined your target markets. Panelists were Chris Goethe, vice president of franchising at Primrose Schools; Scott Nichols, senior vice president of franchise development at Charter Fitness and Spenga; Renuka Salinger, vice president of franchise development at Camp Bow Wow; and Charles Watson, chief development officer at Tropical Smoothie Cafe. Concurrently, the Maximize Sales Performance track kicked off the morning with a session called “Mastering Sales Fundamentals.” Facilitated by Paul Pickett,

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chief development officer at Wild Birds Unlimited, the panel dug into recruiting fundamentals from A to Z: cold calling, how to conduct a call, qualifying candidates, FDD review, discovery day, and closing the deal. Panelists were Christina Chambers, vice president of development at Huddle House; Mike Hawkins, vice president of franchise development for The Dwyer Group; Mike Reynolds, chief development officer at Milano Restaurants; and D’Wayne Tanner, vice president of fran-

the shift to mobile, 91 percent of sales still take place inside the store. And, when it comes to franchise brands and the potential effects of disruptive innovation, Kartarik said, “If you’re not staying up at night, you need to think harder.” During the course of the day-long session, Kartarik introduced presentations from Christine Specht, CEO of Cousins Subs; Jonathan Barnett, founder and CEO of Oxi Fresh; and Shelly Sun, founder and CEO of BrightStar Care and chair of this year’s FLDC. Each delivered firsthand acKeynote speaker Seth Mattison counts of how their companies have adapted ees to attend to the body and spirit in to the changes the Exhibit Hall, where food and drink wrought by tech- were in plentiful supply as they rubbed nology, market elbows from 4:30 to 7:30 p.m., meeting shifts, regulation, one other and exploring what the suppliand more; as well ers had to offer. as how anticipating and manag- Re-Amped! Shelly Sun, Tom Wood, Christina Russell, Paul Damico ing disruption Thursday kicked off with a light breakchise development at DMT Consulting. and innovation have played a role in the fast before the morning’s general session The afternoon session of this track, success of their brands. Each presenta- convened. Conference Chair Shelly Sun “Build High-Performance Sales Teams,” tion was followed by roundtable exercises addressed the crowd, emphasizing how honed in on how to find, hire, and retain and discussions, allowing the executives people and relationships built at the conkey team members who fit the company’s to meet one another and share their own ference can make a difference. She recalled culture and goals and can deliver the de- ideas and experiences throughout the day. her earliest days as a franchisor, noting sired results. Facilitated by Eric Little, chief When it comes to managing change that 10 years ago the FLDC was the first development officer for Right at Home, and disruption, Kartarik advised, “Get industry event she ever attended. “The the panel consisted of Steve Corp, senior ahead of today’s challenges or they will transparency and openness of attendees vice president of franchise sales for Focus eat you. The innovators and real disrup- to share both the good and the bad was invaluable to me,” she said. Brands; Tim Courtney, vice president tors will survive.” As an example of the 10 years of eduof sales at CruiseOne Dream Vacations; Heads filled with visions of sugar plums Gillian Harper, chief operations officer in the form of great ideas ready to trans- cation and relationships she’s built at the at ShelfGenie; and Bill Schreiber, vice late into action, it was time for attend- conference, she said, “We made some president of business development for Church’s Chicken. At the same time as these two tracks were under way, three dozen franchise executives were participating in the allday CEO Summit. The high-level event was facilitated this year by Sport Clips President Mark Kartarik (profiled on page 10). He opened the day talking about disruption. “Change happens in months, not years now,” he said, pointing to how the iPhone, Amazon, and Uber, for example, continue to change the way we all behave. Yet he also noted that despite all the talk Loosening up before the STAR Awards dinner about the role of digital technology and Franchiseupdate I S S U E I V, 2016

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GROWTH

Amped

for Growth!

FRANdata President Edith Wiseman

process changes at our company last fall. It didn’t go well, but I was able to turn to industry allies I had met here to help get things on track.” Next up was FRANdata’s annual “State of Franchising” economic report. In a departure from tradition, Edith Wiseman, president of FRANdata, stood in for Darrell Johnson, who was attending his daughter’s wedding. Wiseman drew laughter and applause when she reported that the Johnson family brand was celebrating 20 percent growth with its “new unit.” • State of the economy. What remained basically the same in her presentation, was the news about the economy: continued slow growth and greater uncertainty lie ahead. Looming recessionary concerns, she said, are based on four

Making friends at the STAR Awards dinner

38

signals: falling profit margins, the Fed’s disruptive change, a brand’s values and negative Labor Market Conditions Index, culture will sustain a company by providnegative Capex growth, and the specula- ing a core around which the company can tive default rate (junk bonds) above 5.5 adapt to external change. percent—a set of conditions that preceded He cited a prediction from Cisco’s previous U.S. recessions. John Chambers that 40 percent of today’s Business confidence is down, but con- large, profitable companies will “fail” sumer confidence is stable. The U.S. GDP within 10 years. Failure in this context, is recovering, but is the slowest recovery he said, means long-term decline in revsince 1948. And while economic “shock enue, profitability, market value, brand absorbers” are at the end of their effec- value, and cultural relevancy. Karlgaard tiveness, she said the good news is that then laid out three “coping mechanisms” we understand the risk better than we for companies to not be among that 40 have in the past. percent. To succeed, he said companies • State of capital access. “Small busi- must be 1) strategy-driven, 2) technologyness lending is down among major banks, driven, and 3) data-driven. but there are other sources of lending,” she In his 2014 book The Soft Edge, he said said, as the number and types of alternate these three drivers are the cost of entry lenders continue to disrupt the traditional into the marketplace, the ante every comlenders through the use of innovative pany must come up with to play. But the technologies and market segmentation; big game-changer and competitive edge however, she added, the banks are closing for a company seeking sustainable growth the gap. One change resulting from greater accessibility to Mystery shoppers Art Coley both personal and franchise and Maureen DiStefano system data, she noted, is that credit decisions have become more data-driven, relying more on algorithms than on personal relationships. Franchisors who act now to improve their performance data, she said, will be “best equipped to remain competitive in the changing lending environment.” • Implications to franchising. Uncertainty creates opportunities for the prepared, and the route to success here, she said, is is that it be culture-driven. The right core for franchisor executives to place greater values, he said, are analogous to having a emphasis on marketing and technology robust immune system in the face of exand on balancing their capital/labor ratio ternal threats to the entire system. (One in response to changes in minimum wage brand exemplifying this is The Dwyer and overtime rules. She also urged fran- Group, which operates every day based chisors to work on enhancing their credit on its Code of Values.) profile and fixing performance issues. In the face of accelerating change, KarlTo win the market share battle in 2017, gaard said that a sustainable competitive she said, franchisors should focus on slower, edge is dying for most companies, and the more targeted growth; emphasize ROI in new world order is “transient advantage.” their messaging; create a seamless sales process; educate through transparency; 2017 AFDR and growth address greater prospect uncertainty with Next up was the first reveal of the 2017 greater information; and help franchisees Annual Franchise Development Report get financing. (AFDR). This year’s results were based on results from 167 franchise brands Culture is the killer app representing 60,989 total units. Data Wiseman’s presentation was followed by was recorded and compared with previkeynote speaker Rich Karlgaard, publisher ous years in areas including recruitment of Forbes magazine, columnist, and book budgets, marketing sources and budgets, author. His theme was that in the face of digital recruiting strategies, closing ratios,

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and leads costs. See page 30 for highlights from the 2017 AFDR, along with ordering information. Next up, Sun facilitated a general session panel called “Interdepartmental Approach to Growth.” The focus was on breaking down silos and aligning all of a brand’s departments to support franchisee growth at every level. The panelists—Paul Damico, president North America for Focus Brands; Christina Russell, president of Camp Bow Wow; and Tom Wood, CEO of Floor Coverings International—shared their own experience and insights about how they’re doing this at their companies. After a busy morning filled with data, analysis, and instructive anecdotes, lunch was served in the Exhibit Hall where franchise executives and sponsors had another opportunity to talk shop. Afternoon: 2 sets of 3 The afternoon offered three concurrent educational tracks. Each consisted of two 70-minute sessions, followed by a second general session led by keynote speaker Seth Mattison. The Franchise Sales Basics track targeted sales people new to franchise sales, as well as more seasoned sales pros seeking new ideas to sharpen their skills. The first session, “Identify and Qualify a Warm Lead,” facilitated by Josh Wall, vice president of franchise and strategic development at Christian Brothers Automotive, looked at basics such as how to determine which prospects are good leads, how to direct the conversation throughout the sales process, and on developing the skills and techniques that work best for different brands. Panelists were Noelle Burack, manager of franchise development and national accounts for Two Men and a Truck; Jenna Lamb, director of franchising at Nothing Bundt Cakes; and Laura Tanaka, director of developGuillermo Perales, 2017 MultiUnit Franchising Conference chair

Franchisor Profiles BY TITLE

Keynote speaker Rich Karlgaard

ment at Del Taco. The second session of this track, “Develop and Close the Lead,” focused on the next step: what to do after qualifying a prospect, how to lead them through the sales pipeline and process, and how to help both the candidate and the sales team discover if there is a good mutual fit. Mark Jameson, executive vice president for franchise support and development at Fastsigns, facilitated a panel consisting of Red Boswell, senior vice president of franchising and business development at Expense Reduction; Steve Olson, consultant and vice president of development for Philly’s Best Cheesesteaks; and Chad Tramuta, manager of franchise development at Smoothie King. The Brand Strength track was designed to help attendees develop a stronger investment opportunity to potential franchisees. The first session, “Financing for 2017 and Beyond,” looked at the latest financing options franchisors could provide to interested candidates and to franchisees looking to expand. Richard Leveille, vice president of franchise development for Floor Coverings International, facilitated a panel consisting of Candace Caruso, president of Pango Financial; Josh Johnson, vice president of business development at Apple Pie Capital; Mike Rozman, president of Boefly; and Suzanne Thompson, senior vice president of strategic programs at Bank of America. The second session in this track, called simply “Legal Panel,” was an open forum for attendees to ask questions. The panel of franchise attorneys Mike Drumm of Drumm Law, Lane Fisher of FisherZucker, and Len MacPhee of Gardere, went both deep and long into the ramifications of the external threats franchisors face today. The attorneys fielded questions on hot topics that included the NLRB’s joint employer ruling, the DOL’s overtime rule, minimum wage, unions, and collective bargaining.

21%

CEOs

5%

CFOs, CIOs, COOs

35%

CDOs, SVPs development

39% Directors and managers of franchise development 5% Real estate, communications, compliance professionals

BY CATEGORY Service

48%

Food

31%

Retail Non-Food

13%

Retail Food

8%

BY INVESTMENT LEVEL Over $1 million

13%

$500,000–$1 million

13%

$250,000–$500,000

31%

$100,000–$250,000

19%

$50,000–$100,000

15%

Under $50,000

9%

BY NUMBER OF UNITS > 1,000 501–1,000

16% 5%

251–500

13%

101–250

29%

26–100

24%

< 25

13%

0

2%

BY ANNUAL SYSTEM-WIDE GROSS REVENUE Over $100 million

38%

$80 million–$100 million

6%

$60 million–$80 million

5%

$40 million–$60 million

5%

$20 million–$40 million

17%

$8 million–$20 million

9%

$1 million–$8 million

13%

Under $1 million

7%

Franchiseupdate I S S U E I V, 2016

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GROWTH

Amped

for Growth!

Captain D’s STAR Award winners Michael Arrowsmith and Jennifer Benjamin with Therese Thilgen (center)

In the audience, attorney Joyce Mazero of Gardere also contributed her expertise to the discussion. As a sign of the times, the questions about external threats kept on coming long past the session’s end time. The third afternoon track, Lead Generation, delved into programs and ideas to bolster franchise recruitment in today’s highly competitive market and how to get the most out of a recruitment budget. The first session, “What’s New in Lead Generation?” was facilitated by Jeff Sturgis, vice president of franchise development at McAlister’s Deli. The session explored new lead generation ideas, tools, and technologies, how to budget more effectively, and how brands can use brokers, print media, trade shows, and online portals to generate leads. Panelists were Mark Cairns, director of franchise development at Topper’s Pizza; Zeb Hastings, vice president of franchise development at Quaker Steak & Lube; and Marcia Mead, vice president of franchise development at PuroClean. The second session on this track, “Managing Social Media and Its Role in Recruitment,” grappled with the growing digital world and ways to use Facebook ads, Youtube, LinkedIn, and other social media tools to reach potential prospects. Facilitated by Jack Monson, director of digital strategy at Qiigo, the panelists were Aaron Goldberg, vice president of franchising at Zips Dry Cleaners; Grant Kreutzer, director of franchise licensing and recruiting at Jack in the Box; and Philip Schram, CEO of Buffalo Wings & Rings. Keynote and STAR Awards A business roundtable general session led by keynote speaker Seth Mattison closed out the afternoon. Mattison, founder and CEO of FutureSight Labs, is an expert

40

on workforce trends, generational dynamics, talent management, and the future of work and has worked with companies worldwide. He urged franchise brands to tap into the rich, hidden brainpower within their organization, establish an ongoing system to nurture and harvest the best ideas, adapt more quickly and proactively to changes in the marketplace, and to foster a culture of stewardship and values (think “soft edge”). As evening approached, it was time for everyone to enjoy an evening of familystyle Italian cuisine, drinking, and conversation at Maggiano’s Little Italy, along with the presentation of this year’s STAR Awards for best practices in franchisee recruitment. See page 48 for the full story.

velopment strategies at a brand should be in alignment with the corporate strategy, setting targets and goals for the year, marketing and lead generation strategies, having the right team, and establishing a budget, process, and system. A big mistake many brands make, said Sugrue, is to view development as its own entity. “It should be part of the leadership team of the whole organization, integrated,” he said. Sugrue, who came on as CEO of Salad Works in 2015 when the brand was in bankruptcy, said the founder and funder were battling and needed “adult supervision.” He said the brand had no credibility or trust with its franchisees, thus no validation. The role of the CEO, he said, is to take action— and he did. He fired the entire development team and visited 80 of the brand’s 100 stores and all of its franchisees. “It’s important to have the courage to say, ‘Your baby’s a little bit ugly’ before you start selling 100 a year.” Echoing a story Mattison told the previous day about artisan saddlemakers who took so much pride in their craft that they signed each saddle they made, Sugrue urged the roomful of salespeople and franchise executives to remember that beyond all the strategizing, budgeting, and investing in technology and social media, there’s a higher purpose to their work: creating a franchisee who can support their family and hire 10 to 15 people who can then support or contribute to their own families. “That’s the nobility of our work,” he said. The session, and the conference, ended with a rollicking finale led by Coley. (Just ask anyone who was there.) To learn more about this year’s FLDC, view photos, and register for next year, visit www.franchisedevelopmentconference.com. ■

Amped to go The final morning featured a packed room for the closing session, “Build Your 2017 Plan.” Art Coley, CEO of InXpress very energetically led a panel consisting of Patrick Sugrue, president and CEO of Saladworks; John Teza, chief development officer at Corner Bakery Cafe; and Dave Wells, director of franchising at Sport Clips, who shared their thoughts and experience on mapping out a brand’s development strategy and recruitment budget for the coming year. “Our goal here today is to provide the essential components of development planning and to offer hands-on planning and discussion,” said Coley. And they did, through presentations and group exercises that produced in-depth questions and a lot of fun for the roomful of marketers and franchise executives. Panelists discussed how the de- Toasting victory at the closing roundtable session

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2016FRANCHISE LEADERSHIP& DEVELOPMENT CONFERENCE

“ THANK YOU 2016

FRANCHISE LEADERSHIP& DEVELOPMENT CONFERENCE Attendees, speakers and sponsors for making the 2016 conference amazing!”

SAVE THE DATE!

FOR THE 2017 FRANCHISE DEVELOPMENT CONFERENCE

| OCT 11-13, 2017 in Buckhead, Atlanta, GA |

©2016 Franchise Update Media. All Rights Reserved.

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BY KERRY PIPES

Shopping for

IMPROVEMENT

Mystery shoppers find many brands doing better, but there’s still a long way to go for many others

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ranchisee recruitment is the cornerstone of any successful brand. It must be done right. It requires the right team, the right information, the right prospects, and the right follow-up. There must be a proven process in place that is followed and continually improved. But amazingly, year after year, franchise brands continue to fumble the fundamentals. Whether it’s providing incorrect or outdated information on a website or the lack of a quick (or any) telephone response, among other problems, many franchise development teams are still in dire need of improvement, according to this year’s mystery shopping results. Every franchise brand that registered to attend this year’s Franchise Leadership & Development Conference (FLDC) by late July was mystery shopped by “qualified prospects” who phoned in and completed online applications. In total, 165 brands were evaluated and the results were, once again, a bit shaky. Franchise Update Media’s Therese Thilgen, along with “prospects” Art Coley, CEO at CGI, and Maureen DiStefano, franchise consultant, presented the survey results at the annual conference in Atlanta in late September. The other mystery shoppers and researchers were Jenny Langfeld, COO at CGI; Eric Stites, CEO of Franchise Business Review; Keith Gerson, president and chief client advocate at FranConnect; and Jeff Lefler, CEO of FranchiseGrade.com. Each brand was evaluated based on their telephone query response, website query response, website

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best practices, franchisee satisfaction, and FDD scoring. This year we went directly to the researchers for their methodology and perspective on what they discovered in analyzing franchise recruitment procedures and systems, and how they presented themselves to prospects both online and on the phone. Here are their insights.

Telephone Mystery Shopping

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BY ART COLEY & JENNY LANGFELD

he mission was simple. Franchise Update commissioned us to place calls to the 165 franchise brands registered for the Franchise Leadership & Development Conference. We were to pose as unqualified leads looking for information. Art “Dudley Pennington” and Jenny “Amy Pettit” divided up the list and began calling. Here’s a look at the process used and the results. Three-step process: • Part I: Go to franchise main website and get a phone number. • Part II: Place a call requesting to learn more about the brand. Either talk live with representative or leave a message. • Part III: Follow up calls to the brands

that returned our call within 24 hours. Then gather up data and results and present findings. Part I “I’d like to speak to someone with ________ franchise. I’m going to visit the website to get a phone number.” The action was to find the phone number for inquiries to call when looking for franchising information. If it took more than three clicks on each of the prospective websites to find a phone number, that franchisor was immediately eliminated from the mystery shop list. We ended up with 87 brands to call. This means that 48 percent of the brands were eliminated because they either did not have a phone number on their website or it took more than three clicks to find it. Part II “Now that I have a phone number for ________ franchise, I’m going to call and either talk to someone or leave a message for a franchise representative to call me back.” Of the 165 brands, 87 (52%) got a call. We wanted to learn more about the brand. We connected live with 35 of the 87 brands (40%) on the initial call. We left messages with the other 52 brands asking for a call back so we could learn more. Twenty-eight of the 52 brands called back within 24 hours. If a brand called back after 24 hours, their file on the mystery shop was closed. During the first call with the brands 18 asked us for our name and email address, 7 asked for

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our time frame to get started, 10 qualified us financially, and 14 asked for our lead source. There was a lot of room for improvement here but the numbers were not very different from previous years. Part III “Great! ________ franchise called me back within 1 business day. I’m going to call back and request to speak with the person who returned my call.” Part III of our process included a series of follow-up calls to the 28 brands that placed a return call to a voicemail or request. We were able to connect live with six of those brands before the end of our mystery shop timeline. Findings As a result of our mystery shopping, we learned that many of the appointment setters and franchise salespersons are professional and upbeat. Many appointment setters did mini-Step 1 calls to pre-qualify a candidate, were positive in handling unavailable territory, and some even offered to meet personally. We also learned that many of the people we spoke with were telling us features of their brand versus learning about us (the candidates); told us that “Salesperson A” would call back and then “Salesperson B” actually did, which caused confusion; that a live person (receptionist) and director didn’t communicate; that a live person sent us to the website, simply telling us, “It’s the process”; and that there were a lot of generic voicemails, often with no name or brand. Recommendations The brands that performed well during the mystery shopping did several key things. They asked for basic information about us such as name, email, phone, address, financials (how much we were looking to invest in a business), timeline, lead source, past experience, opening time frame, location, and more. They also presented the brand in a short, concise manner and did not dominate the conversation; they listened and responded to our answers. Overall, they were excited and enthusiastic about their brand. Many of the top brands were interested in making the process about discovery and finding the right partners. A few key takeaways from the mystery shopping include:

• Establish a process for “inquiry” vs. “qualified candidate.” • Match up your sales process with the most predictable buying process. • Does the phone matter anymore? • It is quite important to show up strong from the start!

Website Response BY MAUREEN DISTEFANO

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was charged with evaluating franchise brand website responsiveness for the mystery shopping survey. My online moniker was “Anne Costello.” I evaluated 163 brands and for each that had an inquiry or web-based application I then moved through the following process: 1) Completed application meeting the advertised minimum requirements and interest in available markets.

up, and next steps. Findings Technological advances have made finding information online very simple and the process of requesting information about becoming a franchisee very easy. Today a response to web inquiries can be instantaneous. But the real memorable impressions come after the initial contact. This is when sales professionals must use resources effectively and efficiently to follow up on leads. Here’s what great brands are doing right: • Have the ability to conduct due diligence without providing too much personal and financial data beyond qualification requirements. • Rely on group webinars that were advertised on the website or sent via ereminder at the email address submitted with the inquiry. • Use a web-based appointment calendar to block a time with the sales director to have an initial information call. • Emerging brands that use existing franchisees to endorse the brand is powerful. • Use social media.

“ It is a strategy of persistence and genuine interest in being a brand resource that sets brands apart online, on the phone, or in person.”

Recommendations All the brands I contacted were extremely professional and respectful of my inquiry, regardless of size or if I even met the minimum requirements. However, there are some processes that may need to be updated: • Gathering information through a lengthy application is a deterrent when a prospect can shop similar opportunities within a food or service concept. • Cell phones are the typical mode of voice contact; multiple mandatory listing of telephone numbers such as home/work/ cell appear dated. • A robust website with recent press or personalized information kept me on the website longer and more willing to provide more complete information.

2) Provided email and telephone and address as contact information as well as any other required information to submit my interest. 3) Spoke to or replied to email responses by the individual brands. 4) Evaluated brands on access via a specific link, response, telephone follow-

Summary Competition is fierce, and talented and credible salespeople understand the available markets and that being a genuine resource to future franchisees will attract the top future franchise partners. It is a strategy of persistence and genuine interest in being a brand resource that sets brands apart online, on the phone, or in person.

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Shopping for Improvement

Website Practices

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BY KEITH GERSON

he results from the 2016 website mystery shopping reinforce what many of us already know: while leading franchise brands may realize the need for a digital business strategy, we are not there yet as an industry. For example, we found that the majority of franchise brands have a unique website for franchise opportunities, but many brands still lack effective use of technology and are not capitalizing on social media to bolster engagement and unit growth. In this year’s website mystery shopping, 165 franchise brands participated. They were evaluated on business operations and marketing as they related to search engine optimization, website usability, and website content. We shopped using various tools on the websites and scored the websites using 20 or more parameters that we organized in the following way. The basics • Unique URL • Web analytics • Ranking on search • Dedicated entry point for franchise page Basic SEO • Title tags • Meta, keyword tags • Strategy that drives content Website usability • Franchise content accessibility • Process of learning • Effective use of technology • Overall site presence • Optimized for mobile Key content • About us/history • Franchise information • Application Findings An aggregation of the findings offers some insight into areas of strength and areas that require continued focus. FranCon-

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Telephone Recommendations • Establish process for “inquiry” vs. “qualified candidate” • Match up your sales process with most predictable buying process • Does the phone matter? • Show up strong from the start!

nect’s observations are as follows: • 70% have a separate unique website for franchise opportunities. This is a major improvement over previous years. This is becoming a best practice and allows brands to communicate more directly with a potential candidate without distraction from other needs a general corporate website would require.

“While leading franchise brands may realize the need for a digital business strategy, we are not there yet as an industry.” • 40% have a click-to-call button on franchise websites. We’d like to see more of these and have them be well placed and stand out to generate a higher level of conversions. • 33% do not have a unique starting point on their franchise opportunity website. This is problematic in that a potential candidate should be guided easily through the brand pitch without being confused as to where to begin. Again, this best practice has been found to drive higher conversion rates. • 24% of brand websites are mobile-friendly. This is shocking in today’s on-the-go, digitally driven world. People are doing more research via mobile than ever before. Your website needs to be

easily read and navigated on multiple mobile platforms. • 53% of websites have two or more links for franchise opportunity on their home page. This is good but should be true for every website. Your main call to action is to attract potential candidates to learn more, so having at least two areas on your site in places that make sense is critical. • 20% of brands do not have a process of learning on their franchise opportunity website. This means the 80% that do have a process of learning are making it easy for potential candidates to engage and navigate. Since the competition for qualified candidates is fierce, this should be a major focus. • 40% of brands lack effective use of technology. Technology can be a unique differentiator when used wisely. It is also one of the more difficult areas to implement. The key is to outline your strategy and story map before selecting where and when to use technology to enhance the visitor’s experience. • 40% of brands do not show an investment chart, and 50% do not have clear requirements mentioned. This compares with 59% in 2015. We are not sure why this trend has gone backward, but it is an area we plan to investigate. The process of learning should include the information a potential candidate needs. By testing different approaches we can learn if this is a detractor or attractor for candidates. • 75% of brands don’t have their franchise opportunity listed on their Facebook page. Integrating social channels is critical to reach today’s audience. Your Facebook page should reflect the messaging of your website and be a key call to action. • 78% of brands are not active on LinkedIn. This is the largest professional network in the world. It is also a content engine for every topic from marketing to engineering to being your own boss. Brands should contribute and leverage this tool as part of an integrated program. Recommendations As we have seen from this year’s website mystery shopping, franchisors must empower their brands—and in the end, improve unit growth and success—with a better and more engaging website presence. This includes more learning opportunities and tools, as well as having

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Shopping for Improvement mobile-friendly websites for our alwaysconnected, always-changing business environment. Additionally, they need to incorporate a social marketing strategy to build local brand presence and consistency through social channels such as Facebook and LinkedIn. Our recommendation is to conduct a self-audit of your site using the following as your quick-start guide. 1. Benchmark your current metrics • Number of visits/visitors/unique visitors (monthly average) • Bounce rate (monthly average) • Time on site (monthly average) • Top-performing keywords (in terms of rank, traffic, and lead generation) • Number of inbound linking domains • Total number of new leads/form submissions (per month) • Total amount of sales generated (per month) • Total number of pages indexed • Total number of pages that receive traffic 2. Determine your goal This step, while it may seem simple, can often take the longest. Your goal must be clear, concise, and targeted. • Why would you consider a redesign? • What is working/not working that you need to address? • What are the top 3 goals you expect from this website? 3. Audit your brand message • Is your brand message clear on the website? Why or why not? • What is missing? • What needs to be done to fix it? • What needs to change? 4. Evaluate your audience • Do you have a clearly defined target audience? • Is the specific audience that you want to attract defined and personas built? • Does the tone of voice for the content on your website align with your target audience persona? If not, what needs to be fixed? • Does the content on the website align with the needs of your audience? If not, what needs to be fixed? Summary There is no silver bullet in the franchise development business, and building an

Social Mystery Shopping Results 64% had consistent branding on local pages on Facebook (38% last year) 23% communicate the franchise opportunity somewhere on their Facebook profile (30% last year) 20% had some level of activity in the past week on LinkedIn (28% last year) engaging website is not a one-time task. It is an evolution that should continue to grow and change as a franchisor’s brand and audience change. If franchisors can sit down and ask themselves these quickstart questions, the path to improving traffic and conversions will become clear.

Franchisee Satisfaction

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BY ERIC STITES

ew data from franchisee satisfaction research firm Franchise Business Review (FBR) shows a strong correlation between “engaged leadership” and higher franchisee performance. FBR looked at franchisee satisfaction data from 53 brands that attended the 2016 FLDC. When compared with industry benchmarks, the brands attending the FLDC significantly outperformed other brands. A total of 9,353 franchisees participated in the study and represented more than 30,000 business units. They were asked more than 50 questions related to their business performance, satisfaction with their brand, and general business demographics. Satisfaction was measured across eight key areas: training and support, franchise system, leadership, financial opportunity, core values, franchisee community, selfevaluation (franchisee performance), and general overall satisfaction. Thirty-three of the survey questions were rated on a 100-point scale known as the Franchisee Satisfaction Index.

Findings Data from the 53 FLDC brands was compared against FBR’s benchmark data representing more than 350 franchise brands across all industry segments. Here are the findings: • Better performance overall. The Franchisee Satisfaction Index (FSI) score of 75.9 for the FLDC brands was 8% higher than the FBR Franchise Sector benchmark of 70.4. • 25% higher income opportunity. Franchisees of the FLDC brands reported annual pre-tax incomes 25% higher than other franchisees. Their reported annual pre-tax income was $102,990, compared with $82,546 reported by other franchisees across all industries. • Eight areas of strength. The FLDC brands outperformed the FBR Franchise Sector benchmark in all eight key areas. Looking at trend data over the last three years, the franchises that attend the FLDC have shown a solid improvement in all categories year-over-year, improving on average by 5% to 10% from 2014. • Brand core values and franchisee enjoyment were the highest-performing areas. Based on responses to the 33 benchmark satisfaction questions, the FLDC brands’ franchisees scored them highest in the following areas: brand core values and franchisee enjoyment, which included community engagement, general overall satisfaction, and self-evaluation. Questions asked relating to these areas, along with the overall FSI scores given were: I enjoy being part of this organization. (87.3) I enjoy operating this business. (86.5) I respect my franchisor. (85.2) My franchisor acts with a high level of honesty and integrity. (84.0) My fellow franchisees are supportive of the brand. (82.5) I would recommend my franchise to others. (86.1) • Challenges within training and support, financial opportunity, and leadership. Based on responses to the 33 benchmark satisfaction questions, the FLDC brands’ franchisees scored them lowest in the following areas: financial opportunity, training and support, and leadership. These findings were not surprising since many franchisors, including those that are the top brands, struggle with the same three areas. It is important to note that the scores the FLDC brands received are still above FBR’s benchmark. Ques-

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Shopping for Improvement tions asked relating to these areas, along with the overall FSI scores given were: Current financial picture. (65.9) The fees I pay my franchisor are fair. (68.1) The total investment in my business, including both time and money, has been consistent with my expectations. (69.7) Marketing and promotional programs. (68.6) Effective use of technology. (64.7) Senior management involves franchisees in important decisions. (65.2) • Top 10 FLDC brands. The 10 brands attending this year’s FLDC with the highest overall franchisee satisfaction are: 1) Home Instead Senior Care; 2) Fastsigns; 3) Wild Birds Unlimited; 4) CruiseOne Dream Vacations; 5) Christian Brothers Automotive; 6) Zaxby’s; 7) Pinot’s Palette; 8) Pinch A Penny; 9) Two Men and a Truck; and 10) Captain D’s. Summary The higher revenue, strong performance in eight key areas, and better performance overall that the 53 FLDC brands demonstrated compared against FBR’s benchmark are a testament to their commitment to serving and engaging their franchisees, and to making their satisfaction and performance top priorities.

FDD Grading

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BY JEFF LEFLER

ranchiseGrade.com is proud to have played a key role in the selection of the STAR Award recipients at the recent FLDC. We graded 167 franchise systems that participated, and provided a look behind the scenes to show how these franchises graded and how they compared with the entire franchise industry. Our grading evaluated each franchise in a number of areas including investment structure, ongoing fees, franchisee rights, franchise relations, system growth, system turnover, and Item 19 disclosure. Our methodology consists of extracting data from Franchise Disclosure Documents (FDDs) and comparing franchise systems based on similar characteristics such as sector and investment range. For every franchise system, we reviewed multiple years of Item 19 disclosure, grad-

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Website Mystery Shopping Results 66% provide unique starting points on franchise site (25% last year) 68% provide a process for learning (54% last year) 60% have video on the franchise site (40% last year) 59% have an investment chart— not properly qualifying? (46% last year) 49% have financials on the qualification form (44% last year) 74% of franchise sites are mobile friendly (52% last year) 40% do not provide franchisee testimonials

“The franchisors attending the FLDC continue to seek ways to develop and grow their franchise system.” ing the level of disclosure each system provides. As an example, some franchise systems may provide system-wide average gross revenue, which is not as useful as a breakdown of revenue by quartiles. However, some franchise systems may only disclose data from 25 percent of their franchised locations, potentially skewing the revenue numbers to a limited number of franchisees. In general, a disclosure with more data is helpful for a prospective franchisee to create a pro forma income statement and cash flow projections. The financial disclosure can be presented in the form of expense data, historical sales, outletby-outlet data, and other presentations

that provide useful insights for a franchise investor. Findings • Of the 167 franchise systems we graded, 39% received an A+ or A grade, whereas for the entire franchise industry only 20% are A+ or A grades. • Only 1% of attendees were graded a D investment. • Item 19 disclosure was one of the biggest surprises to us as 86% of franchise systems that participated in the FLDC made a disclosure, compared with only 54% for all of franchising. • In terms of an Item 19 disclosure, not only were there above-average disclosure rates, but the amount of disclosure provided was more detailed and useful than industry averages. Of the FLDC attendees, 54% include expense data in their Item 19 disclosure compared with only 23% for the entire franchise industry. • From 2010 to 2015 the FLDC franchise systems grew from 62,381 outlets to 76,733, representing an increase of 14,352 outlets (23%). • Since 2010, FLDC franchise systems have received more than $21.2 billion invested by franchisees into new franchised locations. Summary/recommendations The results of our grading indicates that the 167 franchise systems that participated in the 2016 FLDC represent top-performing franchise systems when measured against the overall franchise industry. These results indicate that the FLDC franchise system attendees are successful, strong franchise systems focused on the most effective and correct ways to grow their franchise systems. It also reveals that successful franchise systems share certain attributes that have led to their sustained success, such as more transparency in Item 19 disclosures. Franchise leaders that focus on their metrics and how they compare with their franchise sector can provide this information to prospective franchisees. This will validate the strength of their franchise system and draw a favorable distinction compared with their competitors. The franchisors attending the FLDC continue to seek ways to develop and grow their franchise system the right way by attending these conferences and participating in workshops designed to improve franchisee sales and system performance. n

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BY DEBBIE SELINSKY

LIGHTS!

HONORING THE BEST IN FRANCHISE RECRUITMENT

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ach year, in the run-up to the annual Franchise Leadership & Development Conference, franchise brands that pre-register can choose to have themselves mystery shopped by a team of sales and lead generation experts. This year, the 165 franchise brands that participated were evaluated on best telephone follow-up, franchisee satisfaction, website response, their websites, and their FDDs. The results are scored and the top performers in each category—and the overall winners—are recognized with STAR Awards at a banquet held on the final night of the conference. The dinner, sponsored by eKomi, was held at Maggiano’s Little Italy, just up the road from the Intercontinental Buckhead Atlanta, where the conference took place this past September 28–30. To learn more about the methodology employed by the mystery shoppers— and more important, their observations, analysis, and suggestions for improvement—see page 42. A list of the winners and top runners-up can be found at the end of this article.

BEST OVERALL PERFORMANCE 1st Place: Captain D’s

No one was more surprised or excited about winning the STAR Award for Best Overall Performance than Michael Arrowsmith, chief development officer for Nashvillebased Captain D’s. After all, Captain D’s started franchising again only 2½ years ago after a hiatus of more than a decade.

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Michael Arrowsmith

“We do a lot of things well,” says Arrowsmith. “Responsiveness is the single most important thing we do. But there’s so much that we can improve on that I was happily surprised when our name was an-

nounced.” Much has been accomplished in the past couple of years at Captain D’s. “When I was brought on board, there was no infrastructure, no real estate or sales department—nothing. The cool thing about that is you’re able to build exactly what you want based on best practices,” he says. “We’ve been around since 1969 and continued to work with existing franchisees, but starting up again with franchising we’re like an emerging new brand with all our platforms and processes. We had one talented sales person and we brought two more on last January, so we tripled our sales staff. There’s a lot more we’ll be able to do over time, because we want to get better.” Arrowsmith, who has attended the Leadership & Development Conference for more than 10 years, said he used what he learned there when building the franchise development platform and sales department. “We educated ourselves and learned what other brands were doing successfully. We’ve also met some of our vendors at the conference. Last year, when we overhauled our website, we used one of the partners we met there.” What’s been happening at Captain D’s is a testament to a lot of hard work behind the scenes and a lot of good people, he adds. “It all comes down to people. You’ve

got to have the right people on your team to execute all this.” Arrowsmith credits the brand’s emphasis on responsiveness for the positive reactions he’s been getting from franchisees and prospects alike. “Responsiveness is really about listening, and that theme permeates our entire organization. We listen to our franchisees. We don’t do everything they want us to do, but the fact that we’ve had six consecutive years of same store sales increases speaks for itself,” he says. “And when we hear from prospects, we get to them quickly and listen carefully because we know we’re not the only ones they’re contacting. You’ve got to be responsive and listen, not just pontificate about how great your brand is, to learn if that person is who you’re looking for.” Captain D’s also listens to customers, including much of their feedback into the 4-year-old relaunch, complete with new look and grilled menu, he says. “Listening, working hard, and hiring the best people is key to our success. We’re going to try to get better each year.”

BEST OVERALL PERFORMANCE 2nd Place: Pinot’s Palette

Missy Erickson

Departing from the traditional channels and portals employed by many franchises has worked well for Pinot’s Palette, says Missy Erickson, franchise development director for the Houston-based

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paint-and-sip concept. “Our current strategy has shifted in the last two years. Because 90 percent of our owners were customers before, we target them more directly. They fall in love with the concept and are ready for a lifestyle change. That leads to franchisee satisfaction,” says Erickson. “We’re ‘Team Pinot’: we know our franchise partners well, where they went to school, and what sports their kids are playing. We also have had great success in veteran franchisee satisfaction, which has been a great avenue for getting well-organized members ready for change into our system.” One big change at Pinot’s Palette is its new franchise development website. “When we looked at our website and others, we found a big sea of sameness: paint splatters, bright colors, clutter. We made the site cleaner so the brain can process it faster. We’re putting the information right in front of people and are reviewing the content quarterly, especially if we notice a big shift.” Erickson jokes that both she and her counterpart in Chicago, Mari Sokolowski, love to talk and are excited when they meet potential franchisees who have great careers, but have come to the studios and been “hit by the magic touch.” Erickson credits Pinot’s Palette cofounders Craig Ceccanti and Charles Willis with the process-oriented focus that runs throughout the company, which they founded in 2009 and began franchising in 2010.

BEST OVERALL RESPONSIVENESS BrightStar Care

It’s only logical to the folks at BrightStar Care that the company be recognized with the award for Best Overall Responsiveness in franchise recruitment and development. After all, Steve Schildwachter that’s an important part of the corporate culture. “In our marketing to consumers, we espouse the principle of person-centered care, and we carry that same principle into franchise development,” says Steve Schildwachter, chief marketing officer for the Gurnee, Ill.-based home care and

“We’re very good at telephone follow-up because we have an able person on the front lines who makes sure that inquiries are handled right away. We have great people and we put our best foot forward.” home health agency. “When somebody is trying to fulfill a dream to start their own business, it’s our obligation to be responsive—not only in turnaround, but in terms of understanding their goals and how we can help them meet those goals.” Commitment to prompt and effective responsiveness is in line with the brand’s proven process, says Schildwachter. “Our process is well-defined and well-designed at every step of the way for maximum responsiveness to candidates who express interest in BrightStar.” BrightStar also was a runner-up in the Best Telephone Prospect Follow-up category. “We’re very good at telephone follow-up because we have an able person on the front lines who makes sure that inquiries are handled right away,” he says. “That follows on down the line. We have great people and we put our best foot forward.”

BEST FRANCHISEE SATISFACTION

1st Place: Home Instead Senior Care

Kathleen McKay

Kathleen McKay, franchise development director at Home Instead, says Best Franchisee Satisfaction is her favorite STAR Award—and the most humbling. “When you grow and you’ve always

been really invested in having a good company culture, it can be hard to maintain that family culture. This award is reaffirmation that people are still happy, and I’ll take that any day of the week,” she says. “Yes, I’m in sales and we have goals. But at the end of the day, we say ‘no’ dozens of times more than we say ‘yes.’ We look at every person we meet as a potential owner and ask ourselves: ‘Would I want them caring for my mother?’ That’s why we don’t say, even within the office, that we ‘sell’ franchises. We say we ‘award’ them. And we’re fanatically vigilant because we have to make sure that seniors are able to remain as independent as possible with compassionate, competent care. If we bring in owners who feel the same way we do, they’ll use the same lens when hiring caregivers.” This focus on simple, compassionate, non-medical care has been at the core of Home Instead since founders Paul and Lori Hogan transformed their experiences caring for Paul’s grandmother into the Omaha-based franchise concept. Though his grandmother had been told she had six months to live, compassionate care by the entire family enabled her to live another 11 years in her home, McKay says. The company’s culture and philosophy, which she says includes “brutal” honesty, transparency, and constant support, have led Home Instead to build strong relationships with its franchisees. The same culture applies to the qualification process with potential franchisees. “We stay away at the beginning from having people fill out a bunch of forms about their net worth. That will naturally come out in the process. We prefer to talk and get to know them. And we’re honest about what it takes to be successful with Home Instead. It’s a simple business model, but it requires a lot of hard work and a good heart for serving this population.” McKay also points to the brand’s 150-person support staff as another reason for the brand’s great relationships with its franchisees. “We spend a lot of time in the field with our owners, because you can’t have a personal relationship with them if you don’t know them. Our Franchise Exchange Council has been around for years and we lean on them to help drive our vision and plans for the future. We’re in lockstep with our owners. We have the same mission, the same vision.”

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LIGHTS! BEST FRANCHISEE SATISFACTION 2nd Place: Fastsigns International

Catherine Monson

On her way out of the country, Catherine Monson, CEO and president of Fastsigns International, stopped for a minute to say that everyone at the Carrolton, Tex.-based franchise is excited about

this award. “We are honored to receive the STAR Award for Best Franchisee Satisfaction given out last week at the Franchise Leadership & Development Conference,” she says. “Every team member at Fastsigns understands that our top priority is profitable, growing, happy franchisees. We focus on franchisee profitability as our single most important strategic objective. With strong unit-level economics, we then focus on helping franchisees grow their profitable sales volume. That, combined with treating them as family and open, transparent communication, leads to high franchisee satisfaction.” Her only regret? “That this award is for second place and not first! Everyone who knows me knows that I strive for excellence and am very competitive.”

BEST WEBSITE PRACTICES

1st Place: Mighty Auto Parts

Over the years, Joshua D’Agostino, vice president of business development for Mighty Auto Parts, says he’s picked up some website best practices by working with other Joshua D’Agostino franchisors and marketing companies, by studying other websites, and by listening carefully to the mystery shopping results each fall at the Leadership & Development conference. Based on these sources and more, he continually incorporates the most effective, up-to-date functionality into the Mighty Auto Parts website. “For example, we know that searchable maps and territory maps as well as

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short and long inquiry forms are helpful,” he says. “Our site also offers easyto-find contact information. I know that testimonials and videos are hot right now, but there haven’t been a lot of hits there on our website. The most visited features on our site include the territory map so they know what’s available and where, and the investment criteria section.”

BEST WEBSITE PRACTICES 2nd Place: Smoothie King

Counter to what some consider conventional wisdom of having a website designed from within, Metairie, La.based Smoothie King found it best to have a vendor specializing in Steve Shields restaurants revamp their franchise development website. “We’ve found that having someone looking at what we do with different eyes has been a plus,” says Steve Shields, senior business development manager at Smoothie King. “Jason at Dogwood here in New Orleans worked closely with our franchise development department and our marketing team to come up with a nice, clean, strategic look and feel to our website.” The new website, part of the recent revitalization of the brand with new owner Wan Kim at the helm, was designed to allow potential franchisees to proceed through the initial process at their own pace, he says. “If they want to jump right in and call us or contact us, they can. If they’d rather read and do their research before starting the process, they can do that, too.”

“Smoothie King has been franchising since 1989, and we’re having a lot of success with our fresh look and logo.”

The video testimonials available on the website have proven to be effective as well, says Shields. “Having the franchisees speak creates a certain level of brand authenticity. Smoothie King has been franchising since 1989, and we’re having a lot of success with our fresh look and logo.”

BEST TELEPHONE PROSPECT FOLLOW-UP 1st Place: Wild Birds Unlimited

Always energetic Paul Pickett, chief development officer at Wild Birds Unlimited, is quick to credit two of his team members for the award. “I didn’t speak to Paul Pickett the mystery shopper. Our executive assistant, Cheryl Miller, answered that call in her usual enthusiastic and professional tone and got him to the right person in record time,” says Pickett. The right person in this case was Lisa Hammer, manager of franchise development, who represents the brand’s culture of positivity and transparency, he adds. “Lisa has specific information we want to collect from a candidate just to make sure they’re a good match. She also makes herself available to answer questions and ask questions that help her dive deeper into the individual’s motivation,” Pickett says. “We consider it essential to communicate with candidates the way they want and to give them a safe space to ask and answer some pretty tough questions about their finances and motivation. But we try to do it in an optimistic way to lay the foundation for what could be a great, long-term relationship between the individual, the brand, and our team.” When Pickett heard the mystery candidate speaking on stage at the conference (Art Coley, who called himself Dudley Pennington on those calls), he went into his phone and pulled up the CRM and there was information about him, his desires, goals, operational plans, and interest in the hobby of bird-feeding. “This said to me that Lisa responded with full knowledge and the nuances of who ‘Dudley’ was,” says Pickett. “She really

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LIGHTS! made a connection with him.” The Carmel, Ind.-based backyard bird feeding and nature specialty brand, which began franchising in 1983, also was a runner-up in the Best Franchisee Satisfaction category.

BEST TELEPHONE PROSPECT FOLLOW-UP 2nd Place: FirstLight Home Care

“If you snooze, you lose” may sound passé, but Bill McPherson, executive director of franchise development for Cincinnati-based FirstLight Home Care, said quick teleBill McPherson phone follow-up on prospects is a winning formula for the company. “We try to do a good job of educating all our first responders as to the nature of the calls, the key information we want to gather, what we want to explain, and our key criteria,” he says. “We have a pre-qualifier who works in franchise development and reports to me. If the call comes from the website, it goes to her first. If the candidate contacts us through our corporate office, it goes to her or another first responder.” On a second call, potential franchisees speak to a franchise director. “This is when we talk more specifically about the due diligence process. We send out information, step-by-step, on markets and financial criteria,” McPherson says. “I learned a long time ago that you have to be very responsive. If a call comes by phone or email, our goal is to get back to them in 60 minutes. If we hear from them at the end of the business day, we get back to them first thing the next day.” Technology means that FirstLight is getting more candidates coming to their website, sending an email or filling out the form, he says. “We have a responsive website, but I’ve trained my team that this does not take the place of human interaction, especially in our model. We’re not a retail or fast food concept. This is about taking care of people in need. It’s a very personal business, and the sooner we connect in person with candidates, the better.”

BEST WEBSITE PROSPECT FOLLOW-UP

1st Place: Capriotti’s Sandwich Shop Capriotti’s dynamic duo of Bruce Evans, vice president of franchise development, and Krystal Conrad, franchise development manager (who doubles as pre-qualifier and Bruce Evans salesperson), springs into action as soon as a prospect comes their way. “We use FranConnect as our CRM, so people are limited as to what they can put in there, but unless they say ‘Don’t contact me,’ Krystal will call them back as soon as possible to put a voice with the name,” says Evans. “Even though people today are so tech-driven and into sending emails and texts, they still like to talk with a live person.”

“We want to understand their goals, dreams, and desires and make sure they know what our values and mission are so they know if they want to be part of it.” Generally, within 24 hours, Evans and Conrad team up and get on the phone together with prospects. “Our goal is to get to know people so we know if they’re the right fit for our brand,” says Evans. “There are quantitative and qualitative ways of doing this, and we focus on the qualitative. We want to understand their goals, dreams, and desires and make sure they know what our values and mission are so they know if they want to be part of it.” With a new franchise sales website

slated to roll out at the end of October, Evans said the focus is on connecting prospects to them quickly and effectively. “We want to qualify them through conversation rather than having them selfqualify through information on a website.”

BEST WEBSITE PROSPECT FOLLOW-UP

2nd Place: Checkers & Rally’s Restaurants Consistent, steady, and thorough describes the process Checkers & Rally’s uses to follow up on prospects who come through its franchise development website, says Jennifer Jennifer Durham Durham, chief development officer for the Tampa, Fla.-based brand. “Lots of people are interested in our brand, which is great,” says Durham. “Our resource qualification specialist walks them through the parameters, both operational and financial. She explores with them where, regionally, they’re interested in development and discusses their operations background and experience and financial capacity before she turns them over to one of our three franchise development directors,” Durham explains. “We use FranConnect to manage lead flow, and when that’s completed we respond to candidates in the way they wish—by phone, email, or text. Our expectation is to respond within 24 hours unless it’s Friday, and then we’ll get back to them on Monday.” The process is definitely a two-way street, says Durham. “Both on our website and when we talk, we try to give potential candidates as much information as we can about where the opportunities are. We have market evaluations and testimonials from franchisees who share what this opportunity feels like to them. We also need certain information, but we try to make it easy. We don’t have a complicated form. Over the past two years, we’ve made changes in terms of the length of the form and the questions we ask up front. We try to gather and offer the amount of information needed to get a decision on both sides,” she says. “That works for us.” n

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LIGHTS! AND THE WINNERS ARE… Franchise Update Media’s annual STAR Awards are a recognition of a job excellently done by franchisor recruitment and development teams. There are many players but only a select few claim the trophies. We present the winners and top runnersup by category.

BEST OVERALL PERFORMANCE 1st Place: Captain D’s 2nd Place: Pinot’s Palette

BEST OVERALL RESPONSIVENESS BrightStar Care

Top 10 BEST FRANCHISEE SATISFACTION

1st Place: Home Instead Senior Care 2nd Place: Fastsigns International Runners-Up: Captain D’s Seafood Christian Brothers Automotive CruiseOne Dream Vacations Pinch A Penny Pool Patio and Spa Pinot’s Palette Two Men and a Truck Wild Birds Unlimited Zaxby’s

Top 20 BEST WEBSITE PRACTICES

1st Place: Mighty Auto Parts 2nd Place: Smoothie King Runners-up: American’s Swimming Pool Bach to Rock Captain D’s Chem-Dry Carpet Cleaning

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Christian Brothers Automotive Epcon Communities Fastsigns International FirstLight Home Care Floor Coverings International Meineke Car Care Centers Moe’s Southwest Grill Oxi Fresh Carpet Cleaning PostNet Shelf Genie Sport Clips Taco John’s Togo’s Sandwiches Tropical Smoothie Cafe

Top 20 BEST TELEPHONE PROSPECT FOLLOW-UP

1st Place: Wild Birds Unlimited 2nd Place: FirstLight Home Care Runners-up: Big Frog Custom T-Shirts BrightStar Care Captain D’s Chem-Dry Carpet Cleaning CruiseOne Dream Vacations Floor Coverings International Go Mini’s Moving & Portable Storage Handyman Connection Huddle House InXpress Merlin 200,000 Mile Shops Pinot’s Palette Pump It Up PuroClean Recycled Granite SpeedPro Imaging Sport Clips Teriyaki Madness

Top 20 BEST WEBSITE PROSPECT FOLLOW-UP

1st Place: Capriotti’s Sandwich Shop 2nd Place: Checkers & Rally’s Runners-up: Bach to Rock Bar Louie Big Frog Custom T-Shirts BrightStar Care Camp Bow Wow Captain D’s Charter Fitness Checkers & Rally’s Chem-Dry Carpet Cleaning Costa Vida Fresh Mexican Grill Fit36 Johnny’s Italian Steakhouse Panchero’s Mexican Grill Pinot’s Palette Primrose Schools R Taco Right at Home Scooter’s Coffee Teriyaki Madness

Top 20 BEST FDD GRADE

All American Pet Resorts Ben’s Soft Pretzels Big Frog Custom T-Shirts Christian Brothers Automotive Fastsigns International Goldfish Swim School Great Clips Interstate Batteries Le Duff America Massage Envy McAlister’s Deli Nothing Bundt Cakes Pinot’s Palette Planet Fitness Primrose Schools Sport Clips The Melting Pot Waxing the City Wild Birds Unlimited Zaxby’s

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GROWING YOUR SYSTEM

Growthstrategies Going Abroad?

Be prepared to make some changes!

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BY KAY AINSLEY

n one end of the spectrum of international expansion is the thought that you are offering consumers in other countries the opportunity to partake in an American experience and nothing will change from market to market. On the other end is the thought that you will make whatever changes are needed to sell product. Somewhere in the middle, successful international franchisors find that some changes may be necessary to meet local market demand—but only if those changes do not significantly change the concept, and only if the franchisor can provide the required support and controls to protect the brand. Most adaptations fall into one of three groups. 1) Absolutely required Concepts based on a membership program such as gyms and health clubs, children’s edutainment and daycare, or in-home services often charge members’ credit cards or debit their bank account each month. This practice makes it convenient for their members and increases customer retention here in the U.S., but these concepts will need to find an alternative means of collecting payment in countries where a large segment of the population does not use credit cards or even have a banking relationship. Food and beverage concepts that use pork or pork products will need to find alternative ingredients in countries where eating pork is prohibited on religious grounds. When a product is offensive or prohibited on religious or cultural grounds it is easy to understand why a modification to the menu is required if the concept is to be accepted by consumers in that market. Names, logos, and advertising items that do not convey the intended message when they are translated into the local language must be fixed before they are used. Gerber learned a lesson when they first started selling baby food in Africa using the same packaging as they used

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in the U.S. Because of the low literacy rate it was customary to have the picture on the packaging reflect what was in the package. A smiling baby, however adorable and recognizable in the U.S., did not work in Africa.

Consumers have come to expect consistency from a brand, and drastic changes to the brand promise can cause confusion at home and internationally. 2) Required to compete While not essential to conduct business, there often are changes that will improve a franchisor’s ability to compete in a foreign market and provide their franchisees a higher chance of success. These changes may also be necessary to ensure the consistency of a brand’s core products. For example, pizza makers will find that the flour and water vary from country to country and they may need to adjust their recipe, cook times, or temperatures to achieve the same product they are known for. Adding or expanding the number of chicken items on a menu or adding items with a different flavor profile can increase the appeal to local consumers. Substituting local ingredients and reducing portion size are examples of changes that help meet market demand and improve price point requirements in food and beverage concepts. 3) Purely optional changes Some changes are based more on the preferences of the franchisee than on

market demand or economics. These changes may include a preference for a certain type of equipment, or adding a product or style of product or service the franchisee would like to offer, but that preference is not backed up with market research. Franchisors should consider several factors before agreeing to a change, among them: • Impact on the brand and company culture. Consumers have come to expect consistency from a brand, and drastic changes to the brand promise can cause confusion at home and internationally. • Impact on neighboring markets. If the change will also be necessary in other markets it may be worth the investment. • Cost to implement the change. There may be external costs such as researching and vetting new products or suppliers, establishing a supply chain, creating and registering a new trademark, or creating a new advertising campaign. There is also the internal cost of staff time for changing operations manuals, modifying training programs for the franchisee and for the franchisor’s staff who are supporting the change, IT programming, and accounting. It is important to recognize that some costs may be a one-time investment and others may be ongoing. • Impact on the economic model for the franchisee. If the change results in higher operating costs for the franchisee it may negate any increase in revenue. • Return on franchisor’s investment. The potential of the market must be large enough to justify the cost of developing and implementing the change. Conclusion Not all markets are right for all concepts. Franchisors are wise to work with their prospects early in the sales process to identify changes and determine how they will be implemented and who will bear the cost. Sorting out these issues early on will help get the business off to a good start and lay the foundation for a long-term relationship. n Kay Ainsley is managing director of MSA Worldwide, a leader in franchise consulting that provides strategic and tactical advice based on real world experience to new and established franchisors. Contact her at kainsley@msaworldwide.com or 770-794-0746.

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Supplier Spotlight: BY KERRY PIPES

LOCAL MARKETING EXPERTISE Silvercrest Advertising offers seamless solutions for every kind of owner-operator

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illiam Rodriguez and Ryan Gesler started their own company with a dream and just $50 in the bank. Today, Silvercrest Advertising is a major player in the franchise sector where they provide not only strategic media planning and buying services, but also leverage their relationships with thousands of media vendors to bring their clients customized media solutions.

But it’s their proprietary Localized Media Automation Platform (LMap) that’s getting the most attention. The technology lets users select the footprint they want to reach, choose which advertising tactics they want to use, customize creative, and pay for the entire job—in a one-stop shopping marketing destination. “Our company has grown organically by listening to our clients’ needs,” says Rodriguez. “We started in 2011 with $50 and no clients, and today we manage $23 million in revenue and work with over 25 brands that represent 20,000 franchisees in several countries.” He says one of the company’s keys to success is their policy of providing the software at no cost. “We have the benefit of being great at building ad tech, but we also have the know-how to execute media through that ad tech,” he says. This allows Silvercrest to give away the software to customers and make money on the execution of the media.

LMap P OWE R E D

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He likens the process to how iTunes works. You can install iTunes on your computer at no cost and load all your movies, music, and even e-books into iTunes and enjoy them at no cost. However, if you want to buy a song on iTunes, you can. The song is cheaper than having to purchase the actual single and Apple still takes a percentage of the transaction. “By aggregating all of our buying power for our clients, we can provide cost savings that no one else can and we can still make money,” he says. Silvercrest understands the franchising model intimately. Whether it’s a franchisor, a single- or multiunit operator, or a brand with 5 locations or 5,000, Silvercrest can tailor a process that gets results. That’s important when you consider that many brands are struggling to wrangle franchisees to comply with brand standards and procedures. Often, franchisees find the tools offered to be complicated and cumber-

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some. Silvercrest makes it simple and ultimately gives franchisors and franchisees what they need. Preparation When Silvercrest takes on a new client, Rodriguez personally meets with the marketing team to identify their priorities and plan the execution of the marketing initia-

William Rodriguez on Local Marketing

Unfortunately the term ‘local marketing’ has been diluted by providers in the space that specialize in one very specific marketing tactic but have taken over that word. Local marketing is not just paid search. Local marketing is not just making sure your listing is accurate on Yelp or Google, and it’s not just sending out e-blasts to the local community. Local marketing is an amalgamation of all different media tactics and it’s important to work with a vendor who recognizes that. Otherwise the brand is just doing a disservice to themselves and their franchisees.

tives. For example, Rodriguez says some brands might have a problem with co-op funds, such as how to distribute and manage them, while another might have a problem with transparency at the local level. Silvercrest creates a unique process that works for each client, and offers custom reports for every brand because, Rodriguez says, no two people want to see the results the same way. Silvercrest reps work closely with the franchisor to identify goals and use a small test group to roll out the program. “This will allow us to get a good gauge on how the owners feel about using our technology. Things that might make sense to one brand might not make sense to the other.” Franchisees want to feel empowered, know that someone is listening to them and that they can make decisions on their own—while satisfying the franchisor that the brand integrity and consistency are maintained. Unique Qualities Rodriguez says a number of differences make Silvercrest unique. “We listen. We aren’t going to give anyone an off-the-shelf solution,” he says. He doesn’t believe there is a one-size-fits-all solution for every brand. He believes that while franchisors’ needs may be similar, the execution of the solution can be extremely different. “We’re an industry leader. Media giants that have been in the space for years, like Valassis, are teaming up with us to provide an even stronger local marketing product offering,” he says. “We’re innovative. No one has what we have. The brands we work with say this on a daily basis. We’re happy to put people in touch with these folks.” Silvercrest is committed to understanding the needs of its franchising clients and providing custom solutions that get results. “We want

to give the best media tactics and print-on-demand solutions at the lowest cost so the owners don’t have to worry about negotiating or figuring out how to buy media. They can do what they need to do and run their businesses,” he says. “We’re a partner. We’ll solve problems for our clients and take care of business.” n

Can I Get a Witness? “One of this year’s key focus points for ZIPS Dry Cleaners was to help our franchisees improve their local marketing efforts. We have started utilizing Silvercrest Advertising and already we are very impressed. Right from our onboarding, their guidance on how we can get our branded messaging into LMap has been easy and streamlined. They really bring a ‘been there, done that’ experience level to the table. They have taken the time to speak to every franchisee on what their media choices are in their local market, how to best utilize those choices, and how to order and track their marketing efforts through LMap. They have really fast tracked our franchisees’ local marketing efforts! As we continue to grow our franchise from the 50 stores we currently operate to the more than 300 we have under development, it’s clear that Silvercrest will help keep our local marketing efforts on track.” —Philip LeVee, Marketing Manager, ZIPS Dry Cleaners

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GROWING YOUR SYSTEM

Challenge the pros “HOW DO YOU MEASURE THE ROI FROM YOUR ANNUAL FRANCHISE RECRUITMENT BUDGET?” Scott Mortier President The Franchise Whales To measure the ROI, you have to really know what you’re looking for. At Franchise Whales, instead of focusing on cost per lead, which is the standard among most franchise development executives, we focus on the cost per closed sale. Leads are great, but your cost per lead really isn’t always directly reflective of any return. The higher the quality of the lead, the better. I would much rather pay $100 per lead and convert 30 percent than pay $10 per lead and convert only 5 percent. The time and money associated with following up leads that don’t convert isn’t included in

your budget, but it can be a significant drain. A good rule of thumb is to have your franchise fee set about five times the cost per sale. From personal experience, we average a slightly higher return because, through decades of experience, we’ve been able to put the most effective marketing components in place. Without the right processes in place it can be easy to lose track of where your leads are coming from. To understand how much you’re spending to capture leads, it’s important to break down your marketing components. With the franchise brands I work with, I tend to break recruitment budgets into three verticals: franchise portals, digital marketing, and public relations. Each category receives about a third of my overall sales budget.

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Franchise portals are pretty self-explanatory and easy to follow in terms of lead spend. With digital marketing, we’ve seen the highest return on investment and it is the easiest to track. We’ve experienced incredible success using Franchise PPC by Conversion Whale and its franchise-specific brand of pay-per-click marketing. Its online dashboard allows us to know where leads come from and how much we’re paying for each. The third vertical, public relations, is the hardest to track because it is very difficult to know what article or news segment made a prospect want to learn about your brand. That’s where your digital marketing efforts come in. If your PR efforts have led potential leads directly to your website, your content-rich franchise opportunity page will be what helps educate them about your brand and gives them the motivation to reach out and talk to you. Your recruitment spend is an investment in your brand. David Leonardo Senior VP for Franchising Pet Supplies Plus At Pet Supplies Plus we look at a number of options to help us measure the ROI on our annual franchise recruitment budget, but primarily we look at two factors. The first is the cost per close. Second is the leadto-close ratio. Cost per close is a metric we take from the total marketing dollars spent in a specific channel and calculate how many deals we close from that channel. This is a pretty self-explanatory concept, not as complex as the second item we like to focus on. In this instance, it’s very straightforward: we are measuring how many deals we are able to close by spending “X” amount of dollars in a given market. Regarding the very important lead-toclose ratio, many people focus solely on simply generating leads. While this may be effective for driving lead numbers, it may not always be the best strategy for positive

conversion rates. For example, we can pay for leads every day, but if we aren’t getting quality leads, it won’t do us any good. Granted, the size of our investment also can determine what criteria we look at. Given our investment level, lead numbers are not as important as the quality of the lead. If we were with a less expensive brand, we might be more focused on the number of leads because more people could potentially qualify. The quality of the lead is what really matters to us. If we see a channel that has a high lead-to-close ratio, we will spend more money and time in that channel to continue to close deals and expand. To generate these quality leads, we’ve used several different outlets, including radio advertising and editorial spots, trade shows with multi-unit operators, and a strong network of national brokers who filter through qualified candidates before sending them over to us. What has not worked for us in generating quality leads are the online portals that farm out their leads to a number of franchisors before doing their homework

up front to see if a particular candidate is interested in and qualified for a brand. Although it can be difficult at times to measure the return on your franchise recruitment budget, this is a system that works for us, and we’ll continue to monitor our returns through our cost-per-close metric and lead-to-close ratio into the foreseeable future. n

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GROWING YOUR SYSTEM

Salessmarts Drive It Like You Stole It

Putting yourself in your candidate’s shoes

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BY JIM BENDER

live in Detroit. I’ve been a car guy longer than a franchise guy. I go to lots of car events and see lots of event t-shirts. A few years back a new t-shirt arrived with the words, “Drive It Like You Stole It” across the back. I love that shirt. I am sure it means lots of different things to different people, but the primary message for me is: Run it hard, have no fear, see what breaks. It’s a consumer attitude focused on performance, durability, engineering, and manufacturing expertise. I find applications of this attitude in my franchise job as well. While not as snappy, my day job slogan is, “Read It Like You Bought It.” Its primary message is: Run it hard, have no fear, find what is broken. You know from experience that if there is a weakness candidates will find it. Every month I review comprehensive franchise development information packets submitted by franchisors. These include websites, blogs, brochures, program review presentations, FDDs, and other documents from large and small companies, as well as those new to franchising. After hundreds of reviews I continue to be amazed at what we present to franchise candidates. More important, I wonder how some of these presentations ever get produced. Management must “read it like you bought it”—because your candidates will. Here are a few examples. Company A has 50 units in the service business. They explain the outstanding opportunity the market presents. Their model is easy to operate with a little sales experience. While it is labor-intensive they tell me employees are readily available. Their AUV is mid-range and climbing. The investment is modest and territory large. Would I like to buy one from Company A? When I read it like I bought it, I ask: If the model is labor-intensive, what is the cost of labor in the operating units? When

I have no fear, I ask: Why would you not disclose the only significant expense (labor) in your business model? To see what breaks, I ask: What expertise, experience, and human resource programs does the franchise own that facilitate the ongoing recruitment and training necessary to the success of my business? What’s broken here is that the franchisor failed to discuss its capabilities in the one discipline most important to the candidate. Company B has been in the food service business for 15 years with more than 100 units. They have a great product, new store design, and are a fun and recognizable brand. They do business in a segment with large, publicly traded

companies with national distribution. The investment is appropriate and the model competitive. Item 19 discloses only AUV, which is slightly below that of the publicly traded companies. Would I like to buy one or more from Company B? When I read it like I bought it, I ask: While other brands have exploded, why do you have so few units? (There is an explanation but it is never presented). When I have no fear, I ask: Will the publicly traded brands not just beat my brains in? (No strategy or differentiation offered.) To see what breaks, I ask: At your published AUV, how do franchise owners build equity and wealth? The franchisor simply never read it like they bought it because they failed to disclose stores with volumes above $1

million that rival the publicly traded offerings, and their published AUV was pulled down by non-traditional sites that should have been excluded. What’s broken is a poorly crafted Item 19 that strangles the franchise development marketing message and negates all credibility of the founder’s intent to create a niche brand based on superior quality. Company C is a service business with 12 company operations and half as many franchises entering a crowded but lucrative space. In business for 10 years with proven results, well-honed systems, and happy franchisees, they are seeking more units to achieve critical mass. Their franchise opportunity message is based on a competitive comparison itemizing investment, fees, territory, and discounts concluding they are the second least-expensive franchise in their segment. Let’s just jump ahead to what’s broken: Although they have great things to offer, the franchise message has reduced the brand to a commodity. The franchisor presents no specific marketing or operating knowledge the competitors do not possess. Company C’s presentation offers no points of differentiation or added value, only price and a few more ZIP codes. When I read it like I bought it I am compelled to go with a more expensive franchise. Unfortunately, the rather obvious examples above are more typical than you’d like to believe. To create a concise, complete, and effective sales process, we must be more critical, analytical, and insightful about our franchise offering. Take some time to review yours page by page. Eliminate the fluff and get to what matters to those making life-changing decisions. They are reading it like they bought it, and they are going to drive it like they stole it. The question becomes, Do you have a sales presentation that can keep up? “Drive it like you stole it.” I love that line. n Jim Bender is the president and owner of Franchise System Builders. He has been involved in franchising for 37 years and has provided clients with sales outsourcing and concept packaging services since 2002. Contact him at jtbender@franchisesystembuilders.com or 248-647-1989.

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GROWING YOUR SYSTEM

Market trends Don’t Be a Platypus!

Adjusting sensibly to external threats

A

BY DARRELL JOHNSON

n alligator looks about the same as it did 100 million years ago. However, it evolved into a smaller, quicker version as the world around it changed. On the other hand, I have to believe that some animals came about from a disruption of evolution. The platypus— an egg-laying, duck-billed, beaver-tailed, otter-footed mammal—comes to mind. When external shocks are injected, unexpected consequences often follow. This is where we find ourselves with recent legislative and regulatory actions affecting the franchise business model. Outcomes from shocks alter the evolutionary process and are harder to predict. Let’s try anyway. There are 11 functional responsibilities that all franchisors are responsible for executing. Over time each of these functions evolves based on best practices and now, increasingly, performance standards. Left to evolve on their own, each of these functions has been refined a great deal, first from best practices and, more recently, with the development of some key performance standards that are important to the future of the business model. We are beginning to understand the relationship between franchisors’ functional efforts, the costs of those efforts, and the effectiveness of those efforts in the outcomes they seek to achieve. When confronted with major disruptions from legislative and regulatory actions, we unfortunately usually go down a reactionary path. The joint employer challenge to the business model is one major disruption. Another comes from the DOL’s Wage and Hour Division, which has conducted nearly 4,000 investigations at the 20 largest fast-food brands during the Obama administration. These potentially major disruptions are likely to create unintended consequences if the business model adjusts too quickly. We’ll likely see this in several

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rather predictable phases. It will start with mutual uncertainty leading to legal advice to abruptly doing less. We already are seeing this in training and field support where franchisors are pulling back. We will start seeing the same thing in technology and marketing.

Change in business is always hard to adjust to because people are creatures of habit. To be fair, from FRANdata’s vantage point some of the business model practices over the past 20 years have swung toward much greater franchisor control over system activities. Like a pendulum, that movement goes past a balanced position unless natural forces or, in this instance, the hands of regulators and legislators, stop the momentum. If the legal/legislative/regulatory actions are not too great, the adaptability hallmark of the franchise business model will adjust. However, the speed of adjustment that many feel is necessary may not lead to ideal solutions for both franchisors and franchisees. It is quite likely franchisors will pull back needed levels and types of support in reaction to NLRB and DOL threats if they continue. Stopping or reducing services that are needed and expected leaves a void. Who will fill it? Who will pay for the altered services? And how effective will the alternatives be? The model will adjust and survive, hopefully not in a seriously weakened state. This will depend on the speed and effectiveness of the transition. The second phase of the transition will start with those advisors who have lots of answers. They will be quite visible. It’s important to keep in mind that we

are in a new environment and the “right” answers will evolve as more information is known about the threats and different approaches are tested. Best practices will pop up fairly quickly in this phase. It will take more time to understand the performance results, and therefore the effectiveness, of different approaches. Too much speed here will be more damaging than helpful. Change in business is always hard to adjust to because people are creatures of habit. When franchisees are accustomed to getting services and support in certain ways, any changes must be accompanied by evidence showing that the new results will be as good, or better, than before. Having information on the outcomes that validates the neutrality or positive results of any changes will be critical to franchisee buy-in and system stability. We all want to avoid changes that diminish the legal/legislative/regulatory threat but that leave franchise systems weaker. This final phase will reveal itself when best practices and outcomes are understood. Franchising does have an advantage it needs to rely heavily on: a willingness to share such information. To benefit from this advantage, collectively we need to establish ways of explaining new approaches and costs. Most important, we need to explain effectiveness in franchisee terms, not just in external threat terms. A stronger business model depends on clarity with both. If this pattern of adjustment is correct, the only remaining issue is timing. The faster we get to adjustments that address the threats—without risking performance damage to the business model—the better. I hope Franchise Update’s magazines and next year’s Leadership & Development and Consumer Marketing conferences produce best practice forums for sharing such transition results. FRANdata is putting a lot of emphasis on measuring the approaches, costs, and results across functional areas such as development, training, field support, compliance, technology, and marketing. This must be accelerated if we are to make an aggressive transition without ending up looking like a platypus. n 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.

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GROWING YOUR SYSTEM

International Growing Abroad in 2017? International franchise development trends BY BILL EDWARDS

I

nternational franchise development continues at a fairly high pace, despite all the challenges around the world that have little to do with the business climate. Let’s take a run around the world to see what types of franchises investors and consumers in various countries are seeking. The major franchise exporting countries remain the U.S., Australia, and the United Kingdom. Asian franchises, like Jollibee from the Philippines, are also going global at an increasing rate. Overall, a recent survey by our company showed that the most sought-after franchises, in order of desirability are children’s education, burgers, senior care, coffee, pizza, fitness, and security services. In developing countries, consumers are seeking franchises related to children’s education, food and beverage, management training, and retail brands. In developed countries, consumers still want food and beverage, but are now more focused on fitness, home care, cleaning, handyman, and specialty clothing. A fairly new entrant is franchises that provide security services, a sign of the times across the world today. Asia Asian families spend an unusually high percentage of their income on the education of their children to give them an edge when growing up. For this reason, U.S. education franchises are highly sought after. China remains a fast-growing franchise market with an estimated 300 million middle- and upper-class consumers. While the country’s overall annual GDP growth rate slowed to 6.9 percent in 2015, the consumer portion grew at an 8.4 percent rate. The Chinese consumer has become somewhat picky about food and beverage brands, often looking at homegrown franchises, which have begun providing a quality food product. One interesting trend in China is the growth of the local I Do franchise, which provides young couples with engagement

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rings in more than 250 Chinese cities. The previous generation did not give rings related to marriage—a cultural shift. Auto repair franchises are making headway because the Chinese now buy more cars per year than buyers in the U.S. and local warranties are basic and very limited. China has more than 4,500 franchises and chain store companies, creating more than 5 million jobs nationwide. The China Chain Store & Franchise Association (CCFA) says the country’s top 100 franchises (124,086 stores) generated total sales of RMB428 billion (about US$64 billion), and that 90 percent of these franchises believed their sales would continue to grow in 2015. Challenges to U.S. franchise firms in China include a relatively weak regulatory system, increasing costs of labor and real estate, and a lack of qualified Chinese franchisee candidates. The most recent legislation released by the Ministry of Commerce stipulates that franchise firms can start franchising in China as long as they own and operate two companyowned stores for one year in any part of the world. This brings up a new trend that is perhaps not so positive for international franchisors: increased regulation in many developed countries. New franchise laws and disclosure requirements are popping up across the globe. Of course, a disclosure requirement also can have the impact of leveling the paying field between local franchisees and international franchises seeking to enter new countries. Vietnam is another Asian growth market for franchising, especially in the coffee sector. The Coffee Bean & Tea Leaf is well established, and PJ’s Coffee of New Orleans recently opened its first coffee shop in Ho Chi Minh City (Saigon). In the Philippines, the Bistro Group, which owns the country rights to TGI Fridays, Buffalo Wild Wings, and Texas Roadhouse, just opened its first Denny’s. Manila is the headquarters for a large number of international call centers whose

young employees come off work at all times of the day and night and want a full meal. From the outside, Japan would not appear to be a good market for new franchises because of its very low (or no) annual GDP growth rate. The recent opening of the first Carl’s Jr. in Tokyo shows that well-known food brands will still find an investor in Japan. With its large aging population, Japan offers a major opportunity for well-established Western senior care franchises. Right at Home senior care has opened in Japan. In Australia, the economy continues to do fairly well. However, with more than 95 percent of the country’s franchises being local, it is relatively difficult for foreign brands to enter the market. Europe Since about 2008, Europe has been in a deep recession following the global financial collapse. Now, as annual GDP growth is becoming positive again, investors are once again seeking new brands to acquire and develop in Italy, Poland, and Spain. This interest is primarily in food and beverage franchises, but fitness franchises are also a major interest across Europe. The United Kingdom recently voted to leave the European Union (EU). This does not seem to have had a negative effect on the interest in most franchise development. We shall see what 2017 brings. The Americas In the Americas, Peru is the standout economy. Having had a successful presidential election that brought in a pro-business government, franchising is once again prospering in the food and beverage sector. Brazil has been slowed by an economy with negative GDP growth and political changes. But next door, after 20 years of bad government and economic policies, Argentina is emerging as a high-potential market. The new government is pro-business and pro-growth. They also are letting the local currencies float against the U.S. dollar so a franchisor can actually be paid in hard currency rather than soybeans. A new government in Canada has led to more taxation and a slowing economy. Large investment franchises, like in the food and beverage sector, are finding it hard to find investors and capital. Africa In Africa, there is interest in acquiring new

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GROWING

Frandcahte up

UPDA

William Edwards, CEO of EGS LLC, has 40 years of international business experience. He has lived in 7 countries, worked on projects in more than 60, and has advised more than 50 U.S. companies on international development. Contact him at 949-375-1896, bedwards@egs-intl.com, or read his blog at edwardsglobal.com/blog

BUSINESS INTELLIGENCE FOR

CHISE

Big picture Master franchising remains the prevalent type of franchise model in most of the world, except for the food and beverage sector where area franchising remains the model. An area franchise is one where the local franchisee builds, owns, and operates all the units of the franchisor in a country. This requires a much higher level of capital than master franchising. Food and beverage franchises typically seek multi-unit franchisees in the U.S., and this has begun to happen in Europe. Franchise Update Media will hold the first multi-unit franchise conference in Europe in early December in Florence, Italy. Again, a sign of the times. n

Franchise updateise FRAN

franchises in Kenya and South Africa. But the economies, unemployment, and political situations are barriers to finding investors. Nigeria is going through economic challenges that may limit new franchise development in 2017. Middle East Given the political turmoil and today’s low oil prices, the Middle East would seem a place where there would be little interest in new franchise development. There is no doubt that the price of oil, much lower than just 1 or 2 years ago, has diminished new investment in countries like Kuwait, Saudi Arabia, and the United Arab Emirates. But there remain companies that think 3 to 5 years out and are still investing in new brands. New franchise investment in the Middle East is lower than 2 to 3 years ago and is limited to these countries. Food and beverage franchises are still the primary interest, 40 years after the first U.S. burger brands entered these countries. Turkey has seen good foreign franchise investment in the past five years. Unfortunately with the unrest in Syria and internal political changes, Turkish companies have recently become reluctant to develop new brands. History says this will change in the future.

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GROWING YOUR SYSTEM

It’s closing time

our batteries. Try not to let frustration take control of you. If you aren’t doing it now, seek outlets outside your daily work. Finishing your job every day, exhausted with nothing to look forward to, is not healthy for you or your home life.

• Take care of your “worst items first” at the start of the day. It’s amazing how much better you feel and more productive you can be the rest of the day. • Every week, engage yourself in something you really enjoy, would like to explore, or participate in an activity you would like, but never have done before. There are a multitude of options out there: yoga, reading books, poker, day trips, joining your child at a Boy Scout or Girl Scout Camp, learning to cook, horseback lessons, motorcycle riding, skydiving, fly fishing, or perhaps joining the legendary Franchise All-Star Band.

Life balance is a sales savior. In our quest for success, we all need to recharge our batteries. Try not to let frustration take control of you. If you aren’t doing it now, seek outlets outside your daily work.

Make your vacation a vacation • Be sure to set up auto messages before you leave on a trip. • Bury your smartphone in the sand. Stop running to Starbucks for the wifi. When someone asks what you do for a living, don’t jump into work mode. Tell them you sell tickets at the local movie theater. Just smile and your listeners will get the message! • Don’t always be available, unless there’s an absolute fire you must tend to. • Limit those “absolute” calls to the early morning and keep them short and to the point. With a courteous, friendly voice let them know you are on vacation, which avoids unnecessary chitchat. • Absolutely cherish your own time and start enjoying your glass of wine or iced tea with family and friends. No guilt trips. You deserve the experience.

Managing Burnout

Take the time to recharge your batteries BY STEVE OLSON

T

hirty years ago I read an article in Sales & Marketing Management that hit me like a freight train. It challenged my commitment and motivation to continue the everyday grind of franchise selling. To stoke the fire, their sadistic designer illustrated a lit match flaming the edges of the story. When I finished reading the article, I wondered why I was so bothered by this piece. Pondering over what was bugging me, it took me a few days to realize what was happening. Why was I so frustrated… especially since I was hitting my sales numbers and exceeding my annual quotas? Having a frank conversation with myself, I realized what triggered my frustration. I had been racing on a perpetual treadmill thinking about new prospects just as I was closing my current prospects. My alarm system went off! Sales numbers were defining my life, I wasn’t. I was a victim of job burnout. I was more concerned about “What have you sold for me today?” than I was about normalizing my lifestyle, health, and well-being. My daily mission was sifting through hundreds of unqualified leads, connecting with very few real prospects, and competing with multiple competitive brands to capture another sale. After all, that was our responsibility and we were well compensated for it. What a mistake. • Don’t let the challenge of the hunt consume you. Some of you reading this article know what I mean. Others are not at this point yet. Or they are part of the glorious few who have always had the discipline to compartmentalize the job and make space for their work and play time. Certainly my imbalance was my wake-up call. It was quite clear that we all need “to take the time to take time off.” Sales pros should never get caught focusing on their prospect families at the expense of their own families. • Life balance is a sales savior. In our quest for success, we all need to recharge

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Sometimes we find the answers are right in front of us. Years ago my five-year-old daughter Cyndi asked if she could go to work with me when making my rounds of local sales visits. Considering her surprising request, I announced, “Okay, get yourself all dressed up and let’s go to work together!” Not only did we both have lots of fun, but my daughter discovered what I did during my work day. This glorious outing also provided multiple perks that day. I wrote more business because of Cyndi’s infectious smile, blonde curls, and dimples. Ice cream sundaes were absolutely in order to top off that day! Healthy tips I’ve learned • Manage your schedule. Don’t let your schedule manage you.

Exception for newbies Starting a career in franchise development requires an unusually longer learning curve in mastering our counter-intuitive franchise sales process. To succeed means more time up front on the job, less time for play. Hold back on your leisure time until you learn your craft, sharpen your sales proficiencies and award a few franchises. Then it’s time to pop the cork, kick back, and celebrate the awesome career opportunity we enjoy. n Steve Olson is a 30-year franchise development veteran and author of the #1 Amazon best-seller, Grow to Greatness: How to Build a World-Class Franchise System Faster, available at www.growtogreatness.net. He can be reached at OlsonandAssociates.com.

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Franchise Update Magazine - Issue IV, 2016  

2017 Annual Franchise Development Report

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