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PEOPLE QINVESTMENT INSIGHTS QEXIT STRATEGIES

Multi-Unit

MULTI-UNIT FRANCHISEE

Franchisee ISSUE I 2016

M E G A 9 9

ALSO: Q FRANCHISEE ASSOCIATIONS

Bill Spae leads the country’s 2nd largest Dairy Queen franchise

Facing external threats in the coming year

Q MOVING TARGETS Changing markets demand innovative marketing

Q MEGA 99

This year’s biggest U.S. franchisees

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SEE INSIDE:

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Multi-Unit

Franchiseecontents I S S UE I, 2016

COVER STORY

Bound To Win 10 These seven multi-unit franchisees—Bill Spae, Van Jakes, Yaron Goldman, Shirin Kanji, Gary Moore, John Metz, and Dawn Lafreeda— refuse to settle for less as they build their empires. BY KERRY PIPES and HELEN BOND

LISTS

Mega 99 Rankings 48 The top U.S. franchisees listed by total number of units

FEATURES

Freedom of Associations 56 External threats—from minimum wage to the NLRB—top the menu for franchisee associations in 2016 BY EDDY GOLDBERG

Moving Targets 64 Changing markets and customers demand marketing and hiring innovation BY HELEN BOND

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Departments CHAIRMAN’S NOTE

Growing with Greatness 6 ONLINE

What’s online @ mufranchisee.com xx

Columns CUSTOMER SERVICE

Never and Always 70

Do you have a “customer bill of rights” your employees can follow? BY JOHN DIJULIUS

PEOPLE

Magnetic Culture 72

Put your own people first and your customers will love you even more

Franchisee CHAIRMAN Gary Gardner CEO Therese Thilgen 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 MANAGER, SOCIAL MEDIA Cheryl Ryan

BY JULIE MORELAND

SENIOR SALES, EVENT & OPERATIONS SUPPORT MANAGER Sharon Wilkinson

INVESTMENT INSIGHTS

SENIOR PROJECT MANAGER, MEDIA AND BUSINESS DEVELOPMENT Christa Pulling

Motion Sickness 74

Learn to relax—and prosper—amidst ongoing market volatility and uncertainty BY CAROL SCHLEIF

FINANCE

Give Yourself a Raise! 76

Take home some additional profit in 2016 by following this simple advice BY ROD BRISTOL

EXIT STRATEGIES

Why Do Some Deals Fall Apart? 78 Fair dealing and efficient execution produce happy sellers and buyers BY DEAN ZUCCARELLO

FRANCHISE MARKET UPDATE

Economy 2016 80

Last year’s slow, “doesn’t feel good” expansion and recovery will continue BY DARRELL JOHNSON

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Multi-Unit

MARKETING ASSISTANT, SPEAKER LIAISON Katy Geller FRANCHISEE LIAISON, SUPPORT COORDINATOR Leticia Pascal CREATIVE PRODUCTION ASSISTANT Phi Le VIDEO PRODUCTION MANAGER Wesley Deimling CONTRIBUTING EDITORS Rod Bristol John DiJulius Tom Epstein Darrell Johnson Steve LeFever Julie Moreland Jim Sullivan Carol Schleif Thomas J. Winninger Paul Wilbur Dean Zuccarello CONTRIBUTING WRITERS Debbie Selinsky Helen Bond ADVERTISING AND EDITORIAL OFFICES Franchise Update Media 6489 Camden Avenue, Suite 204 San Jose, CA 95120 Telephone: 408-402-5681 Fax: 408-402-5738 SEND ARTICLE INQUIRIES TO: editorial@fumgmail.com MULTI-UNIT FRANCHISEE MAGAZINE IS PUBLISHED FOUR TIMES ANNUALLY. Annual subscription rate is $49.00 (U.S.) FOR SUBSCRIPTIONS EMAIL sharonw@franchiseupdatemedia.com or call 408-997-7795 FOR REPRINT INFORMATION CONTACT FOSTER PRINTING AT 800-382-0808 www.fosterprinting.com

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Chairman’sNote

Growing with Greatness

T

his issue celebrates those “mega” franchisees who have grown in size, brands, units, economics, and territories. I firmly believe that growth is not only powerful, but an absolute necessity in business today. Growth is the foundation for the most talented organizations in the world. Growth offers opportunity for people: it feeds their energy and desire to develop themselves, and it allows for the retention of top performers in a challenging and competitive environment. Without exception, when we begin the process of recruiting top leaders across our industry, our track record of consistent growth always becomes a competitive advantage in the fight for talent. It is also nearly always the key reason we are able to recruit these leaders from other organizations, because of their inability to grow in their current roles, whether it be professionally, in breadth of responsibility, or financially. As a business begins to grow, attract top talent, and invest in the development and retention of that talent, there is no other option but to continue to “feed the beast.” As we have attacked this strategy in recent years, my battle cry has been focused on achieving greatness while growing, not just on growth alone. We call it our “Fight for Great.” This concept starts with the idea that small companies are more efficient, allow for more creativity, think more entrepreneurially, and are more nimble. Smaller companies have a way of making people feel more valuable. There is more collaboration in many of them because there has to be, and the team mentality is usually strong. People tend to be more passionate about their work. As a company grows, it tends to lose some of that. People become bogged down in processes and policy; divisions begin to emerge. There are more “cooks in the kitchen” requiring more communication. It starts to take longer to get things done, and you find yourself waiting on others. In this environment, even really good people find themselves taking less risk, and having a greater fear of making mistakes. They don’t realize they have slowly become “okay” with mediocre. As our business began to really surge ahead in growth several years ago, we watched the beginnings of mediocrity taking hold. I feel fortunate that we were able to catch ourselves and recognize that we were moving in an unintended direction. We were able to course correct before losing the core that built our business. Today, while far from perfect, we are relentless about maintaining our edge and fighting for great. Greatness isn’t a policy, and it can’t be delegated to any one person to lead. It is, however, something that people can work toward, if it is defined. It is something that can be rallied around and can create a real coming together. It’s not easy, pretty hard to achieve in fact, but it remains our absolute goal! To those newcomers on the Mega 99 list, and to those who continue to move up the charts, Congratulations! I wish each of you all the best in growing with greatness this coming year.

Michael Kulp President/CEO KBP Foods

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Looking to add more flavor to your portfolio?

Growth, Profitability, 20+ Fresh Ingredients RANKED #1

Mexican quick-service category by Entrepreneur ® magazine for 2013, 2011

RANKED #1

$1,239,512*

(Technomic “Consumer Restaurant Brand Metrics” Report for 2013)

Average EBITDA $192,856* (15.6%)

Top Mexican Chain by Technomic in 2013

Average total annual gross sales

600+ RESTAURANTS

For more information, contact: 404.705.2051 • requests@moes.com *Figures reflect averages for 163 franchised restaurants that were in operation continuously for 3 or more years and that provided us with complete financial information for the full calendar year of 2014, as published in Item 19 of our April 2015 Franchise Disclosure Document. These averages are based on a 52-week annual period from January 1, 2014 through December 31, 2014. Of these 163 restaurants, 71 restaurants (or 44%) attained or exceeded the average total gross sales and 69 Restaurants (or 42%) attained or exceeded the average EBITDA. A new franchisee’s results may differ from the represented performance. There is no assurance that you will do as well and you must accept that risk. This offering is made by prospectus only. This information is not intended as an offer to sell. We will not offer you a franchise until we have complied with disclosure requirements in your jurisdiction. FOR THE STATE OF NEW YORK: This advertisement is not an offering. An offering can be made only by a prospectus filed with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law. FOR THE STATE OF CALIFORNIA: These franchises have been registered under the Franchise Investment Law of the State of California. Such registration does not constitute approval, recommendation or endorsement by the commissioner of corporations nor a finding by the commissioner that the information provided herein is true, complete and not misleading. Moe’s Franchisor LLC, 200 Glenridge Point Parkway, Suite 200, Atlanta, GA 30342.

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© 2015 Moe’s Franchisor LLC

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OPPORTUNITIES FRANCHISE Looking for your next franchise

opportunity? Have we got the tools for you! Find

April 27–29, 2016 Caesars Palace, Las Vegas

CONFERENCES Multi-Unit  Franchising Conference Ahead!

Franchise Update Media’s annual Multi-Unit Franchising Conference (MUFC) took Las Vegas by storm last year. Total attendance topped 1,300 and included more than 550 franchisees. Big numbers? You bet! Those 550 franchisees accounted for more than 12,000 operating units, more than $8.5 billion in annual revenue, and provided jobs for more than 100,000 people. Mark your calendar for the upcoming MUFC, April 27–29 at Caesars Palace in Las Vegas. Meet your peers, explore new brands, and soak up the educational sessions. Need further inspiration? Take a look back at the 2015 conference at www. multiunitfranchisingconference.com

ONLINE Multi-Unit Community Grows

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

ONLINE VIDEOS NEW EmpireBuilders.tv Expands Great entrepreneurs build great organizations. They possess a knack for making smart business decisions, building great teams, and creating successful companies. But as we’ve learned from years of interviewing successful multi-unit franchisees, they’ve also struggled, doubted, and made more than a few mistakes—yet they’ve soldiered on, persevered, and ultimately come out on top. To provide a deeper sense of their journeys, insights, and personalities, we’re selecting franchisees from our most inspiring print interviews and creating a new series of online videos of these franchisee leaders. We call them Empire Builders. www.franchising.com/empirebuilders

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articles on companies, concepts, industries, trends, and profiles—and search our features. Find franchisors looking for multi-unit franchisees, area reps, and area developers. Search by top opportunities, alphabetically, investment level, industry, state, and more at www. franchising.com

RANKINGS Check out our annual  rankings of top franchisees and their multi-

unit brands and find out “who’s on first.” Go to www.

franchising.com/multiunitfranchisees/mu50.html for the Multi-Unit 50 rankings; and www.franchising.com/ multiunitfranchisees/mega99.html for the Mega 99 rankings.

PUBLICATIONS “Don’t just survive, thrive!”

Franchise Update Media’s 2016 Annual Franchise Development Report, and the best-selling book, Grow to Greatness by Steve Olson, offer invaluable tips for franchise sales success and unit growth in today’s economy. To order, visit www.franchising.com/franchisors/ afdr.html and www.franchising.com/franchisors/ growtogreatness.html

QUICKLINK

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

BUSINESS ACUMEN

“In my experience, if employees are allowed to make decisions they usually will make the right ones. In the instances where I have tried to micro manage the business, it always seems to backfire. Generally people will do the right thing when given the opportunity.” — Yaron Goldman, owner of 59 McAlister’s Deli and 3 MOD Pizza locations

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WE’VE GOT YOUR BACK Checkers & Rally’s has got your back when it comes to bold and flavorful food, amazing value for our guests, and a price-engineered menu that continues to deliver profits to our franchisees. ■ Four Consecutive Years of Same-Store Sales Growth1 ■ Checkers & Rally’s Fries Ranked #1 2 ■ Ranked #1 Fast Food For Overall Franchisee Satisfaction3 ■ 71.4% Return on Investment 1 — Year 1 Profit $297,1701 “What is most impressive about Checkers is that they will do everything in their power to help franchisees succeed.” — Aby Mohamed, Illinois Multi-Unit Franchisee

Over 30 years of experience, 800+ restaurants, and top-tier availability in all major US markets

Visit owncheckersfranchise.com/update or Call 888-913-9135 © 2015 Checkers Drive-In Restaurants, Inc. 4300 W. Cypress St., Suite 600, Tampa, FL 33607. 1. Per Item 19 in Checkers 2015 Franchise Disclosure Document. Same-store sales results are measured by combining 2015 FDD and 2014 FDD data. 2. Per Yahoo!.com Fast Food French Fries Taste Test Winner Gets an Asterisk article 3.Per Franchise Business Review 2014 Top Food Franchises Franchisee Satisfaction Study. Written substantiation will be provided on request. This advertisement is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for information purposes only. The franchisor, Checkers Drive-In Restaurants, Inc. is located at 4300 West Cypress Street, Suite 600, Tampa, Florida 33607, and is registered as file number F-4351 in the state of Minnesota. In New York, an offering can only be made by a prospectus filed first with the Department of Law, and such filing does not constitute approval by that Department. 20151490

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Mega Zees

7 franchisee superheroes reveal how they did it

W

e kick off 2016 with our annual Mega 99 issue: a list of the largest U.S. franchisees ranked by total number of units—along with 7 profiles of multiunit mega-operators. For the profiles we’ve identified movers and shakers who have gone big, whether by revenue or by number of brands, units, or locations—or by all of these signs of franchising success. These truly are franchisees who don’t settle for less. Going big takes a certain kind of drive and initiative, as well as a nose for deals, leadership skills, business savvy, and perhaps a dash of good fortune. Few actually make it, and the ones who do have invested blood, sweat equity, and sleepless nights to get there—building their success on the four pillars of strong brands, passionate teams, dedicated employees, and loyal customers. Each year we discover women and men with unique stories that have led them to their mega status. This year is no different. Regardless of their journey, each of these mega-zees has a riveting personal story that began as a crew member, waiting tables, or working summers in the family business—and, for one, playing in the NFL. Still full of hopes and dreams, they’ve experienced the highs and lows of wins and losses and faced painful setbacks as well as triumphant successes. Super numbers, super performers, super people. That’s what we’re talking about when we say “Mega 99.” • Bill Spae jokes that he’s “a recovering franchisor.” Indeed, before becoming a Dairy Queen franchisee he served as CEO of Mooyah Burgers, Fries, & Shakes and COO at CiCi’s Pizza. Today he’s using his 40-plus years of franchising experience to expand Texas-based Vasari LLC, the second largest franchisee in the DQ system, with 76 restaurants in Texas, Oklahoma, and New Mexico. • Van Jakes used to chase NFL receivers up and down the field. He spent 8 years in the NFL before retiring and choosing a career in franchising. Today he chases profitable earnings at his three McDonald’s in Atlanta. Recently, he’s started his own consulting business, My 5th Quarter, to help current and former pro athletes successfully transition into franchising. • Yaron Goldman is CEO of Southern Deli Holdings, which operates 59 McAlister’s Deli restaurants in North and South Carolina, Missouri, Colorado, and Wyoming, along with three MOD Pizzas. His strategic plan for this year includes revenue projection above $100 million and

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the addition of 3 more brands in the next 10 years. • Shirin Kanji is senior vice president and chief investment officer of Impact Properties, the 35-year-old family business built by his father and uncles. Their diverse portfolio includes hotels from Westin, Marriott, Hilton, and IHG, along with food brands Firehouse Subs and BurgerFi. And last year the company added 40 RentA-Center locations to further diversify its holdings. • Gary Moore has spent more than 30 years in franchising and is still happiest behind the counter with his sleeves rolled up alongside team members and talking with customers. Today, he operates 58 Burger King restaurants in five western states, a slew of convenience stores, and six Costa Vida Fresh Mexican Grill restaurants. He’s just struck a deal with the Utah-based coffee house chain Beans & Brews to develop 20 stores in Nevada. We’ve also “reconnected” with mega-operators John Metz and Dawn Lafreeda, who both have been on the move since we last profiled them. • John Metz continues his unique path of growth and diversification as both a franchisee and franchisor. Since we profiled him in 2009, Metz has bought a franchise brand, Hurricane Wings & Grill, expanded it from 30 to 75 units, is taking it international with deals in Italy and Canada, and is launching a spinoff brand, Hurricane BTW (burgers, tacos, and wings). He’s also begun building a new Marriott Residence Inn scheduled to open this year. And, of course, he still operates his Denny’s and Dairy Queen locations. • Dawn Lafreeda has added five more Denny’s locations since we profiled her in mid-2012, bringing her total to 75 in 7 different states, with a total annual revenue of $100 million. But her Denny’s operation isn’t the only thing keeping her busy lately. “I recently filmed a pilot-presentation for The Food Network where I advise young restaurant owners how to take their business to the next level or expand.” No matter their background, experience, and training, there are always inspiring stories behind mega-successful franchise operators. Whether you have a single unit or dozens spread across several brands, you’re sure to find something interesting, educational, even entertaining in these seven stories of multi-unit franchisees. And, as usual in our annual Mega 99 issue, we’ve included a list of the country’s largest multi-unit franchisee organizations, ranked by number of units. (Thanks, FRANdata!)

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JOIN THE FRANCHISE THAT PLAYS TO WIN! TropicalSmoothieFranchise.com 800-206-3407

*Top 50% of Cafés. Based on Calendar year 2014, 64 of 316, or 20.3%, of the Cafés gained or surpassed this sales level. This information appears in Item 19 of our Franchise Disclosure Document. Your results may differ. There is no assurance you will do as well. This information is not intended as an offer to sell or the solicitation of an offer to buy a franchise. It is for information purposes only. The offering is by prospectus only. Currently, the following states regulate the offer and sale of franchises: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota (File No. F-4953), New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. If you are a resident of or want to locate a franchise in one of these states, we will not offer you a franchise unless and until we have complied with applicable pre-sale registration and disclosure requirements in your state. CALIFORNIA DISCLAIMER: THESE FRANCHISES HAVE BEEN REGISTERED UNDER THE FRANCHISE INVESTMENT LAW OF THE STATE OF CALIFORNIA. SUCH REGISTRATION DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION OR ENDORSEMENT BY THE COMMISSIONER OF CORPORATIONS NOR A FINDING BY THE COMMISSIONER THAT THE INFORMATION PROVIDED HEREIN IS TRUE, COMPLETE AND NOT MISLEADING. New York State Disclaimer: This advertisement is not an offering. An offering can only be made by prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law. © 2016 Tropical Smoothie Cafe, LLC. Tropical Smoothie Café, LLC 1117 Perimeter Center West, Suite W200 Atlanta, GA 30338.

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Making the Jump into Family Entertainment A

s a former multi-unit franchisee of McDonald’s, Ted Lezotte is making the jump from the restaurant world to a completely different type of concept that is continuing to make a huge impact around the globe: Sky Zone Trampoline Park. Opening his first location in Plantation, FL, Lezotte’s deep-rooted history in the franchising business has set him up for success with hopes to bring additional Sky Zone parks to new areas in the future.

AN EARLY START

Ted Lezotte

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At the age of 14, Lezotte was introduced to the franchising world when his mother opened four McDonald’s restaurants throughout Michigan. “Running more than one restaurant can be a challenge, but it was extremely rewarding for my mother, and I wanted to do everything I could to help,” said Lezotte. “I worked every position in the front and back of the house— flipping burgers, working the counter. I did it all.” With his determined attitude, Lezotte went on to open two McDonald’s of his own in addition to purchasing his mother’s locations, and became McDonalds’ Public Relations Chair, Advertising Chair and Marketing Chair for the state of Michigan.

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TIME FOR A CHANGE After spending three decades with the fast food giant, Lezotte was looking for a change. While in the process of selling his restaurants, his son returned from a birthday party at a nearby Sky Zone and insisted the whole family visit the trampoline park as soon as possible. Lezotte, listening to the requests of his son, headed out to the closest Sky Zone knowing it would be fun, but didn’t expect the outing to lead to his next business venture. “What really caught my attention was the innovation and creativity behind the concept,” said Lezotte. “Sky Zone has created unprecedented ways to promote a healthy lifestyle all while in a fun environment.” In December, 2014, Lezotte sold the last of his McDonald’s franchises and signed on with Sky Zone less than a week into the new year. burgers, working the counter. I did it all.” With his determined attitude, Lezotte went on to open two McDonald’s of his own in addition to purchasing his mother’s locations, and became McDonalds’ Public Relations Chair, Advertising Chair and Marketing Chair for the state of Michigan.

THE FINAL MOVE After a year of planning, Lezotte will finally open the doors of his Plantation location to the community in May, 2016 and is hoping to open more locations in the future. When asked what he’s most looking forward to once his Sky Zone is opened, Lezotte says, “The best part about

working with Sky Zone is being able to feel like I’m making a significant contribution to a company that gets kids moving with fun fitness and is continuing to innovate with amazing new

Sky Zone Bus

New Fuel Zone

offerings. I am confident that Sky Zone will be the McDonald’s of this space!” As Sky Zone continues to take its unique concept to different corners of the world, the brand is always looking for partners who are interested in operating multiple locations. In addition to Lezotte, Sky Zone has numerous, successful, multi-unit franchisees such as former Jimmy John’s franchisee, David Husturlid, and Stanley Steemer franchisees Joel Krag, Jeff Mast and Dave Beckett.

New Entrance

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BY HELEN BOND

Let Your Eagles Fly DQ franchisee Bill Spae is a “recovering franchisor”

A

fter more than four decades in franchising, Bill Spae was fulfilling a promise to his wife to take some much-needed time off when a friend called with an opportunity—and challenge—too good to pass up: to invest in and become CEO of Vasari LLC (the largest Dairy Queen franchisee in Texas and the second-largest in the DQ system), and to improve operations and double the size of the company. Spae, who most recently served as CEO of Mooyah Burgers, Fries, & Shakes and COO of CiCi’s Pizza, loves running companies. And in early 2014, he brought those 40-plus years of franchising experience to Vasari’s 76 Dairy Queen restaurants—70 in Texas and 3 each in New Mexico and Oklahoma. Spae, who began his career at Burger King, has a seemingly bottomless well of experience running, growing, and turning brands around. He’s held executive positions at TGI Fridays, Taco Bell, Wendy’s, Metromedia Restaurant Group (Bennigan’s, Steak and Ale, Ponderosa, and Bonanza), Hollywood Video, and Palm Beach Tan. He also has been a franchisee of Taco Bueno in Texas. “I’m a recovering franchisor,” chuckles NAME: Bill Spae TITLE: CEO and president COMPANY: Vasari LLC NO. OF UNITS: 76 Dairy Queens AGE: 64 FAMILY: Wife Karen, two grown

children, three grandchildren, and a fourth on the way in March YEARS IN FRANCHISING: 40-plus YEARS IN CURRENT POSITION: 2

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PERSONAL First job: Swabbing decks at McDonald’s around age 14. Formative influences/events: There are too many to list. I’ve had the blessing of being able to work with several founders of companies: Dave Thomas of Wendy’s, Norman Brinker with Steak and Ale, and Dan Scoggin, founder of TGI Fridays. Throughout the years it’s been my benefit to work with folks who either started companies or grew companies to very large sizes. They inspired me to want to stay in the industry. I learned the right things to do, and just as importantly, what not to do. Key accomplishments: I’m most proud of the people I have worked with who have gone on to great things. This business is really about people. It’s about serving the guests and doing that well, which is paramount, but also the mentorship and guidance of people who work with and for you. Biggest current challenge: We purchased this as a group of restaurants spread across Texas, Oklahoma, and New Mexico. That span is a challenge. Being able to invest the right money to make restaurants that have been around for 20plus years relevant also is a challenge. Next big goal: It is a combination of two things: 1) sustainable, profitable growth, and 2) maintaining profitability at core restaurants. Growth is certainly an opportunity for us. We have a contract to grow our Dairy Queen footprint inside the Dallas/Fort Worth area. We also have plans to grow in Oklahoma, specifically in Tulsa and the surrounding cities and towns. We want to continue reasonable and profitable growth. We need to grow sales and transactions in the core units. First turning point in your career: I don’t know if there was any one first turning point, but the greatest turning point for me was when I was transferred from Miami to Dallas with Burger King. I was traveling 70 percent of the time and had two young kids. I got a call from a friend of mine who said he was with a young company that he enjoyed and thought I’d be able to grow with. That was TGI Fridays. I got to experience so many different roles and areas of the restaurant business there. Best business decision: My career turning point was also my best decision. TGI Fridays founder Dan Scoggin was a guy who gave you opportunity and then let you run with it. So my stint there gave me the freedom to grow at a young age and experience things I wouldn’t have been able to do in other systems. To be a young guy in my 20s and work at a company that vibrant and growing that quickly put me in a great position moving forward. Hardest lesson learned: Don’t take success for granted because it can fall away very quickly. We sometimes get a little too heady with the success we’ve achieved. Becoming arrogant or cocky will cause you to lose focus and then lose that success. Stay humble, always keep learning. Be sure you’re reaching out and helping people where you can. Make sure you’re providing a positive environment for others to thrive. Your success will continue because the people you work with will help you succeed. Arrogance kills a concept. Work week: Unfortunately, it’s a whole lot of meetings. Monday typically is spending time with those who report directly to me, making sure we’re on focus. On Tuesday and the middle of the week I’m out in the field. On Friday it’s time to catch up to make sure I’m aware of everything that happened during the week. On the weekend I’ll visit a Dairy Queen restaurant unannounced. I also have to

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spend time with my wife—that’s a very important part of my week. You have to balance your personal and professional life. Otherwise, things get out of whack in a hurry. Exercise/workout: I walk four or five days a week, typically about four miles a day. I try to stick to that routine. I try to do weights two days a week, too. My wife and I are talking about joining a gym to stay active together. I watch my diet, which is hard to do in the restaurant business, but I try to offset that with walking. I’m an early riser, so that helps. Best advice you ever got: I don’t know if there is one thing, but what stands out from all the folks I have worked for and with is that they were incredibly honest and forthright individuals and they cared. They had a great passion for what they did and they cared about people. That was true for every single one of them. What’s your passion in business? Seeing people be successful. I get excited about working with someone who has a specific desire to accomplish an objective and then seeing them become successful in that endeavor. That’s the greatest joy you can possibly have in business. Additionally, I am passionate about giving back in the communities we serve, and Dairy Queen is an amazing brand for this. At Vasari we support two large charities: Children’s Miracle Network, which is supported by all of Dairy Queen, and No Kid Hungry, which we support. We have raised over $300,000 in the past two years that has provided more than 3 million meals to needy kids. We also provide fundraising for our communities through our PTC school fundraising program. It’s extremely important to me that we give back. Favorite book: I enjoy reading business books from people who have unique insight. Stepping Up: How Taking Responsibility Changes Everything by John Izzo is a great one. Also, Dare To Serve: How To Drive Superior Results by Serving Others by Cheryl Bachelder; 212°: The Extra Degree by Mac Anderson and Sam Parker; and Dave Thomas’s book, Dave Says Well Done!: The Common Guy’s Guide to Everyday Success. Favorite movie: I’m really looking forward to the new “Star Wars” movie. I like movies where things blow up. I love action movies. The Bond movies, any action movies, I’m a fan. Pet peeve: My biggest one is people who do not take accountability for what they do. We have a saying from John Izzo’s book Stepping Up about taking 100 percent accountability and making zero excuses. You should be taking accountability for all that you do, good or bad. What did you want to be when you grew up? I actually wanted to go to medical school. That was my plan. I got into a pre-med program in college. But I had what I guess I would call the benefit of spending a little time in a morgue, which changed my entire outlook. I decided I liked the hospitality business a whole lot better. Last vacation: My wife and I recently went to see family for Thanksgiving up in Missouri. We haven’t been on a true vacation for the last couple of years, but we’re going to Puerto Rico this January. Admittedly it is part professional, for a conference with Dairy Queen, but we are going to take a cruise after that, which will be our first real vacation in a few years.

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Spae. “There is a uniqueness about that experience that I think provides a perspective that maybe a lot of franchisees don’t have.” So why get back in the game, and why Vasari? “The combination of being able to work with a number of talented people and create something special was important— and I also loved the brand,” he says. “I felt strongly that if we moved the company in the right direction we had an opportunity with an iconic brand to do great things— and we have.” Along the way, Spae has learned from some of the best, including Dave Thomas, whom Spae met while working as a division

vice president at Wendy’s. “I was so enamored by him and his approach to business,” says Spae, who would often drive Thomas around to restaurants when the founder stopped in Texas to visit his daughter and grandchildren. “He was so focused on high quality and taking care of the guest and the employee. He would say, ‘We have to make sure people do things right, but we have got to be nice.’ That made a huge impression on me.” Spae’s time with Dan Scoggin, founder of TGI Fridays, offered up an industry crash course as he took on roles in management, training, and then, as the company’s young-

MANAGEMENT Business philosophy: Let your eagles fly. You have to be able to hire people who have the desire, who have passion. If you’re not passionate about your brand, then why are you here? You can train the skill and develop it, but people have to want to do it. It’s about the ability to give folks the leeway to grow and excel in what they do, and guide them along the way. You have to provide continuous development for there to be continuous progression in what they do. So it’s providing the resources and ability for them to grow, and then it’s up to them to apply that and accomplish what they need to. Management method or style: As an up-and-comer, you often don’t listen to anyone—you do your own thing and that is how you make mistakes. Having people I have worked for sit me down and say, “All I want you to do is listen” and teach me how to listen has allowed me to develop a management style where I spend more time listening to folks than talking to them. By listening you learn a great deal more than when you are talking. How do others describe you? (Laughs.) I don’t have a clue. The other day someone posed a similar question to me of, “What would you like to see on your tombstone?” I told them that if people can say that I was great husband, dad, granddad, colleague, and friend, then I know I lived a good life. One thing I’m looking to do better: Anybody who tells you they’re not looking to grow their sales isn’t being honest. With all of the changes that took place in 2014—commodity cost increases, Affordable Care Act changes—it’s a challenge to improve your margins on a regular basis. So we need to be more creative and innovative to accomplish our goals. We’re still making those adjustments to grow sales. Operations is always number one, so we’ll continue to focus on that. We intend to make operations a big focus in 2016. How I give my team room to innovate and experiment: First of all, you have to set the right goals. If you’re in a struggling situation, it’s harder because people under stress tend to want to hunker down. So you have to keep things light. We have Taco Friday in the office once a month and talk about what’s going on inside the business. It’s important to also recognize performance. We give pins to our folks in the field for doing the right things. It’s recognition that they’ve been doing something really well and rewarding them. There is a tendency in business, unfortunately, to focus on the negative. We should be focused on the things that are being done right as well. That inspires people to be better at what they do, rather than being fearful and causing stress, which never leads to success. It’s important to lighten up some, and that creates a culture and environ-

ment for innovation and experimentation. How close are you to operations? The greatest joy for me is going in the restaurants. I tell my folks at the office all the time, “We don’t make money here, we spend money. Money is made in the field.” We have to do whatever we can to support them and help them to take care of our guests, and then we have to be smart about how we spend that money. What are the two most important things you rely on from your franchisor? We are new to the Dairy Queen business, so we rely on their advice and counsel. They have been terrific. Dairy Queen corporate provides the best support to franchisees that I’ve seen in my career. I’ve told them that, and I tell others that too. Whether it’s advice and counsel on real estate, food, and any other area, they provide enormous support. They’re always there and available by phone. I feel great about our level of support from the corporate team, and also from our Texas advisory council. They are extremely supportive, and for new people like us these are invaluable resources. What I need from vendors: They need to be partners. They can’t just be a vendor. In the vendor relationship, we need to be fair to them and treat them with respect and, in turn, they have to be willing to have a partnership with us so that during the great times we’re all going to succeed and during the tough times we’re all going to work together. If you don’t have that relationship, it’ll be hard for them to be as committed to you and you to be fair to them. How do you hire? In the restaurant, which is most important, my attitude is that you hire the personality and train the skill. We want friendly folks. I call it “hire happy.” Find that personality, that great smile, that happy person, whether they have any restaurant business experience or not. How do you train and retain? Since we took over, we have a whole different approach. We hired a director of training, who has done a fantastic job of setting a tone using the American Dairy Queen training system. We pride ourselves now in absolutely being one of the best in the system when it comes to certification. We certify all our employees and all our managers and recertify them every six months. Fastest way into my doghouse: See my pet peeve on accountability. Also, I make no bones about the fact that people who lie or cheat are going to lose their job. People who steal are going to go to jail.

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est vice president of development, helping to take the chain public. When Spae was tapped to resurrect Steak and Ale, his decision to seek advice from founder Norman Brinker laid the foundation for the chain’s successful turnaround blueprint. Spae credits great mentors for teaching him the art of listening and “speaking your mind in a constructive way.” He says “pure luck” has put him in the right place at the right time, but his willingness to put himself in a position to succeed is now paying off for others as he focuses on inspiring and

“As leaders we need to be the people who hire and train and teach the folks that fix the problems.”

mentoring those around him. With the “tremendous amount of fear and difficulty right now in the world,” he says, stepping up to lead has never been more important. “I know in business there is a lot of fear about what is going to happen in the future,” says Spae. “What we all have to get our heads around is that you are only as good as the people who work for you. We as leaders, I think, aren’t the people who fix the problems. As leaders we need to be the people who hire and train and teach the folks that fix the problems.”

BOTTOM LINE Annual revenue: We don’t share numbers because we are a private company with investors. 2016 goals: We have a five-tier strategy that starts with operations excellence. We have to get really good at running great restaurants. Then we have the sustainable, profitable growth that is a big part of who we are and what we want to do. It’s making sure we have the right people in the right places, trained well to accomplish those objectives, and then being innovative so that we can create new things the consumer might enjoy. Growth meter: How do you measure your growth? I’m a data guy, but I also don’t want to overwhelm people with the facts. If we are growing transactions, growing sales, have a lot of smiling folks in the restaurant, and our guest satisfaction scores are high, we are doing a pretty good job. Vision meter: Where do you want to be in 5 years? 10 years? We do a three-year plan and try not to go much farther than that because things can change so fast. We want to be well over 100 restaurants. We are interested potentially in growing with another brand down the road as well. But for now we are focused on improving our existing locations and continuing to grow. How is the economy in your regions affecting you, your employees, your customers? It is sort of a tale of two worlds. While the economy is growing (albeit slowly) and having a positive impact in some areas, when you get out in West Texas there is tremendous economic downturn. We feel it. We look at this from the perspective of the individual DMA, and right now West Texas is our greatest challenge and probably will be our greatest challenge for some time, as the oil business isn’t going to recover any time soon. How do changes in the economy affect the way you do business? The things you can plan for, the things that are announced, like the Affordable Care Act, while they’re difficult, at least you’re aware. The greatest challenge for the industry has been the commodity cost fluctuations, particularly the changes where beef went up so high. There is a limit in price flexibility, especially in QSR. The amount of regulation coming out of D.C. and causing us to have to spend more dollars is troubling to me. We need to get our lawmakers to understand that franchising in particular is the engine behind an awful lot of economic growth in the United States. So when you limit franchisees, you’re starving the engine for gasoline. How do you forecast for your business? We use an awful lot of data. We look at macro data from economists, state data, and local market data to help us understand whether or not we have significant growth opportunity going for-

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ward. With individual competitors it’s not a function of growing share, it’s stealing share, so you have to know if competitors are opening up around you and you are going to lose some share. We also have to pay attention to commodity costs. Experience with private equity, local banks, national banks, other institutions? Why/why not? Our partner, Eagle Merchant Partners, is a private equity group out of Atlanta who are a great group of people to work with. Private equity takes a lot of criticism, but private equity has allowed a lot of businesses to be funded for more growth and achieve things they wouldn’t without that support. What are you doing to take care of your employees? I love that we are able to offer the benefits. I’m not sure the ACA was the right way to go about it, but certainly we are there and I think it’s important we provide that to our employees. We want to see our employees grow within the organization. Employees who are crew members now can become team leaders later; they can become assistant managers, general managers, and area managers. There is opportunity for real growth, not only in income, but also in responsibility. We want to see them grow up through the system. They all won’t, but I think it is important we offer that opportunity. And we do. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? Obviously, the best way to handle rising costs is to raise your sales. The key here is to try to manage your margins as closely as you can. I think we are a lot tighter in terms of the management of food, labor, and supply costs. You have to have great employees and you have to be able to pay them a wage that is appropriate and support them with benefits. Since those things are out of your control, it is important that you manage the things that are in your control much better. How do you reward/recognize top-performing employees? Anybody who is in the organization has the ability to achieve bonuses. Folks today appreciate when they can earn more income. When you talk about any kind of recognition, we get carried away with programs and special recognition that is going to create some type of special culture. But the reality is you just need to be nice. You need to thank people for doing the right things. You have to get out there and let people know that you recognize what they’re doing, and let them know they’re appreciated. What kind of exit strategy do you have in place? I’m in this for the long haul. I don’t plan to leave any time soon and am excited for what’s ahead.

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P RO AT H L E T E BY KERRY PIPES

The 5th Quarter

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NFL vet Van Jakes: Who have I helped today?

an Jakes played cornerback in the NFL for eight years, routinely pestering receivers up and down the field while playing for the Kansas City Chiefs, New Orleans Saints, and Green Bay Packers. Jakes says he enjoyed playing football at the professional level and thrived on the competition. When it came time to retire from the game in 1991, he wasn’t looking to sit back and take it easy. He felt that there was more to do. The budding entrepreneur started investigating business opportunities that eventually led him to franchising, and finally to the McDonald’s brand.

“I knew I wasn’t done building my nest egg,” says the 54-year-old Jakes. “And I wanted to be a good steward of my financial resources.” But, he says, he didn’t foresee himself doing so by opening “Van Jakes’ Hamburger Stand.” That’s because he had researched small independent businesses and discovered that only a small percentage of them actually make it on their own. That’s when the door to franchising opened wide for him. He walked through and hasn’t looked back. His first McDonald’s was in Palm Harbor, Fla., and opened in

August 1994. Two years later, he invested in four more restaurants in the Atlanta area, where he lives. Today he operates three McDonald’s in the Greater Atlanta area. He’s the former president of the National Black McDonald’s Operators Association Atlanta chapter and founder of the Jake 22 Management Company. As a franchisee, he understands the importance of being a part of his community. “I have been operating in Atlanta for 21 years, providing jobs, offering great customer service, and serving hot, fresh food. This is something we live by,” he says. His company has been involved in the Wheels of Dreams Youth Foundation, working with high school juniors and seniors to provide mentoring and educational opportunities. He also has developed a program that allows college students to

NAME: Van K. Jakes TITLE: Owner/operator COMPANY: Jake 22 Management Company NO. OF UNITS: 3 McDonald’s AGE: 54 FAMILY: Wife Chrystal, 4 children: Leigh, VJ II,

Jasmine, and Jordan YEARS IN FRANCHISING: 23 YEARS IN CURRENT POSITION: 23

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come in for an eight-week internship opportunity, where they learn about business operations and marketing. “I ensure the interns understand that our founder, Ray Kroc, started his career as a blender salesman who had a dream that has turned into a billion-dollar company, and they can do the same thing.” Jakes isn’t content in just serving his community, operating his own franchises, and watching the profits roll in. He recently started a consulting business called My 5th Quarter, which offers business and franchise consulting to other former and current professional athletes who want to get into business and have something going after their playing careers end. “I work with them to teach fundamentals like getting into franchising, starting and staying in business, taking your business to the next level, and how to make your money work for you,” he says. “It’s rewarding to share with others things that I’ve learned and to watch them succeed and grow.”

SPORTS & BUSINESS What skills or experience from sports have carried over to operating a business? Execution. Which do you find more competitive, sports or business? Business. Why did you choose franchising as an investment option? The success rate. How did you transition from sports to franchising? Quietly. What was your greatest achievement in sports? When I played with the Green Bay Packers and intercepted a pass in a game against my former team, the New Orleans Saints. What has been your biggest accomplishment as a franchisee? Acquiring my first McDonald’s at the age of 31.

PERSONAL First job: Body shop, cleanup Formative influences/events: Staying out of gangs (which were highly prevalent) and being involved in sports, which kept my attention and focus during a time I could have easily gone the other way. Key accomplishments: My family and my eight-year NFL career. Biggest current challenge: Balancing time. Next big goal: To help current and former athletes make a successful transition into the world of business. First turning point in your career: Realizing that I had to learn every detail of the business. Best business decision: Moving to Atlanta. Hardest lesson learned: Going from 1 unit to 4. (More isn’t always better.) Work week: My work week generally goes from 50 to 80 hours per week— non-stop! Exercise/workout: I work out 3 to 4 days a week.

Best advice you ever got: Put money, savings into a black hole… deep! What’s your passion in business? Helping people. How do you balance life and work? I balance life one day at a time, with a three-month plan. Guilty pleasure: Ginger snap cookies. Favorite book: Who Moved My Cheese? by Spencer Johnson. Favorite movie: “300.” What do most people not know about you? I can’t swim and I love my pool! Pet peeve: Dishonesty. What did you want to be when you grew up? An NFL player, a running back. Last vacation: Panama. Person I’d most like to have lunch with: I’d love to have lunch with President Barack Obama.

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“I’ve found that it is easier to fund growth in an existing business than it is to fund a startup.” MANAGEMENT Business philosophy: The numbers don’t lie. Management method or style: My management method is permissive. Get the right people in the right seats. Greatest challenge: Working with physical and mental stages of life. How do others describe you? As kind and loyal. One thing I’m looking to do better: Time management. How I give my team room to innovate and experiment: I suggest a few things to get the desired result. How close are you to operations? Very close. What are the two most important things you rely on from your franchisor? Trust and support. What I need from vendors: Timeliness and the best pricing. Have you changed your marketing strategy in response to the economy? How? Yes, we have become more mobile and digital.

How is social media affecting your business? Social media is the future. It is where our customers are going, so we have to be right there with them on it. How do you hire and fire? We use a central hiring process that starts with all applicants applying online. Then they complete a virtual interview. After that they are granted a face-to-face interview and are then selected for hire by my training manager, supervisor, and store manager. How do you train and retain? We have systems in place that we utilize. Additionally, we spend a lot of time giving one-on-one, shoulder-to-shoulder training with each employee. We are able to retain employees by having an open-door policy and by creating and fostering a good work environment and culture that makes our employees want to continue on with us. How do you deal with problem employees? By allowing them to find employment elsewhere. Fastest way into my doghouse: To misuse my people or my money.

BOTTOM LINE Annual revenue: $6.2 million. 2016 goals: Retire from the day-to-day. Growth meter: How do you measure your growth? By “What have I done today?” and “Who have I helped?” Vision meter: Where do you want to be in 5 years? 10 years? In 5 years consulting athletes and assisting them in acquiring restaurants. In 10 years to be consulting with 20 to 30 athletes per year, helping them to enjoy the success of becoming a franchisee. How is the economy in your region affecting you, your employees, your customers? Atlanta is a great place for business currently. The job market is strong and competitive, but we have no shortage on customers. Customers are loyal. They continue to go to places like McDonald’s because they can rely on the consistency of quality, service, cleanliness, and the value. Are you experiencing economic growth in your market? In the demographic that my units are in, we are constantly seeing economic growth. How do changes in the economy affect the way you do business? In many ways. I am more cautious and concerned than ever before about how I spend money, what my budgets are, who I do business with, and making sure that I am always getting the best value and pricing on every single thing that I purchase. How do you forecast for your business? I forecast quantitatively on a monthly, quarterly, and annual basis by looking at the previous sales and at other variables like upcoming promotions, market competition, weather, holidays, etc. and make my projections from there. What are the best sources for capital expansion? I’ve found that it is easier to fund growth in an existing business than it is to fund a startup. Developing and maintaining great relationships with your local bank, credit union, and/or nonprofit financial intermediaries helps a ton. The best sources for capital expan-

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sion will ultimately be dictated by the very specific circumstances of the business. Line of credit loans, installment loans, interim loans, and SBA loans, to name a few, are all great sources. Experience with private equity, local banks, national banks, other institutions? Why/why not? I’ve had good, bad, and great experiences with all of the above. As I said, maintaining key relationships is a major factor in successfully facilitating business with these institutions, once the direct or immediate contact is no longer in place. I can say that I have experienced many challenges. It doesn’t matter if it is a local or a national institution. What are you doing to take care of your employees? I have implemented many benefits and incentives, from cash bonuses to paid vacations, health insurance, life insurance, 401(k) programs, access to many scholarship opportunities, and child care assistance to name just a few. We celebrate high school and college graduations, holidays and birthdays, and really show our employees how much we value and appreciate them on a continual basis. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? One of the things that has had the biggest impact on our business is the impending talk of minimum wage increases. If and when this does happen it will definitely affect the way that we do business. We will hire fewer young people, have fewer employees working in general, and really attempt to maximize the unit production of the employees who are working. How do you reward/recognize top-performing employees? By providing them with cash bonuses. They are highly motivated by this type of incentive. What kind of exit strategy do you have in place? The recent development of my new company, My 5th Quarter, is my exit strategy. My 5th Quarter will function as a consulting company to aid and assist current and former athletes into making their transition into the 5th quarter of their lives in business.

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My

NUMBERS $1,367,810* AVERAGE GROSS SALES

Rock! 25.78%*

AVERAGE FOOD AND PAPER COSTS

$270,355* AVERAGE NET PROFIT FROM OPERATIONS (IN $)

800.546.6904 + OWNAJIMMYJOHNS.COM *Figures reflect averages for fifteen (15) affiliate-owned restaurants that opened before January 1, 2010 as published in Item 19 of our April 2015 Franchise Disclosure Document. These averages are based on a 52-week annual period from January 1, 2014 through December 30, 2014. Of these fifteen (15) restaurants, 9 (60%) had higher gross sales, 6 (40%) had higher food and paper costs and 6 (40%) had higher net profit percentage during the reported period. The financial performance representation contained in Item 19 of our April 2015 Franchise Disclosure Document also includes (1) average system–wide gross sales, average franchise gross sales, and the number and percentage of restaurants exceeding these averages during the referenced period and (2) average gross sales, average food and paper cost, and average net profit percentage information during the referenced period for nine (9) affiliate-owned restaurants that were opened after January 1, 2010 and before January 1, 2014. A new franchisee’s results may differ from the represented performance. There is no assurance that you will do as well and you must accept that risk. This offering is made by prospectus only.

©2015 JIMMY JOHN’S FRANCHISE, LLC ALL RIGHTS RESERVED.

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1/5/16 1:22 PM


BY HELEN BOND

Living the Dream Yaron Goldman targets $100 million in 2016

A

s a kid growing up in New Orleans, Yaron Goldman dreamed of owning a restaurant. “I have always enjoyed cooking, ever since I was a child,” says Goldman, who grew up to become the second largest franchisee of McAlister’s Deli. “My sister and I used to cook all the time, and there is nothing better than serving someone a great meal.” These days, Goldman is dishing up even loftier dreams. His strategic growth plan includes 2016 revenue projection in excess of $100 million and the addition of three more brands in the next 10 years. His company, SD Holdings, operates 59 McAlister’s Delis in North and South Carolina, Missouri, Colorado, and Wyoming, along with 3 units of the rapidly growing MOD Pizza brand. Goldman started with McAlister’s in 1996 in Tuscaloosa, when he took a job making sandwiches to earn extra cash while attending the University of Alabama. Three months later, he was tapped to work full time managing the restaurant. “I just loved the job from day one,” says Goldman, who went on to earn an MBA at the University of North Carolina at Charlotte. “I had always worked, but never looked forward to coming to work until I got that job.” He eventually partnered with the people who had NAME: Yaron Goldman TITLE: CEO COMPANY: Southern Deli

Holdings/SD Holdings NO. OF UNITS: 59 McAlister’s

Deli, 3 MOD Pizza AGE: 41 FAMILY: Married YEARS IN FRANCHISING: 16 YEARS IN CURRENT POSITION: 16

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“The ability to take over existing units that are underperforming and then turning them around is just a great feeling.” PERSONAL First job: Bus boy at Steak and Ale when I was 16. Formative influences/events: Opening the second location really changed my outlook on the business. Once I realized that I couldn’t just work more hours to solve any problems, it changed my philosophy and approach to the business. Key accomplishments: When our business passed the $50 million annual revenue mark, that was a big accomplishment. Being able to give some of our key management equity upside is also something I am very proud of. Biggest current challenge: Real estate at prices that make sense over the long term. Currently, real estate prices are skyrocketing and, as we all know, the economy can change on a dime, so it’s important that our leases reflect possible downturns in the economy. Next big goal: We hope to surpass $100 million revenue in 2016—a goal we set back in 2000. Our entire organization knows about this goal and will be excited to surpass it. First turning point in your career: The 2008 recession. We had never really had any economic headwinds before and access to capital had always been very easy. Best business decision: Empowering my key people early on to run the restaurants. Every time I gave away more control, the better the restaurants operated. It was difficult to let go, but it’s the reason we have been able to grow. Hardest lesson learned: Buying restaurants at the peak of the market in 2007, right before the 2008 recession. That was tough. Work week: I am usually traveling 10 days a month visiting restaurants. The rest of the time I’m touring real estate and meeting with our leadership team to

discuss performance and how we can take advantage of opportunities to operate better restaurants. Exercise/workout: I try to run when I can. I also walk the course when I play golf, but my wife would say that I need to exercise more! Best advice you ever got: Trust your people. What’s your passion in business? I love growing the business through acquisitions. The ability to take over existing units that are underperforming and then turning them around is just a great feeling. Half of our units have been acquired. We have turned around or improved existing operations of 90 percent of those units. The 10 percent we didn’t do well with still bother me. How do you balance life and work? When I’m not traveling, I make sure I am home every night for dinner with my wife. It’s important we stay connected. Guilty pleasure: Late night cocktail. Favorite book: The Devil in the White City by Erik Larson. Favorite movie: “The Godfather.” What do most people not know about you? The first raise I ever received was at McAlister’s Deli, the first week I worked there. I went from minimum wage of $4.25 an hour to $4.75 an hour. I was 21 and thought, “Wow! This is the greatest job!” Pet peeve: No attachment on an email that says, “See attachment.” What did you want to be when you grew up? Restaurant owner. Last vacation: I trekked for gorillas in Uganda. Person I’d most like to have lunch with: Colin Powell.

MANAGEMENT Business philosophy: Treat your employees like they are volunteers. Management method or style: Fully train and teach your people, then get out of their way and let them do their job. Greatest challenge: Finding great people. How do others describe you? Passionate about my business. One thing I’m looking to do better: Communicate. It’s something I’m always working on, whether it’s to the people I work with every day, our guests, or our vendors. How I give my team room to innovate and experiment: When they fail, I let them know it’s not a big deal. As long as the spirit of the idea was positive and everyone tried their best to execute, then we have no problem with trying things and then recognizing they did not work. This way they are not afraid to continue being innovative and continue to bring new ideas to the business. All the best innovations in my business have come from someone other than myself. How close are you to operations? Not as close as I used to be, but I can still walk into a restaurant and within 30 seconds get a feel for how the shift is

going—positive or negative. What are the two most important things you rely on from your franchisor? 1) Menu innovation. Clearly franchisees cannot do that, so it’s critical that the franchisor continue to innovate. 2) Cost reduction through buying power. Again, one of the biggest selling points of a franchise business is the power to leverage the buying power of an entire chain of restaurants, even though the franchisee may only be a small part. What I need from vendors: Timely and reliable service. And when they can’t deliver that, the honest communication as to how they will fix it. Have you changed your marketing strategy in response to the economy? Yes. We rely much more on targeted marketing strategies using both digital and traditional media. Branding is still part of what we do, but we now supplement that with much more of the targeted marketing approach. How is social media affecting your business? It’s just added one more way to engage our guests. We really love it, and I think it’s great to be able to get immediate feedback from our guests. continued on next page

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hired him in Tuscaloosa to open his first McAlister’s Deli in Charlotte in 1999, as part of an area development agreement. His aims now are to grow his own company’s portfolio in both size and number of brands and to empower his team system-wide. “In my experience if employees are allowed to make decisions, they usually will make the right ones,” says Goldman.

“In the instances where I have tried to micromanage the business it always seems to backfire. Generally people will do the right thing when given the opportunity.” While Goldman will say only that the company has “a few brands targeted,” he is seeking franchises with a matching corporate culture, a quality product “that my own family would eat,” and a brand that also owns and operates a sig-

nificant number of units. In evaluating franchise opportunities, Goldman looks for a 25 to 30 percent capitalized return for each unit. In the end, it comes down to unit economics. “The store-level P&L is where everything happens,” says Goldman. “I don’t believe you can add new units just to spread overhead costs. The store level EBIDTA has to be worth the investment.”

M A N A G E M E N T, c o n t i n u e d How do you hire and fire? We hire for personality and energy. Our business is easy to learn, but the right attitude is something you just can’t teach someone. Before we fire anyone, we make sure we can look ourselves in the mirror and ask if we gave that person the best chance to succeed. Did we give them the training and the tools they deserved? If the answer is yes, then it’s an easy decision. If it’s no, then we try to retrain and see if we don’t get a better result. How do you train and retain? Training is one of the most important parts of our business. The better our team is trained means less turnover, higher guest satisfaction, same-store sales increases, and of course, a stronger bottom line. We have “manager trainers” in every market, meaning their only job is to train newly hired managers to work in the restaurants. We also have key hourly employees who train new hourly employees. The new hourly employees are trained by one

of the store managers, key hourly employees, and online training. Employees also can access training videos online. We host our own annual conference outside of the brand conference. We bring all of our general managers to a resort for a twoday event. The keynote speaker is always the highlight for the managers. The last two years we had operations consultant Jim Sullivan and motivational speaker Dale Henry. They both are excellent motivators and teachers. How do you deal with problem employees? We make sure there is nothing we are doing to create a negative environment, but at the end of the day we probably will let them go if they continue to be a “problem” employee. Fastest way into my doghouse: When someone has bad news and does not tell me. I can handle any situation except for the ones I don’t know about.

BOTTOM LINE Annual revenue: $85 million to $95 million. 2016 goals: To surpass $100 million and keep our four-year string of positive same-store sales. Growth meter: How do you measure your growth? Same-store sales, unit count, total revenue. Vision meter: Where do you want to be in 5 years? Operating three brands with 100-plus units. 10 years? Five brands, with 200-plus units. How is the economy in your regions affecting you, your employees, your customers? Real estate prices are high, so we have to be smart about where we open new locations. We are increasing our starting wage for employees and are adding additional benefits, like increased PTO. The market is so competitive and we know our guests are always in a hurry, so every day we wake up thinking about how we can increase our speed of service. It’s the number-one driver of our guest satisfaction. Are you experiencing economic growth in your market? Yes. How do changes in the economy affect the way you do business? Short term they do not, long term it changes the way we raise capital and borrow money. How do you forecast for your business? We budget every October for the following year. Our GMs—all the way up—have a say in the budget. I believe it’s important to get the input of the store-level managers since they know the specifics of what is happening in their trade areas. What are the best sources for capital expansion? It depends on your goals. If it’s slow growth and/or debt reduction, then a traditional senior lender

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is probably best; for high growth, expansion mode, private equity and/or mezzanine debt. Experience with private equity, local banks, national banks, other institutions? Why/why not? I’ve worked with everyone from angel investors to private equity and it all depends on where you are in the lifecycle of your business. Private equity is a phenomenal way to grow your business, but you’re giving up control and a lot of the upside. Local banks will go only so far and usually are not good growth partners. We have doubled the size of our business since 2012 using a variety of sources. What are you doing to take care of your employees? Three weeks of vacation for full-time employees, financial incentive plans that tie to our budget, deep discount or free shift meals depending on the time with the company, and generally just treating everyone with respect. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? We do our best to offset these costs in other parts of our business, but at the end of the day we have to absorb it. We have taken some price hikes to offset it but you can only charge so much before you turn away the guests. How do you reward/recognize top-performing employees? Financial rewards and company-wide recognition. We also give out awards at our annual conference. What kind of exit strategy do you have in place? Probably a sale to a strategic or maybe a PE group, but we’re growing so fast right now I have not given it a lot of thought.

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BY HELEN BOND

Success-ion Story Family business diversifies to expand

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s senior vice president and chief investment officer of Impact Properties, Shirin Kanji is in charge of all of the Tampa-based company’s investment-related activities. As with most family businesses, however, his real job goes far beyond just getting a deal done. “Since I was a teenager, my role covered anything that would help support the operating team,” says Kanji, who has been busy adding more to his business plate. This past October, the company acquired 40 Rent-A-Centers, further diversifying a portfolio that already included six hotel franchise brands, Firehouse Subs, and BurgerFi. “We had gotten close on a handful of other targeted deals along the way, but ultimately I feel we got the right fit with Rent-A-Center,” says Kanji. “We have the ability to continue to grow within this brand and view it as a core holding for us in the years to come.” NAME: Shirin Kanji TITLE: SVP/chief investment officer COMPANY: Impact Properties NO. OF UNITS: 40 Rent-A-Center; 6 franchised hotels (Starwood, Marriott, Hilton, IHG, Motel 6, Ascend Collection), 2 hotels currently under development with Marriott and Hilton; 7 Firehouse Subs; 1 BurgerFi (3 more under development); 1 Starbucks; 1 independent fine dining restaurant AGE: 35 FAMILY: Wife, Swathi, daughter,

Serena YEARS IN FRANCHISING: 7-plus YEARS IN CURRENT POSITION: 7-plus

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“We have been fortunate to have great people who handle the day-to-day operations for our many businesses. We stay close as owners, but let our people do what they do best.” PERSONAL First job: Working for my father during summer break in high school at one of the hotels we owned.

Exercise/workout: Three to four times a week in the mornings, usually before work.

Formative influences/events: Watching my father grow our small, independent motel business into a large-scale company owning and operating a multitude of brands and businesses. We have built great relationships with all our franchisors and partners along the way.

Best advice you ever got: Focus on the things you can control. What’s your passion in business? Watching our co-workers succeed and grow with our company.

Biggest current challenge: Finding and keeping the right people for our company at all levels.

How do you balance life and work? I make a point to spend quality time with family and friends every week and plan specific outings with everyone to stay connected.

Next big goal: Growing our portfolio of franchise brands to over 100 total units.

Guilty pleasure: Sweet tooth.

First turning point in your career: Getting to work for a large private equity firm before I rejoined the family business. It really tested me as an individual and highlighted what I was good at and what still needed improvement. Without this experience I would not be in the position I am today professionally. Best business decision: Willingness to try something new. Hardest lesson learned: Being smart is not enough to succeed in business. Work week: In a family business, you do whatever it takes to keep our businesses succeeding. I am always on the clock!

Favorite book: The Most Important Thing by Howard Marks. Favorite movie: “Saving Private Ryan,” “Coming to America,” “City of God.” What do most people not know about you? I love classical music. Pet peeve: Drama. What did you want to be when you grew up? A businessman like my father. Last vacation: Martha’s Vineyard. Person I’d most like to have lunch with: Benjamin Franklin.

MANAGEMENT Business philosophy: Efficiency is doing things right. Effectiveness is doing the right things right. Management method or style: Giving our team the resources and tools they need to succeed and getting out of the way. Attention to people, not ideology.

What are the two most important things you rely on from your franchisor? Consistently growing the brand and maintaining relevance/value proposition with the core consumer.

Greatest challenge: Getting everyone to focus (myself included) on the top priorities each day and not getting distracted by emails, calls, meetings, etc.

Have you changed your marketing strategy in response to the economy? How? Our marketing strategy is always evolving as we try to meet constantly changing consumer needs across our business lines.

How do others describe you? Hard-working, honest, loyal, knowledgeable, driven, easygoing. One thing I’m looking to do better: Work/life balance. How I give my team room to innovate and experiment: Empowering them to come up with ideas and solutions to improve our business on a daily basis. It’s okay to try something new and different as long as we can learn from the experience and move toward a better solution. How close are you to operations? We have been fortunate to have great people who handle the day-to-day operations for our many businesses. We stay close as owners, but let our people do what they do best.

What I need from vendors: Reliability and responsiveness.

How is social media affecting your business? Social media gives consumers direct access to comment on your business and let you know how your team is doing in real time. This keeps us on our toes at all times. How do you hire and fire? Take time to find the right fit. When someone is not working out, we move on and have a suitable replacement ready to go. How do you deal with problem employees? Quickly! Fastest way into my doghouse: Not taking care of our customers.

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“We have units located in eight states and see consistent improvement across all metrics year over year.” real estate across the U.S. That experience would add a valuable skill set to the family business, which is still actively run by his father and uncles. “The culture as a company that our family has developed over time is one that is focused on hard work, integrity, and loyalty,” says Kanji. With the company’s addition of BurgerFi and Firehouse Subs, Impact’s longterm outlook in the fast casual sector looks rosy. Kanji says BurgerFi’s focus on all-natural food and an environmentally friendly design is a winning investment. “In a crowded space, we feel that having a franchise partner with a differentiated focus and offering is critical for ultimate success. We expect the better burger space to continue to grow, particularly in Florida, where BurgerFi has a strong footprint already.” With his eye on becoming a $100 million company, Kanji says Impact Properties will continue to pursue growth opportunities with existing brands and new franchise partners. “A lot of the time the economy dictates the quantity and quality of those growth opportunities,” he says. “My goal is to remain prepared for when the right deals come our way.”

He was just an infant when the family business got its start in 1981 with a small independent property near the University of Florida in Gainesville. His entire family of nine lived in a small apartment behind the front desk of the mom-andpop motel. That, says Kanji, “was all we had and we were determined to make the most of it.” And they have: Over the past 35 years, his father, along with his younger brothers Kish and Nash (both still actively involved), built the business to where it is today: a multi-unit, multi-brand operation with more than $60 million in annual revenue. In high school, Kanji spent his summers working at a Tampa hotel, one of his father’s first major acquisitions during the Resolution Trust Corporation’s days following the savings and loan crisis. Later, he headed north to attend NYU, where he earned a bachelor’s degree in finance and political science and a master’s degree in real estate finance and development. Following graduation, he joined KTR Capital Partners, a private equity firm focused on investing, developing, and operating institutional quality industrial

BOTTOM LINE Annual revenue: $60 million-plus.

at attractive terms.

2016 goals: Grow total revenue by 25 percent-plus.

Experience with private equity, local banks, national banks, other institutions? Why/why not? We have worked with each and have found all of them to be valuable sources depending on the business needs. They each have an important role to play.

Growth meter: How do you measure your growth? Total sales, EBITDA, and net profit. Vision meter: Where do you want to be in 5 years? 10 years? Total revenue over $100 million. How is the economy in your region affecting you, your employees, your customers? The Southeast, where our businesses are located, has been experiencing steady growth across the board. We have units located in eight states and see consistent improvement across all metrics year over year. Are you experiencing economic growth in your markets? Yes. How do changes in the economy affect the way you do business? Economic changes affect how and when we need to implement new strategy or operating protocols to meet the demands of the changing environment.

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What are you doing to take care of your employees? Offering the best compensation, benefits, and training we can. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? As the cost of doing business goes up, we have to keep tasking ourselves with new ways to grow revenue, improve product margins, and retain and train talent better. I have not experienced a period when the key operating expenses in our businesses were not increasing each year. It’s one of the key challenges of staying competitive and ultimately profitable at the unit level every year.

How do you forecast for your business? Staying in tune with the local economies where our units are located.

How do you reward/recognize top-performing employees? Offer improved compensation, benefits, and opportunities for advancement within our company.

What are the best sources for capital expansion? The capital markets are quite robust right now, with all forms of capital available from multiple sources

What kind of exit strategy do you have in place? I am fortunate to be part of a family business. We are here for the long term!

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BY HELEN BOND

Ultimate Role Player Former BK hourly employee eyes 100 units

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ulti-unit franchisee Gary Moore has spent most of his life in the restaurant business, assuming nearly every available job title along the way. “I relate very well to people in the restaurant business because I have that experience,” says Moore. “I understand each role and can put that hat on because I have been in that role myself. It has helped me a great deal.” Based in Salt Lake City, Moore operates 58 Burger Kings in five western states, 6 Costa Vida Fresh Mexican Grill restaurants, and 10 convenience stores/ gas stations. Most recently, he struck a development deal with the Utah-based Beans & Brews Coffee House to build 20 stores in Nevada. With more than 30 years in franchising, Moore is still happiest behind the restaurant counter with his sleeves rolled up working alongside team members and talking with customers. He sits on the advisory board of Costa Vida and has been actively involved with Beans NAME: Gary Moore TITLE: Franchisee, vice president. I don’t even have a title on my business card. My role is different, depending upon the entity. COMPANY: HB Boys NO. OF UNITS: 58 Burger Kings, 6 Costa Vida Fresh Mexican Grills, 3 Subways, 10 convenience stores/fuel stations (6 Chevron, 3 Conoco, 1 Union 76) AGE: 49 FAMILY: Married to Polly with four

sons, Christopher, Joshua, Zackary, and Cooper

YEARS IN FRANCHISING: 31 YEARS IN CURRENT POSITION: 20

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MANAGEMENT Business philosophy: To continue to grow our organization through profitable growth. Management method or style: When you lead people, you lead through example. I think that is probably the way I manage my business. I lead through example. I don’t think anyone in the organization would ever say, “He expects so much more out of me than he expects out of himself.” I treat people fairly and with respect. Greatest challenge: People—finding and retaining the right people. How do others describe you? As fair in dealings, level-headed, caring toward people in my organization, and hard-working. One thing I’m looking to do better: Delegation. I need to learn that it is okay to take a step back and not be involved in every decision. How I give my team room to innovate and experiment: In the franchise model there is not a lot of opportunity to innovate and experiment with brand items. We give our team opportunities to innovate in the areas of processes, etc. How close are you to operations? Very close. I’m involved daily. What are the two most important things you rely on from your franchisor? Products and marketing.

What I need from vendors: Consistency and quality of products. Have you changed your marketing strategy in response to the economy? How? Social media seems to be part of the future of our business. How is social media affecting your business? Significantly. I’m not a Millennial. I don’t even know what Twitter does. It is amazing as we become educated around social media. Burger King has been masterful as it relates to and capitalizes on social media. I’m blown away with the impact it is having on our business. As a franchisee, I’ve seen a lot more on our Burger King side, but I know that with Costa Vida it is a big part of the marketing plan to use social media as an avenue for new and potential guests for our business. How do you hire and fire? We try to promote as much as possible from within. Hiring from outside our organization is accomplished in many ways. How do you train and retain? Training is an ongoing process. Training is brand-specific with the exception of administrative training. How do you deal with problem employees? Counseling and understanding. Fastest way into my doghouse: Not taking responsibility for your actions.

“When you lead people, you lead through example. I think that is probably the way I manage my business. I lead through example.” PERSONAL First job: At age 14, I began cleaning kitchens in the evenings six days a week at a Pastry Pride donut shop.

tion is that if I have a gut feeling about someone or something I should follow that gut instinct. When I don’t follow my gut I always end up regretting it.

Formative influences/events: I have a business partner who believes in me and who gave me an opportunity. Without David Williams I certainly wouldn’t be in the position I am in today.

Work week: 60 to 70 hours.

Key accomplishments: I began my career in franchising at age 16 working as an hourly employee at Burger King. From there I’ve worked my way up and have held all positions in the organization. Biggest current challenge: To continue growing our business with the current challenges (minimum wage, ACA, etc.). Next big goal: I’d like to continue growing the brands I currently represent. Also, I’ve entered into a franchise agreement with the regional coffee chain Beans & Brews for a 20-unit development over the next 5 years. First turning point in your career: The many challenges I faced at a young age when I became a manager and eventually a district manager. Best business decision: Becoming a franchisee and owner. I am fortunate to have my partner Dave Williams. He allows me to run the day-to-day business, which is great, and he has also been a great mentor to me in the business. Hardest lesson learned: The greatest lesson I’ve learned in my current posi-

Exercise/workout: I run three to four times a week for about half an hour. Best advice you ever got: Stick with it. What’s your passion in business? I really enjoy working in the stores and interacting with our guests and employees. How do you balance life and work? When I leave work or take the day off, I do my best to be there and be in the present. It’s important to leave work at work and home at home. Guilty pleasure: Watching the same movies over and over again (“National Treasure,” “Draft Day”). Favorite book: 7 Habits of Highly Effective People by Stephen Covey. Favorite movie: “Star Wars.” Pet peeve: Cleanliness items—like gum on sidewalks, etc. What did you want to be when you grew up? Accountant. Last vacation: Kauai. Person I’d most like to have lunch with: George W. Bush.

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“You can’t do all the work yourself or nothing gets done. You have to trust people, although the trust has to be earned.” & Brews. The give and take between Moore and his new brands has been great for business. “It’s been fun to be able to join a brand in its infancy and really contribute to the things they are doing,” he says. Moore got his start in the business at 16 as a crew worker at a Salt Lake City Burger King that would eventually be owned by his current business partner David Williams. With the exception of a stint in the National Guard, Moore has spent his entire career with the brand, tackling every job until being tapped to run the organization in 1995. Under his leadership, the franchise more than doubled its Burger King unit count and added convenience stores to the mix. Moore, who became a franchisee himself in 2005, sought to diversify further about four years ago with the addition of Costa Vida, a brand that offers madefrom-scratch fare and a passionate customer base, he says.

For Moore, future growth is more about the value of the deal than the number of units he can add. Real estate is a key objective for the company, which has developed about 70 percent of the properties they operate. “We think it is an important objective of what we are trying to accomplish,” he says. “I would rather grow slower with the opportunity to own the dirt underneath and a piece of property than grow quickly and all I own is restaurant equipment and a franchise.” Moore, who still relies on the lessons learned from his early days, admits that the benefits of his extensive background in the restaurant business also brings its challenges. “I like to be involved in every decision made, and sometimes the train slows down because decisions are waiting for me,” he says. “You can’t do all the work yourself or nothing gets done. You have to trust people, although the trust has to be earned.”

BOTTOM LINE Annual revenue: $100 million-plus. 2016 goals: Development: 2 Burger Kings, 2 Costa Vidas, 4 Beans & Brew Coffee Houses. Growth meter: We are fortunate as an organization that we are very financially stable and we aren’t taking on any risky investments. We have come to a point in our organization where the tolerance for a lot of risk is not there. We want to do deals and want to do projects that we have a good feeling are going to be successful. How do you measure your growth? Certainly you want to run good operations. Growing up in this business, I am a firm believer that operations drives sales and profits. We are constantly looking at financials and improvements in cost controls and in efficiencies we create within our own business. Certainly we have ratios we are expected to hit by our lenders and we measure our success that way. Vision meter: Where do you want to be in 5 years? 10 years? I’d like to continue growing the brands. We don’t have a specific number of restaurants we would like to have or chains we would like to be involved in. We look at three things: Are the company’s financials stable? Are we able to continue to grow? And are we still having fun while we are doing it? If those things are met we continue to grow. If it means that I have the same number of restaurants that I have today then that is okay too. How is the economy in your region affecting you, your employees, your customers? It has had a great effect, specifically finding the right people. When the economy is good, there is lots of growth and new competitors.

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We are all competing for the same talent pool, particularly as it relates to finding good management. Our philosophy has always been to promote from within the organization, but I think there is a balance between promoting from within and hiring people from the outside. The challenge with hiring from the outside is that it is hard to prove the values of the company over a short period—that comes over time. If someone works for me for three months and is offered more money somewhere else, he is not as committed as someone who has been with me for five years. Are you experiencing economic growth in your markets? Yes. How do you forecast for your business? Quarterly and annually. Experience with private equity, local banks, national banks, other institutions? Why/why not? Internally and through local banks. What are you doing to take care of your employees? We are sure to always treat employees with respect. We care for them and promote growth by conducting regular reviews, promotion opportunities, etc. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? Very carefully. We examine opportunities for efficiency, price increases if the market allows, etc. How do you reward/recognize top-performing employees? We have a generous incentive program and offer other rewards. What kind of exit strategy do you have in place? None at this time. I turn 50 in January and still have all the passion in the world for the business.

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RECONNECT BY KERRY PIPES

Rollin’ Stone

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Zee and zor, John Metz gathers no moss

conversation with John Metz invariably leads to all kinds of topics, peppered with opinions and pointed insights gleaned from his many, and diverse, business adventures. Metz has a colorful history in franchising, as well as real estate. He’s spent time with brands including Denny’s, Dairy Queen, Marriott, Howard Johnson, Bennigan’s, Old Chicago, Burger King, Hilton, and Days Inn. “I’ve been involved with at least 25 different types of businesses since 1999,” he says. In 2008, he became a franchisor by acquiring the 30-unit Hurricane Grill & Wings system and setting it on the path to growth and financial success. The brand now has 75 units open for business with healthy financials to boot. “Hurricane broke $100 million in system sales in 2015,” says Metz, who has now proven his mettle on both the franchisee and the

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franchisor sides. At 62, Metz says he’s nowhere near finished with his franchising journey. He’s currently in the middle of a deal that would see him open a minimum of 20 new restaurants for a new brand in the American heartland. He would, of course, also own the real estate. That’s how he rolls. He’s also building a Marriott Residence Inn scheduled to open in the last quarter of 2016; taking his Hurricane Grill & Wings brand international with a new deal in Italy and another in Canada; and is launching his newest brand, Hurricane BTW, a spinoff of his successful Hurricane brand (“BTW” stands for burgers, tacos, and wings). The first corporate store opened in December and two more are on the way. With all this going it was high time to catch up with him since our last profile in 2009.

NAME: John Metz TITLE: President COMPANY: RREMC NO. OF UNITS: Denny’s, 41; Dairy Queen, 1; Marriott Residence Inn (currently building); as a franchisor of Hurricane Grill & Wings, 75 (4 corporate and 71 franchised); 1 Hurricane BTW AGE: 62 FAMILY: 2 ex-wives, 2 children,

girlfriend and her 4 children

YEARS IN FRANCHISING: In one

capacity or another since 1989

YEARS IN CURRENT POSITION:

15 years with Denny’s

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PERSONAL First job: I was a Fuller Brush salesman for two years beginning at age 17. I did really well and my dad hated it because he said I was making too much money and he was trying to teach me the value of a dollar. Formative influences/events: Those two years at Fuller Brush taught me a lot about sales and presentation. I also learned how to approach and work with all kinds of people along the socioeconomic spectrum. Key accomplishments: I’m still solvent (laughing). I think working with my great team to build and establish the Hurricane Grill & Wings brand is right up there. It’s critical to surround yourself with a great team. Also, I’m proud of the way we’ve built our Denny’s system. Biggest current challenge: Let’s see… there are the proposed increases in minimum wage, Obamacare, and the NLRB joint employer fiasco. But honestly, all of these potential challenges have solutions. It’s just a matter of working out the details. Next big goal: Working on a major deal to take Hurricane Grill & Wings into Canada. It’s very difficult to go into a foreign country with a U.S. brand. This move will take a lot of resources over the next couple of years. Meanwhile, we’re still building two to three Denny’s each year. Then there’s our new fresh fast casual brand, Hurricane BTW. There’s a lot going on. First turning point in your career: Early on, I had always taken over distressed units and turned them around. But with Denny’s we started acquiring high performers, and it was a game-changer. It was so much easier to take over a winner than a loser. The difference is night and day. Fixing stores is much more work—it can take 3 to 5 years to fix a beat-up store. Now that we’ve weaned out the underperformers, life is a lot more fun. Best business decision: Going to work for Peat Marwick Mitchell & Co. (now part of KPMG) in New York. I learned some great stuff there. Then I went to work for Servico, a publicly traded hotel company, where I got some tremendous training and understanding of franchising. Hardest lesson learned: Failing. A few years ago, I acquired Roadhouse Grill and put it in bankruptcy five days later. I invested heavily to try to turn the brand around. But I couldn’t get creditors to confirm our plan of reorganization. It got shut down and I lost more than $1 million. Work week: I work six days a week, on the road and in the office. I work

a half day every Saturday with the president of Hurricane Grill & Wings. We sit down together and get a lot done. I visit all my Denny’s restaurants at least three to four times per year. That’s important and I know the name of every GM. I visit all Hurricane franchise locations at least one time per year. If you can’t be in your restaurants you can’t be in the restaurant business. Exercise/workout: I used to run and work out five days a week. But then I messed up my back and rotator cuff. Now I try to work out three times a week, but I would like to get it back to five days. Best advice you ever got: I had just graduated from business school, and an astute businessman told me the answer to most business questions can be found by talking to people at a given company. If you listen to what people say, you’ll find the answers to what you’re looking for. What’s your passion in business? Empowering people to do the best job they can for themselves and be the best they can be. We see all of our managers as partners: their pay and bonuses are based on their store’s performance. How do you balance life and work? There is no life, it’s all work… but I love it. Guilty pleasure: None any more. Favorite book: Every one of Bill O’Reilly’s books. The last one I just finished was Killing Reagan. Favorite movie: Love James Bond movies. I’m waiting to go see the newest one, “Spectre.” What do most people not know about you? That I was a Fuller Brush man. I have six kids—two of my own and four of my girlfriend’s. They range in age from 16 to 22. Pet peeve: I only like white coffee cups. It helps me see the consistency of the coffee I’m drinking. What did you want to be when you grew up? A builder. I always loved building things. I actually studied engineering at Cornell. Last vacation: Florida Keys. Person I’d most like to have lunch with: I’d love to have lunch with Obama. I just want to know what makes him think, what’s his motive. Where does he think we’re going from here?

MANAGEMENT Business philosophy: Empower people to be the best, do the best. It’s my job to give my people the tools they need to get the job done. Let the managers get the job done. We charge every store the exact same fees. That way everybody’s on the same playing field regardless of high or low volume. Management method or style: Empowering. We get all Denny’s GMs together once a year for a big conference, and we also get them together regionally three to four times a year. We do the same for Hurricane Grill & Wings with an annual conference, and get our corporate managers together three to four times a year for similar meetings. One of the main discussions is, “What do you need from corporate to help you succeed?” I think we’re doing a good job because we have very low turnover in our management ranks. Greatest challenge: Probably the way our Denny’s stores are comping over

2014. We will end 2015 at a 9 to 10 percent comp. What will happen this year? We’ll be hard pressed to do 2 or 3 percent. It was a great ride last year, but I’m not sure what we’ll do in 2016. How do others describe you? They think I work too much. Crazy, pensive, think outside the box. It’s no good to be inside the box… that’s where everybody else is! One thing I’m looking to do better: Trying to get our stores more integrated with all the automation technology out there—things like POS with dashboards. I’d like to be able to touch a button and get detailed information on a real-time basis. continued on next page

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M A N A G E M E N T, c o n t i n u e d How I give my team room to innovate and experiment: We have four districts for Denny’s. We let them run autonomously. We’re open to ideas and we want to hear what our people have to say.

our marketing budget in social media: Facebook, Instagram, Twitter, Tumblr, Yelp, Open Table. It’s a lot to manage but we have a great program to manage it across all media platforms.

How close are you to operations? Very. I visit stores, look at data, and stay in touch with managers.

How do you hire and fire? We hire our restaurant managers and above in our office. GMs do it at the store level. On the Denny’s side we have an HR manager. On the Hurricane side we do recruiting and testing for corporate and franchise stores. I always say a good manager versus a mediocre manager is probably worth 20 percent more in sales.

What are the two most important things you rely on from your franchisor? Brand standards and purchasing. What I need from vendors: Denny’s does a great job for us, no complaints. For my Hurricane stores I need partners, not suppliers. We look at them as stakeholders in our brand. We work together. Best service, best products. Have you changed your marketing strategy in response to the economy? How? For Denny’s we have reduced our own marketing spend because Denny’s is doing a better job. Denny’s is doing a great job with social media—they are leaps and bounds ahead of the competition. They are just doing a fantastic job with this. I have a real disdain for coupons so we try to stay away from that. With Hurricane we have moved into digital and social media marketing. How is social media affecting your business? We spend a third of

How do you train and retain? We use all the Denny’s e-learning materials, and it’s great. At Hurricane we have created the Hurricane Eye, which is also an online learning tool. We use digital and online tools to handle all personnel issues. How do you deal with problem employees? We carefully deal with them, and I mean carefully. We’ve had our share and you just have to follow procedures, document and keep meticulous records, and be prepared to show up and present the evidence. Fastest way into my doghouse: Not be truthful and hide problems.

BOTTOM LINE Annual revenue: Hurricane $105 million in sales; corporate Hurricane stores $20 million; Denny’s $60 million in sales. 2016 goals: Denny’s to $65 million in revenue. I’d like to achieve a free cash flow (cash flow after rent, management fees, and capex, before debt service) of $3 million. In Hurricane we will do $130 million in sales, $6 million in royalties, and $2.4 million in EBITDAR, including the four corporate stores. Growth meter: How do you measure your growth? It’s changed for us. Now it’s system sales and AUV, same-store sales, and EBITDAR for Hurricane. For Denny’s it’s making sure our people have what they need to succeed. We’ve renovated 15 out of our 40 stores in the last couple of years to give them stateof-the-art tools. Vision meter: Where do you want to be in 5 years? 10 years? With Hurricane, in the next 5 years we would like to have 135 stores open and have $250 million in system sales. With Denny’s, I’d like to have all the mortgages paid off in 10 years. We own 28 or 29 of the stores, so this will be huge. How is the economy in your regions affecting you, your employees, your customers? Gas is a great help because prices are so low right now. But what if they go back up? We probably have 18 to 24 months without gas price increases. The result is that consumers have more money to spend with us. Are you experiencing economic growth in your market? It’s healthy now. Things will hopefully remain good for the foreseeable future. Happy, fully employed customers spend money. How do changes in the economy affect the way you do business? We just have to be mindful that it can change overnight. How do you forecast for your business? With Denny’s we look at 2 to 3 percent comp store sales growth; Hurricane should grow 1 to 2 percent.

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What are the best sources for capital expansion? It always seems like when you don’t need money there’s plenty of it, and when you need money you can’t find it. We’ve taken on a little debt with Denny’s through a five-store acquisition, but less than $1 million in debt, and we’re also doing some renovations. We self-fund for our Hurricane Grill & Wings growth. Experience with private equity, local banks, national banks, other institutions? Why/why not? We have been approached by PE for Hurricane Grill & Wings but not gone that route. We bought out our area developers and that increased debt to about $3 million. What are you doing to take care of your employees? Treat them well. Give them the training and tools they need to get the job done. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? Healthcare is no additional cost for us. We go to every restaurant and present our healthcare plan. Employees have a choice to sign up for our plan or Obamacare. Most people (50 percent of our hourly employees) sign up for Obamacare—but they can’t work more than 30 hours per week. Another 25 percent sign up with our plan. With respect to minimum wage, we can absorb up to $10 per hour, but if it goes to $15 it’s going to be ugly. How do you reward/recognize top-performing employees? Lots of awards. We send one GM to Hawaii on an all-expenses-paid trip for two each year. We send three other GMs to a resort of their choice in the continental U.S. We give out awards every quarter, a President’s Club award based on performance, achieving milestones. What kind of exit strategy do you have in place? I have Denny’s restaurant mortgages for the next 10 years so I’m here to stay. No reason to make any changes with a brand that’s doing great. When Hurricane Grill & Wings gets to $10 million of EBITDAR we’d love to sell it! Either to a PE firm or do an IPO.

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RECONNECT BY KERRY PIPES

One-Brand Woman Dawn Lafreeda builds her own Denny’s empire

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hen we last visited with Dawn Lafreeda in mid-2012 she was operating 70 Denny’s restaurants in six states and had been adding restaurants, even through the Great Recession. That’s not really surprising for Denny’s largest individually owned franchisee and one of the largest female restaurant franchisees in the country. Since then, Lafreeda’s San Antoniobased Den-Tex Central company has entered another new market and bought five more Denny’s in Arkansas. She’s also converted an old Shoney’s restaurant into a Denny’s location in Neosho, Mo., and closed one underperforming location, bringing her total to 75 locations. Lafreeda takes growth, challenges, and success in stride. “We like to do whatever makes sense for us,” she says. But her Denny’s operation isn’t the only thing keeping her busy lately. “I recently filmed a pilot-presentation for The Food Network where I advise young restaurant owners how to take their business to the next level or expand,” she says. In the past few years, she says, there has been a great deal of uncertainty for NAME: Dawn Lafreeda TITLE: President/CEO COMPANY: Den-Tex Central NO. OF UNITS: 75 Denny’s AGE: 54 FAMILY: Partner of 21 years. We

have 11-year-old twin sons YEARS IN FRANCHISING: Since

1986 YEARS IN CURRENT POSITION: 29

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MULTI-UNIT FRANCHISEE IS S UE I, 2016

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“I am Denny’s largest individually owned franchisee and one of the largest female restaurant franchisees in America.” PERSONAL First job: Taco Bell for 6 months until I could afford to buy a car to take me to Denny’s, where I ultimately wanted to work.

Exercise/workout: I walk about 2.5 miles 5 days a week and try to work out with a trainer when I am in town and able.

Formative influences/events: We didn’t have a lot when I was growing up so my mother always had to work hard. She had a great work ethic and I knew if I wanted things in life I was going to have to work hard as well and earn them myself.

Best advice you ever got: When I bought my first restaurant at 23, I was worried I might fail. Thirty-five people were dependent on me for jobs. My mom said to me, “What is the worst thing that can happen—you start over at 26?” Once she said that, I was instantly okay and the fear went away. To this day, whenever I am faced with a challenge I still ask myself, “What is the worst thing that can happen?” It always empowers me to move past any obstacles I may be facing.

Key accomplishments: I am Denny’s largest individually owned franchisee and one of the largest female restaurant franchisees in America. Biggest current challenge: The unknown factors of all the new laws and reporting requirements. Huge financial and reporting burdens are being put on employers and it is adding to the cost of doing business. Next big goal: To reimage and upgrade as many of my existing fleet as I am able. With so many locations it is a very large financial commitment and timing challenge, but I believe it will yield great results once we accomplish it. First turning point in your career: Buying my very first restaurant. It was the launching pad. Best business decision: Buying out my business partner. We had 13 restaurants at the time and a different business philosophy. Once I bought her out I was able to move forward and grow the business. Hardest lesson learned: If you can avoid it, never be 50/50 business partners with anyone. Business partnership is like marriage, only a lot more complicated. If you do have to be 50/50, have a trusted, unrelated third party appointed in advance to assist in conflict resolution. Try to set up a formula and a procedure for buyout should either party decide to exit and a mediation agreement in place to avoid litigation. Work week: When I am in town I am in the office every day. Due to the nature of my business, I also travel extensively. My restaurants are in 7 different states plus I sit on the Denny’s Franchisee Association Board and the Denny’s Development Brand Advisory Council as well as other committees that require me to travel.

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What’s your passion in business? I love the art of the deal. Finding the site, negotiating for it, and finding the financing. I also love food and feeding people. How do you balance life and work? It is challenging at times because I love to work but I believe if I work hard I deserve to play hard as well. I make a point of always scheduling plenty of play time for my family and the fun things we all enjoy and love to do. Guilty pleasure: A long weekend in Las Vegas. Favorite book: The Success Principles by Jack Canfield. Favorite movie: The Barbra Streisand version of “A Star Is Born.” What do most people not know about you? I started as a hostess at Denny’s and bought my first restaurant off credit cards. Pet peeve: Tardiness. My time is valuable and I respect others’ time by showing up promptly and I expect others to do the same. What did you want to be when you grew up? I always had a dream of being self-employed. I didn’t know what I would be doing, I just knew I wanted to own my own company and be in charge of my financial and professional destiny. Last vacation: An Inspirato trip to Nantucket with friends. Person I’d most like to have lunch with: Oprah Winfrey.

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“I feel a large part of my success is because I am in only one brand and I know it like the back of my hand.” franchising. “Governmental regulations such as minimum wage increases, ACA, and NLRB issues have put a strain on margins,” she says. “Also, more and more competitors are offering breakfast and new concepts are popping up everywhere, so we are constantly fighting to keep our market share, and that also has an effect on margins.” Despite these challenges, Lafreeda says her stores and the Denny’s brand continue to enjoy strong sales numbers

and traffic. “Our newest remodel package is proving to be very successful and guests and employees are giving us credit for it,” she says. “It’s my goal to upgrade as many locations as possible as we are seeing happy employees and increased sales at all of our newly remodeled sites.” She continues to be very involved with the Denny’s Franchisee Association where she serves as a director and treasurer. She also serves on several other committees for Denny’s, including its

Development Brand Advisory Council, Pilot/Flying J Committee, and Corporate Social Responsibility Committee. “Denny’s has a very good franchisor/ franchisee relationship,” she says. “There is a lot of inclusion, testing, and a share of voice, which I believe has helped make our brand stronger and better.” For now, Lafreeda says she looks forward to “spending time with my family and friends, supporting my community, and building new restaurants.”

MANAGEMENT Business philosophy: I am often asked to open other restaurants or concepts, and while I am often intrigued and have the means to do so, I feel a large part of my success is because I am in only one brand and I know it like the back of my hand. I also believe in the win/win philosophy and always giving back. I reinvest in my business and I always try to do the right thing. I am never afraid to ask for help or take a risk. I live by these philosophies and believe they are the core reasons I have been so successful. Management method or style: I believe in transparency and a win/win attitude. I feel we all win if all parties at the table are happy. Greatest challenge: Finding and retaining good talent. How do others describe you? As someone they can count on. If I say I am going to do something, I do it. I am hard-working, organized, and I get things done. I care about people, I am fair, I like to have fun, and I believe in giving back. One thing I’m looking to do better: Get a better handle and long-term strategy for all the facility issues we have. With a large fleet in multiple states it is a challenge, especially in small cities where there are not a lot of vendors to choose from. How I give my team room to innovate and experiment: I am always open to new ideas and change. Some of the best ideas for innovation and progression have come from my team. How close are you to operations? Very close. My VP of operations and I stay in close communication with everything that goes on operationally. While I don’t get to the units as often as I’d like, I am still deeply involved in all that is going on. I have a strong and seasoned team and they do an excellent job. What are the two most important things you rely on from your franchisor? Delicious craveable food offerings at a great value and a great marketing plan with a strategy that drives traffic into my restaurants. What I need from vendors: Honesty and innovation to help move my business forward. Have you changed your marketing strategy in response to the economy? How? Absolutely. Fortunately, Denny’s is very proactive in this arena. They are always looking at our value strategy to be sure we have something

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for everyone while paying close attention to cost-per-plate, product availability, and execution. We have an arsenal of products and strategies to tackle the economic challenges that come our way. Additionally, each year I also invest additional funds into local marketing co-ops across the country that allow me to make local-based marketing decisions that may be more tailored for my specific regions. How is social media affecting your business? It greatly affects us, on both a positive and a negative side. It is a great vehicle to attract customers, build business, and send immediate messaging and offerings out. It is also something we have to pay close attention to as a perceived bad experience in a restaurant can taint a location or a brand. How do you hire and fire? I have been very fortunate that my core team has been with me a very long time and I have not had to hire or fire anyone in many, many years. When I do have to make a hire, I look for individuals who share the same business philosophy and understand the importance of the guests and the restaurants. They have to have a broad understanding of the 24-hour business and have great people and support skills. The last time I fired someone was because they did not have the right skill set and were in over their head. I believe in the end they were relieved and happy that they could do something they were better suited for. How do you train and retain? In order to stay relevant, you have to continuously train and develop your team. We are fortunate that Denny’s puts a lot of emphasis on training and supplies tools and training aids we are able to tap into. Those training aids are always being updated and enhanced to offer our employees all the tools and knowledge they need to do the job. Retention is difficult as the restaurant industry has high turnover. We do the best we can to prescreen our candidates to make sure we are putting them in a job that is well-suited for them and that they will be happy and want to stay in. How do you deal with problem employees? I do my best to coach, train, and develop but sometimes no matter what you do, someone may not be cut out for the restaurant business or be a good fit for the company. I have learned over the years that in most cases you cannot change behaviors and it is best to deal with the problem early on. Fastest way into my doghouse: Dishonesty and petty behavior.

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“It’s my goal to upgrade as many locations as possible as we are seeing happy employees and increased sales at all of our newly remodeled sites.” BOTTOM LINE Annual revenue: $100 million.

me predict and forecast more efficiently.

2016 goals: To add at least two new locations to my existing fleet.

What are the best sources for capital expansion? Capital has been readily available and quite easy for the last few years. I use different lenders and different methods depending on the specific requirements and type of deal I am doing. I have been using many of the same lenders for years now. They have an understanding of my business and my needs and I have been able to secure all the capital I have needed and at very competitive rates.

Growth meter: How do you measure your growth? New locations, profitability, EBITDA, and the strength it provides the total enterprise. Vision meter: Where do you want to be in 5 years? 10 years? Enjoying all that I have worked for, spending time with my family and friends, supporting my community, and building new restaurants. How is the economy in your regions affecting you, your employees, your customers? I am in a lot of regions, and different regions have different economic issues. For instance, sales in West Texas fluctuate greatly based on oil prices; this market soars when the price per barrel is high and it declines when it is not. When people are working, they are spending and that is great for employees and customers. Are you experiencing economic growth in your markets? Yes, I am in about 23 different markets and most all of my major markets are experiencing growth. The smaller, more rural markets are not experiencing the same growth as the bigger metropolitan markets but they remain consistent and dependable. How do changes in the economy affect the way you do business? Considerably, and we have to be quick to react, realign, and adjust. The great thing about being in business so long is that I have learned how to see the signs and know for the most part the impact they will have. Being a part of a franchise system also helps as Denny’s corporate is usually experiencing the same effects, and they share their best practices and offer solutions as well. Different situations require different strategies. How do you forecast for your business? We have always forecasted quarterly as I feel we are able to be more accurate and precise. So many things change in the course of a year for each individual location. Quarterly forecasting, while time-consuming gives me a better picture of what is happening on a more real-time frequent basis—things like road closures, weather issues, utility prices, commodities, etc. These are just a few of the things that cannot be predicted a year out. Reviewing and budgeting quarterly lets

46

Experience with private equity, local banks, national banks, other institutions? Why/why not? I have worked with all except private equity because I have not had a need. I am very hands-on and involved in my business and I like calling the shots. I imagine a time may come when private equity may be an option and advantageous. It has just not come yet. What are you doing to take care of your employees? A 401(k), bonus plan, paid time off, incentives, and opportunity for advancement. My business is dependent upon good-quality employees. We always try to train and develop from within to give key people an opportunity for advancement. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? This is a huge and ongoing challenge that is not in our control. We can only take price increases every so often to offset these rising costs, so we are always searching for efficiencies in other areas to help counterbalance these increasing costs. How do you reward/recognize top-performing employees? We have various incentives, a quarterly bonus program that rewards them with extra money for being a top performer, and advancement opportunities. In some cases, key employees have been given partnership opportunities and have become franchisees themselves. What kind of exit strategy do you have in place? I don’t have a formal plan in place as I am still in a growth mode. However, with each new deal I do and each contract I sign, I keep things in mind such as lease terms, prepayment penalties, personal guarantees, automatic extensions and renewals, and bench strength to name a few. I make certain I am poised for a smooth transition when that time comes.

MULTI-UNIT FRANCHISEE IS S UE I, 2016

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2016 Mega 99 Rankings Each year we work with FRANdata to compile a list of the country’s largest multi-unit franchisee organizations. Based on total unit count, the rankings show not only the number of units these “mega” franchisees operate, but also the brands they favor. While the list is dominated by food brands, it also includes non-food concepts such as business services (tax preparation), consumer services (automotive), and lodging. Building a multi-unit empire is a matter of taste, opportunity, passion, and comfort level. If you’re looking to expand and diversify your own franchise empire, take a gander at what the “big guys” are buying—it just might help you in your growth choices in 2016. NAME

48

UNITS

1 2 3 4 5 6

NPC INTERNATIONAL TARGET CORP FLYNN RESTAURANT GROUP CARROLS GROUP DHANANI GROUP/HOUSTON FOODS ARAMARK

7 8 9

HEARTLAND AUTOMOTIVE SERVICES MUY BRANDS ARMY & AIR FORCE EXCHANGE SERVICES

547 513 489

10

PILOT TRAVEL CENTERS

479

11

SUN HOLDINGS

430

12 13 14

HARMAN MANAGEMENT CORP ROTTINGHAUS HMSHOST

400 399 396

15

SODEXO

389

16 17

SUMMIT RESTAURANT GROUP JIB MANAGEMENT

381 375

18 19 20 21

TACALA MANNA/BRIDGEMAN HOSPITALITY GROUP/ERJ DINING BODDIE-NOELL ENTERPRISES UNITED STATES BEEF CORP

372 365 334 329

1,499 1,197 730 705 594 553

BRANDS PIZZA HUT, WENDY’S, TACO BELL PIZZA HUT, COLD STONE CREAMERY APPLEBEE’S, TACO BELL, PANERA BREAD BURGER KING BURGER KING, POPEYES CHICK-FIL-A, EINSTEIN BROS., SUBWAY, PAPA JOHN’S, PIZZA HUT, PANDA EXPRESS, QUIZNOS, JAMBA JUICE, TACO BELL, MOE’S SOUTHWEST GRILL, TIM HORTONS, FRESHII, POPEYES LOUISIANA KITCHEN, CHILI’S, QDOBA MEXICAN GRILL, RAISING CANE’S, WHICH WICH, SBARRO, MOOYAH, EXTREME PITA, ERBERT & GERBERT’S, MCALISTER’S DELI, WENDY’S, KFC, WAHOO’S FISH TACO, DUNKIN’ DONUTS, PINKBERRY, BLIMPIE, QUAKER STEAK & LUBE, COSI, DENNY’S, IHOP, JACK IN THE BOX, RISING ROLL, STEAK ‘N SHAKE JIFFY LUBE PIZZA HUT, WENDY’S, TACO BELL, LONG JOHN SILVER’S BURGER KING, SUBWAY, CHARLEYS PHILLY STEAKS, POPEYES LOUISIANA KITCHEN, TACO BELL, EINSTEIN BROS., ARBY’S, TACO JOHN’S, WING ZONE, BLIMPIE, PIZZA HUT, CHURCH’S CHICKEN, CINNABON, DOMINO’S, GODFATHER’S PIZZA SUBWAY, CINNABON, WENDY’S, ARBY’S, TACO BELL, PIZZA HUT, DQ TREAT, MOE’S SOUTHWEST GRILL, HOT STUFF PIZZA, KFC, CARVEL BURGER KING, POPEYES LOUISIANA KITCHEN, ARBY’S, CICI’S PIZZA, KRISPY KREME, GOLDEN CORRAL KFC, A&W, LONG JOHN SILVER’S, PIZZA HUT SUBWAY BURGER KING, NATHAN’S FAMOUS, QUIZNOS, SBARRO, CHILI’S, PIZZA HUT, GREAT AMERICAN BAGEL, ROY ROGERS, CINNABON, POPEYES LOUISIANA KITCHEN, FAMOUS FAMIGLIA, CHICK-FIL-A, KFC, GREAT STEAK, MOE’S SOUTHWEST GRILL, RUBY’S DINER, DUNKIN’ DONUTS, STEAK ‘N SHAKE, MAX & ERMA’S, EINSTEIN BROS., TCBY, JAMBA JUICE, A&W, BAJA FRESH, BLIMPIE, COLD STONE CREAMERY, DUNN BROTHERS COFFEE, MANCHU WOK, MIAMI SUBS GRILL, PINKBERRY, SALSARITA’S, SMASHBURGER, SONNY BRYAN’S SMOKEHOUSE, YEUNG’S LOTUS EXPRESS, SUBWAY, GODFATHER’S PIZZA, KELLY’S CAJUN GRILL EINSTEIN BROS., CHICK-FIL-A, PIZZA HUT, SUBWAY, TACO BELL, PAPA JOHN’S, BURGER KING, ERBERT & GERBERT’S, TIM HORTONS, QUIZNOS, MOE’S SOUTHWEST GRILL, PLANET SUB, A&W, MCALISTER’S DELI, CARL’S JR., QUAKER STEAK & LUBE, DQ TREAT, GODFATHER’S PIZZA, WOW CAFE & WINGERY, JAMBA JUICE, UFOOD GRILL, BAJA FRESH, BLIMPIE, DENNY’S, MRS. FIELDS IHOP, APPLEBEE’S JACK IN THE BOX, DENNY’S, TGI FRIDAYS, EL POLLO LOCO, CORNER BAKERY CAFE, SIZZLER TACO BELL, SONIC DRIVE-IN WENDY’S, CHILI’S, BLAZE PIZZA HARDEE’S ARBY’S, TACO BUENO

MULTI-UNIT FRANCHISEE IS S UE I, 2016

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2016 Mega Rankings, continued NAME

BRANDS

22

STRATEGIC RESTAURANTS ACQUISITION COMPANY

313

BURGER KING, TGI FRIDAYS

23

ADF COMPANIES

306

PIZZA HUT, PANERA BREAD

24

KBP FOODS

301

KFC, TACO BELL

25

LUND BROWN ENTERPRISES

300

HARDEE’S, CARL’S JR., TACO BELL, RED BURRITO, DUNKIN’ DONUTS, PIZZA HUT EXPRESS

26 WENDPARTNERS

294

WENDY’S

27 HEARTLAND FOOD CORP

293

BURGER KING

28 MASON-HARRISON-RATLIFF ENTERPRISES

281

SONIC DRIVE-IN

29 WILCOHESS

280

DUNKIN’ DONUTS, WENDY’S, SUBWAY, ARBY’S, GODFATHER’S PIZZA

30 K-MAC ENTERPRISES

276

TACO BELL, KFC

31 SOUTHERN CALIFORNIA PIZZA

269

PIZZA HUT

32 COVELLI ENTERPRISES

268

PANERA BREAD, DAIRY QUEEN GRILL & CHILL, O’CHARLEY’S

33 RICHARD LAWLOR

253

DUNKIN’ DONUTS

34 FUGATE ENTERPRISES

244

PIZZA HUT, TACO BELL

35 TA OPERATING

243

POPEYES LOUISIANA KITCHEN, SUBWAY, TACO BELL, PIZZA HUT, GODFATHER’S PIZZA, BURGER KING, WENDY’S, NOBLE ROMAN’S, KNIGHTS INN, HOT STUFF PIZZA, QUIZNOS, TIM HORTONS

36 HESS CORP

224

GODFATHER’S PIZZA, QUIZNOS, BURGER KING

37 D L ROGERS CORP

221

SONIC DRIVE-IN

38 LOVE’S TRAVEL STOPS & COUNTRY STORES

216

SUBWAY, ARBY’S, GODFATHER’S PIZZA

38 MARLU INVESTMENT GROUP

216

ARBY’S, CHURCH’S CHICKEN, TGI FRIDAYS, JACK IN THE BOX, LITTLE CAESARS, SIZZLER, CAPTAIN D’S, SEARS

40 QUALITY DINING

212

BURGER KING, CHILI’S

41 FALCON HOLDINGS

210

CHURCH’S CHICKEN, LONG JOHN SILVER’S, HARDEE’S, A&W

42 APEX RESTAURANT MANAGEMENT

206

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

43 HENLEY ENTERPRISES

197

VALVOLINE INSTANT OIL CHANGE

44 GPS HOSPITALITY

196

BURGER KING

45 DESERT DE ORO FOODS

191

PIZZA HUT, TACO BELL, KFC, LONG JOHN SILVER’S

46 CEDAR ENTERPRISES

190

WENDY’S

47 THE PANTRY

187

SUBWAY, LITTLE CAESARS, DQ TREAT, DAIRY QUEEN GRILL & CHILL, NOBLE ROMAN’S, CHURCH’S CHICKEN

47

FRANCHISE MANAGEMENT

187

PIZZA HUT, KFC

49

COMPASS GROUP USA

186

PAPA JOHN’S, EINSTEIN BROS., SUBWAY, QUIZNOS, JAMBA JUICE, PIZZA HUT, TACO BELL, TIM HORTONS, WENDY’S, MOE’S SOUTHWEST GRILL, PINKBERRY, BURGER KING, WHICH WICH, POPEYES LOUISIANA KITCHEN, BOJANGLES’, DENNY’S, JASON’S DELI, KFC, SMASHBURGER, JOHNNY ROCKETS, UNO DUE GO

180

LITTLE CAESARS, SIZZLER

50 SIZZLING PLATTER

50

UNITS

MULTI-UNIT FRANCHISEE IS S UE I, 2016

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12/16/15 11:07 AM

1/11/16 5:06 PM


2016 Mega Rankings, continued NAME

52

UNITS

BRANDS

51

CHARTER FOODS

177

TACO BELL, LONG JOHN SILVER’S, A&W

52

B & B CONSULTANTS

175

SONIC DRIVE-IN

53

RMH FRANCHISE CORP

173

APPLEBEE’S

54

JRN

170

KFC, PIZZA HUT

55

INTERFOODS OF AMERICA

168

POPEYES LOUISIANA KITCHEN, BURGER KING

56

SERVUS!

164

LONG JOHN SILVER’S, WENDY’S, PAPA JOHN’S, DENNY’S, GRANDY’S

57

SUNDANCE/PERFECTTACOS

159

TACO BELL, PIZZA HUT, KFC , A&W

58

FOURTEEN FOODS

158

DAIRY QUEEN GRILL & CHILL, DAIRY QUEEN BRAZIERS

59

WING FINANCIAL SERVICES

157

JACKSON HEWITT TAX SERVICE

59

KMART CORP

157

LITTLE CAESARS

61

PACPIZZA

156

PIZZA HUT

62

PJ UNITED

155

PAPA JOHN’S

63

RESTAURANT MANAGEMENT COMPANY OF WICHITA

154

PIZZA HUT, LONG JOHN SILVER’S

64

DAVCO RESTAURANTS

150

WENDY’S

64

VKC GROUP

150

SUBWAY, MOOYAH BURGERS, FRIES, & SHAKES, GREAT AMERICAN COOKIES, PRETZELMAKER, TCBY, TWISTERS

66

CAFUA MANAGEMENT COMPANY

148

DUNKIN’ DONUTS

67

CELEBRATION RESTAURANT GROUP

141

PIZZA HUT, TACO BELL

68

RPM PIZZA

140

DOMINO’S

69

APPLE GOLD

139

APPLEBEE’S, BURGER KING

69

APPLE INVESTORS GROUP

139

BURGER KING, APPLEBEE’S

69

DOHERTY ENTERPRISES

139

APPLEBEE’S, PANERA BREAD, CHEVYS FRESH MEX, QUAKER STEAK & LUBE, NOODLES & COMPANY

72

VALENTI MANAGEMENT

138

WENDY’S, CHILI’S

73

CHALAK MITRA GROUP

136

KFC

74

SUMMIT RESTAURANT GROUP

131

PIZZA HUT, LONG JOHN SILVER’S

74

G&M OIL CO

131

CHEVRON

76

CALIFORNIA FOOD MANAGEMENT

130

BURGER KING

MULTI-UNIT FRANCHISEE IS S UE I, 2016

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This advertisement does not constitute an offer of a franchise. A franchise offering can be made by us only in a state if we are first registered, excluded, exempted or otherwise qualified to offer franchises in that state, and only if we provide you with an appropriate franchise disclosure document. Franchises are not available in all states. © 2015 SpeeDee Worldwide Corporation, 4280 Professional Center Drive, Palm Beach Gardens, FL 33410.

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2016 Mega Rankings, continued NAME

UNITS

BRANDS

77

BAJCO

129

PAPA JOHN’S

77

TRI STAR ENERGY

129

PACIFIC PRIDE SERVICES

79

BRIAD RESTAURANT GROUP

128

TGI FRIDAYS, WENDY’S

79

AMERICA’S PIZZA CO

128

PIZZA HUT

81

RLJ LODGING TRUST

126

RESIDENCE INN BY MARRIOTT, COURTYARD BY MARRIOTT, FAIRFIELD INN & SUITES, HILTON GARDEN INN, SPRINGHILL SUITES, HAMPTON INN, EMBASSY SUITES HOTELS, MARRIOTT HOTEL, HOLIDAY INN, HYATT HOUSE, RENAISSANCE HOTELS, HILTON HOTELS & RESORTS

82 PALO ALTO

123

PIZZA HUT, TACO BELL, KFC

83 DIPASQUA ENTERPRISES

122

SUBWAY

84 WENDY’S OF COLORADO SPRINGS

120

WENDY’S, GOLDEN CORRAL

85 JEM RESTAURANT GROUP

119

PIZZA HUT, TACO BELL

85 MARCHELLE STEWART

119

KFC

87 WISCONSIN HOSPITALITY GROUP

118

PIZZA HUT, APPLEBEE’S

87 NEIGHBORHOOD RESTAURANT PARTNERS

118

APPLEBEE’S

89 RAGE

117

PIZZA HUT

90 W2007 EQUITY INNS REALTY

116

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

91 THE SCRIVANOS GROUP

112

DUNKIN’ DONUTS

92 SEI/AARON’S

111

AARON’S SALES & LEASE OWNERSHIP

92 RANDOLPH S KATZ

111

MIDAS

92 PACIFIC BELLS

111

TACO BELL, BUFFALO WILD WINGS

95 SOUTH AMERICAN RESTAURANTS CORP

110

CHURCH’S CHICKEN

95 PARADIGM INVESTMENT GROUP

110

HARDEE’S, JERSEY MIKE’S

97 TANWEER AHMED

108

KFC, TACO BELL

97 DORO

108

HARDEE’S, TACO JOHN’S

99 DALAND CORP

107

PIZZA HUT

99 W2005/FARGO HOTELS REALTY LP

107

FAIRFIELD INN & SUITES, RESIDENCE INN BY MARRIOTT, COMFORT/COMFORT INN & SUITES/ COMFORT SUITES, HAMPTON INN, HOMEWOOD SUITES BY HILTON, COUNTRY INN & SUITES BY CARLSON, TOWNEPLACE SUITES BY MARRIOTT, SPRINGHILL SUITES SOURCE: FRA Ndata and Franchi s e U p d a t e Med i a

54

MULTI-UNIT FRANCHISEE IS S UE I, 2016

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A Disruptive Business Model

in an Already Large & Growing Industry The Joint Chiropractic® is reinventing chiropractic care. Our vision is to become the largest, most respected provider of chiropractic services. With a proven franchise-service model in an 11 billion dollar industry, The Joint is making quality healthcare truly affordable, approachable, and convenient for patients, chiropractors and investors alike. • Easy to Build / Quick to Open

• Multi-unit opportunities available

• A Simple Operating Model

• Medical professional & chiropractor investor franchisees welcome

• Attractive Economics • Large & Growing Industry

“The Joint has a patient focused, disciplined and professional ‘non-insurance’ based approach, making the benefits of chiropractic care an affordable and compelling choice.” – DAVID ORWASHER Chief Development & Strategy Officer

• Over 300 clinics open in 27 states and counting

Learn more about franchise investment opportunities: (480) 725-2503 franchise@thejoint.com thejoint.com/franchise

© 2016 The Joint Corp.

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FRANCHISE OPPORTUNITIES THE NATION’S FASTEST GROWING HEALTH & WELLNESS FRANCHISE

Jim Belanger|949.295.2085|jbelanger@massagegreenspa.com magazine_1/2_page_temp.indd 1

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1/11/16 3:13 1/12/16 5:14 PM


BY EDDY GOLDBERG

Freedomof Associations IS 2016 THE YEAR OF FRANCHISEE ACTIVISM?

T

he usual reason for forming an independent franchisee association is to address problems with the franchisor or other conflicts within the system. While the goal of the franchisees who banded together was to improve the system as they saw it, the relationship often was adversarial—at least initially, until the two sides discovered they had overriding common interests. These internal “family feuds” were the norm for decades, especially in systems where the franchisees were not making the return on their investment they’d expected, for whatever cause. In recent years, however, the focus of franchisee associations has expanded to include external threats—from competition and the battle for market share, to what many currently perceive as a threat to the franchise business model itself from governmental and regulatory bodies. This alliance against a common, external “enemy” has driven the two parties closer together, much as the Japanese threat to the U.S. auto industry in the 1970s and 1980s drove the United Auto Workers to view GM, Ford, and Chrysler more as an ally than an adversary. From the NLRB’s 2015 stance on joint employment, to minimum wage mandates by states and municipalities and the Fight for $15 from the SEIU, to the ongoing fallout from the Affordable Care Act, these are tough times for franchising. Tough times make strange bedfellows. Little Caesars Like most franchisee associations, the Independent Organization of Little Caesars Franchisees (IOLCF) was formed during a period of adversity for the brand. “Times were not so good in the mid’90s,” says Todd Messer, who operates 18 Little Caesars in Little Rock. “Franchisees grouped together to see if we could improve our situation.” About 30 percent of franchisees in

56

the Little Caesars system are IOLCF members, says Messer, who is seeking to increase membership in the association. “One way is to provide an economic benefit to members,” he says. That’s one reason the IOLCF joined the Coalition of Franchisee Associations (CFA) about 6 years ago. Specifically, he’s looking at group purchasing to help franchisees save on costs and boost unit profitability. After all, no matter what the brand or industry, “We all use air conditioning, trash disposal, and alarms,” says Messer, who is a CFA co-chair and on the organization’s Strategic Planning Committee. “By working together we’re able to bring some synergy to create savings and cost advantages.” A second reason was to have a greater effect on state and national laws and regulations that affect franchising by joining with nearly 20 other franchisee organizations to make their message heard by policymakers. “State and local representatives will listen more intently to the voice of thousands of franchisees, instead of hundreds,” he says. This expanded voice means a greater ability to affect state and national franchise law— to the benefit of franchisees nationwide. Since the founding of the IOLCF, relations with the franchisor have improved significantly as both franchisees and franchisor have learned to work together to rejuvenate the brand. Ironically, the success of the association in helping to turn the brand around may be one reason many franchisees have chosen not to join. “The Little Caesars system has been enjoying a good decade for franchisees,” says Messer. “Generally these associations are born in times of adversity. In good times it’s harder to bring people together.” Although franchisee-franchisor relations are vastly improved from 20 years ago, there always are issues, as there are in all franchise systems. One example, says Messer, is whenever the franchisor

considers making changes to the franchise agreement. Involving the IOLCF in advance as those changes are being considered, rather than as a done deal, goes a long way to smooth the transition. As for the future, says Messer, “We are looking to prosper and grow a successful franchise business. Let’s work together to make this as conducive to growth and prosperity as possible.” Power in numbers

Misty Chally is executive director of the Coalition of Franchisee Associations, whose 18 member associations represent more than 38,000 franchise owners with more than 87,000 locations employing more than 1.4 million people. “We’re facing constant battles with the U.S. government and Congress,” says Chally, with regulations on such critical items as joint employer, overtime regulations, ambush election rules, and the Affordable Care Act. “We’re on the defense a lot in the states,” she says, “particularly regarding minimum wage increases—and not only in states, but in localities, which is tough to monitor and is how a lot of federal legislation gets started. Minimum wage will continue to be a key issue in 2016.” At the municipal level, New York City and Seattle have passed legislation forcing franchisees to comply with minimum wage hikes sooner than non-franchised businesses, based on what many consider the spurious reasoning that, because they display the trademarks of their franchisor, the franchisees themselves are big businesses. “I think it’s a complete lack of understanding about franchising,” says Chally. What’s needed to remedy this misunderstanding, she says is a massive, ongoing educational effort at every level—as well as forging alliances to build strength in numbers. “We work very closely with the Chamber of Commerce, NFIB, NRA, and IFA to get information to our franchisees,”

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Freedom of Associations she says, who then can take action at the local and state levels, as well as in Washington, D.C. “One of our top issues is to promote a more fair landscape in relation to rights granted in the franchise agreement,” says Chally. The CFA is supporting two Congressional bills intended to help candidates who are considering buying a franchise: H.R. 3196 (Fair Franchise Act of 2015) Keith and H.R. 3559 (Small Business Administration Franchise Loan Transparency Act of 2015). Both were introduced by Rep. Keith Ellison (D-MN). At the state level, Chally says she is “very excited” about the passage of A.B. 525 in California, which passed in October and applies to all franchise agreements signed on or after January 1, 2016. Chally, who was a state lobbyist before com-

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ing to the CFA, knows how difficult it can be to pass a bill, even the most benign. Along with CFA Chair Keith Miller and CFA Vice Chair Rob Branca, she worked with the IFA to come up with the language that would most likely pass the state legislature and maximize the goals of the CFA’s members. “I don’t think it should be easy to pass a bill,” she says. “Legislators need Miller to take a look at all sides and understand the full impact of a bill before casting their vote.” Miller, a multi-unit Subway franchisee in California, issued the following statement after the bill became law in October: “This journey started almost five years ago, when then Assemblyman Jared Huffman introduced a comprehensive franchise bill. While not everything wished for was

Educating Congress

n September 29, 2015, Mara Fortin, a 7-unit franchisee of Nothing Bundt Cakes and a co-chair of the Coalition to Save Local Businesses testified before the U.S. House of Representatives Committee on Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions at a legislative hearing on H.R. 3459 (Protecting Local Business Opportunity Act). What follows are excerpts from Fortin’s testimony: • “The simple, one-sentence legislation contained in H.R. 3459 is the solution that can protect small businesses like mine and give us certainty that out-of-touch regulators are not going to threaten our business again in the future.” • “[U]nder the NLRB’s ruling in Browning-Ferris Industries, my franchisor could be found to be the joint employer of my employees.” • “The real world consequence of the NLRB’s decision is that it will lead to consolidation among our franchisors and a loss of autonomy for local franchise business owners…. My franchisor may decide to exert more control over my business, relegating me to a middle manager role for which I did not sign up.” • “To consider my franchisor a joint employer of my employees is to completely misunderstand how franchising works. When I entered into a franchise agreement with Nothing Bundt Cakes, I signed up to independently operate my business, and that is what I have done for more than eight years. My franchisor provides the recognized brands and trademarks, a set of business practices to ensure consistency and quality across all franchised locations, and support for marketing and advertising. Everything else is up to me—I hire my workers and set their wage and benefit rates. I manage my inventory and purchase equipment. I pay taxes as my own small business, with my own identification number. And I help my employees when they are in need of assistance. My franchisor plays no part in any of these key functions that only a true and sole employer performs. The suggestion that my franchisor is in any way an ‘employer’ of my workers is insulting, and takes away from all the effort I have put in over the years to build a successful small business.” • “…[N]othing exasperates me more than this manufactured joint employer threat by unelected regulators who have never faced the stress of a small business owner.”

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achieved, the legislation signed today is a significant achievement. It will give franchisees more rights against termination. It will add transparency to the transfer process. It will put [in place] meaningful remedies for improper terminations or non-renewals. And most importantly, it acknowledges that franchisees own the equipment and fixtures they purchased for their business, and that franchisors must purchase them to take possession upon termination or expiration of the franchise agreement.” Franchisors, on the other hand, are not universally pleased with the new law. Yet as California goes, so goes the nation? A good way for franchisees to educate themselves on the issues and test the waters of political involvement is to attend the CFA Day Forum this March 17 and 18 in Washington, D.C. This year the agenda has changed so that all events and receptions will take place on Capitol Hill. With the raft of legislation franchisees must sort out this year, the legal session has been extended with an opportunity to meet with attorneys at a roundtable breakfast—and of course, visit the Hill and meet with their elected representatives to make their concerns known. “We need more voices in this fight,” says Chally, adding that the CFA offers individual memberships to franchisees whose brands have no franchisee association. Into the fray One franchisee who’s embraced an activist role in the fight for franchisee rights is Mara Fortin, who in 2007 became the first franchisee of Nothing Bundt Cakes. Today she has seven bakeries and chairs the brand’s franchise advisory committee. Fortin has become involved at the local, state, and national levels as an advocate for franchisees. She is one of several co-chairs in the Coalition to Save Local Businesses, which is supported by both the CFA and the IFA, along with more than two dozen other business organizations including the NFIB, the Asian American Hotel Owners Association, and the U.S. Chamber of Commerce. She’s also testified before Congress to support pro-franchisee legislation (see sidebar), penned an op-ed for The San Diego Union-Tribune, and has appeared on CNBC and Fox Business News. “There was absolutely no reason for the NLRB to change the standard in the Browning-Ferris case. Nothing good can

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Freedom of Associations come out of this,” says Fortin, who was a practicing attorney before becoming a franchisee. “It was case by case before. Why change a rule for the 5 percent abusing it and punish the 95 percent who follow the rules?” Fortin urges franchisees to be more vocal and to participate in public events and meet with legislators. “Franchisees need to get involved. We have to send a message to all our elected officials and educate them about what a franchise is,” she says. “There is no upside to joint employer. How many small businesses need to close their doors before they realize there’s a problem?” A first step for franchisees, she says, is to educate themselves on the issues. She suggests starting by reaching out to their franchisee association, the CFA, the IFA, local councils, political action committees, and any other organizations involved in supporting franchisee rights. A second step is to Mara shore up their own operations to be sure they’re on solid ground contractually with their franchisor before speaking out. “Everyone’s afraid if they say something and stand up the brand will retaliate and they won’t grow,” says Fortin. “What I say is make sure you are following all the brand requirements. Don’t go rogue. Don’t sell non-brand items. Be vocal, be fearless. Because over time your voice will be heard. And your brand will realize you’re in the trenches for the long haul to improve the brand.” While an attempt to pass H.R. 3459 (Protecting Local Business Opportunity Act) passed in the House in the previous Congress, the measure failed to be included in the year-end federal spending bill. However, in California, where her stores are located, A.B. 525 did pass, and she organized an event for franchisees to celebrate in Sacramento in January, along with visits to legislators. As the brand’s first franchisee approaches her 10-year renewal, it will be under the new law. Balancing franchise agreements One of the more interesting discussions in franchising today is the question of balance in franchise agreements. Beyond

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the traditional sticking points—pre-sale from maybe 4 pages to over 30 pages.” disclosure, FPRs, encroachment, renewals, Then there are additional documents, transfers, right of first refusal, remodel- most notably the FDD: Dunkin’s 2015 ing, tech upgrades, early termination, cure FDD weighed in at 660 pages. Until last year, Aziz Hashim, the inperiods, personal guarantees, liquidated damages—there’s a fundamental tension coming 2016 chair of the IFA, dealt with between the franchisor’s role as protector onerous clauses in franchise agreements of the brand versus the financial invest- during his two decades as a franchisee of multiple restaurant brands. Today, as the ment/risk of the franchisee. If franchisees don’t invest anything, founder and managing partner of NRD franchising cannot work, says Miller. Capital, a franchisee-funded and manYet, he says, the financial protections in aged equity fund that invests in franchise franchising are “completely backwards” brands, he’s on the franchisor side—and from the rest of the business world, where determined to rewrite the franchise agreethe investor is protected ments of any franchise the fund buys to against the institution. reflect his fundamental rule about investing “If you invest $100,000 in a brand: “Is this an agreement I would in a security, what’s your sign as a franchisee?” In May, NRD Capital announced its risk? $100,000. If you invest in a franchise, what’s first acquisition: Frisch’s Restaurants, opat risk? Everything,” he erator of 95 Big Boy restaurants in Ohio, says. “The franchisee is Kentucky and Indiana, plus 24 other lothe one who should be cations it franchised, for approximately protected.” $175 million. Hashim is writing a brand “Most people think new franchise agreement—not necessarthe largest investment ily because it was bad for the franchisees, they’ll ever make is when but because it was 20 years old. they buy a house or a His intention is not to balance the stock. The SEC provides agreement so it’s equal, but rather to more protection and “address the imbalance” that has come Fortin banking laws for house to dominate franchise agreements to fabuyers than for a per- vor the franchisors, seemingly more with son who invests in a franchise,” says Ed each passing year. “A franchise agreement Wolak, who signed his first franchise cannot be equal because you’re licensing agreement in 1975 with someone else’s property,” Dunkin’ Donuts. Today he says, much as signing a lease with a landlord. his company, The Wolak Yes, franchise agreeGroup, operates more than 70 Dunkin’ Donuts ments are restrictive, meant to protect the in Maine, New Hampshire, and New York, as entire system by setting well a central production standards and providing a facility with the capacity mechanism to terminate to supply up to 120 stores. bad actors who hurt the system. Wolak has seen his “You have to protect share of franchise agreeyour brand,” Hashim says. ments, as well as ownYet, at the same time, ers of the brand, from franchisees invest hunfounder Bill Rosenberg and his son Bob to varidreds of thousands of Aziz Hashim dollars, sometimes milous private equity firms. “Along the way, the franchise agreement lions, to build and expand their portfolio became draconian to keep the flock in and the brand, so their investment must control, which I totally support and un- be protected too, he says. “In our agreederstand,” he says. Franchisees need to ment we’re going to have some of those know the franchise owner across town is protections for the franchisee.” Two areas he’s looking at are personal running a good operation and meeting brand standards; if not, it reflects badly guarantees and transfer terms. “Personal on him and all the other Dunkin’ fran- guarantees for people who are signing franchisees. Still, during the past 40 years, he chise agreements whose corporations are says, “The franchise agreement has gone very well capitalized are ridiculous. Why

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Freedom of Associations should I sign a franchise agreement if my corporation has substantial assets, much more than required by the franchisor in the qualification process?” When it comes to transfers, he says, most franchise agreements have a provision that the buyer must sign the thencurrent franchise agreement. Yet, if the seller made their initial investment decision based on a royalty rate calculated over a 20-year agreement, this provision

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reduces the value of their investment if they sell in say, year 13 and the buyer has to sign at a higher rate. “One thing that should not change is the royalty rate. That needs to be guaranteed for 20 years—even if you sell the business,” says Hashim. “To raise it from 4 to 5 percent decreases my equity. When the term is over, all bets are off.” On the other hand, many people think franchise agreements should be more equal.

Improving the System

ary Robins is a longtime Supercuts franchisee with 48 salons. He’s involved in the independent Supercuts Franchisee Association (SFA), as well as with the CFA, where he’s a board member. “The CFA helps us make our voice at SFA be a little louder and have a little bit more clarity,” he says. “We want to run our association better and bring more value to our members by getting together with other association members.” The SFA’s mission is to enhance the personal and professional lives of its members by sharing best practices, he says. It’s also to present a “united voice from the franchisees to take to our franchisor—mostly in a positive direction.” He also appreciates the value of being in a group of successful people in the same business dealing with the same issues he is. “Whatever challenge you may be experiencing, other people have gone ahead of you and have addressed that challenge in nine different ways from five different directions,” he says. “Why wouldn’t you join the association? It’s a no-brainer.” On the legislative front, he says, “There are a lot of great franchisors out there, but there are some bad actors.” The challenge is how to advance legislation to protect against the bad actors without causing harm to the people who are doing it right. “It’s a balancing act.” “We [CFA] work cooperatively with other organizations, the IFA specifically where we have common ground, and make reasonable progress on franchisee-franchisor issues, which would include supporting certain aspects of Gary Robins legislation, whether at the state or federal level to protect franchisee equity.” Internally, says Robins, relations with the franchisor are good these days—but there’s always room for improvement. “How do we make the brand better?” he asks. “There’s always a little bit of friction. It’s their brand, they own it. We have a different opinion sometimes on how to improve the brand. That’s always the issue: working in a spirit of cooperative endeavor. I think our franchisor is great in that respect. They certainly work with us in a spirit of cooperation.” One item on his agenda this year is the large number of new franchisees entering the Supercuts system. “We have more new franchisees in the past 2 years than in the past 15 years combined,” he says. This is a new issue for the brand he says, and raises two questions: 1) how to get the new franchisees engaged in the SFA, and 2) how to ensure corporate is ramping up its resources to make sure the new franchisees are successful. Robins says his involvement stems from his passion about entrepreneurship and franchising. “I think franchising is a great place to start, and I want to protect it. I want to see more young people start businesses.” At the end of the day, says Robins, there are two types of franchisors: 1) those who say, “This is our brand, we own it,” and 2) those who say, “Our success flows from the success of our franchisees.” Fortunately, he counts Supercuts among the latter.

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“I disagree pretty strongly with the idea that franchise agreements should not be balanced,” says attorney Ron Gardner, managing partner at Dady & Gardner, where he represents franchisee associations. He says that before franchising took hold, companies raised capital by selling parts of themselves in the form of shares. The government’s role was to protect the usually smaller investor from being taken advantage of by the usually larger entity they were investing in, as well as by the banks. “Somewhere along the line, as franchising grew, those roles got reversed,” he says, and it became about protecting the brand, not the investor and their money. “Why in franchising do we protect the brand, not Ron Gardner the money?” he asks. Fortin, the multi-unit franchisee and attorney, has an opinion somewhere in between, based on the longevity of the franchisee in the system. Before the franchise agreement is signed, she says, the balance should not be equal. “The franchisor is definitely sitting in the position of advising, teaching, and giving the franchisee something of value.” At that point, she says, “It’s fair that the franchisor has more power.” However, once the franchisee has become more sophisticated and has contributed years of royalties to the system, it’s time to rethink the balance in the franchiseefranchisor relationship. At that point, the relationship should be 50/50, she says— and reflected in the franchise agreement. A good, experienced franchisee can be a “gold mine” in helping the franchisor improve the system for the benefit of all. “I’ve been with Nothing Bundt Cake for 10 years, longer than most of the staff,” she says. “It should be a win/win.” The joint employer initiative from the NLRB has brought up how unbalanced the franchisee-franchisor relationship is, says attorney Eric Karp, a partner at Witmer, Karp, Warner & Ryan, where he represents franchisee associations. The truth, he says, is that the only place the franchisee has some control is to hire and fire and set the wages, etc. of the employees. It would be nice if the NLRB agreed.

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MOVING

TARGETS Franchisees respond to changing markets

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hen retired Air Force Lieutenant Colonel Tim Hershberger signed on as a franchisee with Dickey’s Barbecue Pit in Florida, the 30year military veteran was already focused on the customers he knew best. And his military ties have helped jump-start his first nongovernmental venture. His first Dickey’s, in Pensacola, is one of three planned restaurants that will cater to current and former military members in the Florida Panhandle, home to Naval Air Station Pensacola and Eglin Air Force Base in nearby Fort Walton Beach. Military customers will receive a 15 percent discount, and catering orders are delivered to the bases free of charge. “We will continue to refine our strategies to get better at what we do,” he says. “We will always cater to the military because I believe what they do is vital to the safety of our nation. We also honor all first responders (police, fire, EMTs). As a retired military member, both enlisted and officer, I know what sacrifices these folks make and feel they deserve to be treated with honor and respect.” Hershberger, who took advantage of the brand’s incentives for veterans, is one of three Dickey’s operators who have opened the Texas-style barbecue brand in or near a military base. Marketing to the military is just one of many strategies franchisees are cooking up to build business in a world where mass branding is dying out and fragmentation has become the norm. More than ever, interests, opinions, and social profile data are influencing target markets once defined by more traditional data such as age, income, and education. “Marketing is not demographics any more,” says Doug Koegeboehn, chief marketing officer for Wienerschnitzel. “We are go-

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“We will always cater to the military because I believe what they do is vital to the safety of our nation.” —Tim Hershberger

Tim Hershberger

ing after specific mindsets, attitudes, and behaviors.” The changing face of marketing is presenting franchisees with opportunities for growth if they are successful in selecting the right strategies to connect with the customers they want. Segmentation may trump demographics in defining a brand’s target market, but generational and cultural shifts are driving where and how franchisees communicate with customers, whether women, men, veterans, seniors—or, for many brands, Millennials, the much-targeted, much-coveted 18-to34 age group that makes up 25 percent of the U.S. population and has an estimated annual buying power of $200 billion. Mexican pizza Dallas-based Pizza Patrón has refined its focus from Hispanics in general to Mexican-Americans, who compose the majority of Hispanics in the U.S. Company founder and restaurant veteran Antonio Swad (who created and sold Wingstop) says he simply was striving to serve the heavily Hispanic community near his first restaurant in Dallas when he discovered the brand’s target market. Known for its innovative marketing, such as “Pizza por Pesos” (accepting Mexican pesos at its restaurants) and a trademark of “friendly, bicultural service,” Pizza Patrón recently wrapped up a new, customercentric “Nueva Tradición” renovation in 81 of its 95 Texas locations. The remodeling process, launched in 2013 when the company’s first franchise agreements began coming up for renewal, features vibrant colors, original commissioned art, and an enhanced storefront with custom-made “old school” glass neon signage. Franchisees also hope to drive sales with new promotions,

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MOVING TARGETS such as a black bean pizza sauce. After taking a break from franchise development, completely halting franchise recruitment in 2013 and closing 20 underperforming stores, the Mexican pizza chain is back on the growth fast track expanding with existing franchisees—many of them Latino. Swad has said the brand can sustain 1,000-plus units nationwide, with limitless possibilities outside the continental U.S. Perros calientes Wienerschnitzel uses a demographic profile and information culled from customer segmentation studies to develop communication strategies for specific marketplaces, which are then coordinated with co-op ad agencies and franchisees, says CMO Koegeboehn. Most recently, the brand carried out promotion-specific testing in El Paso, Tucson, and Los Angeles to help the world’s largest hot dog chain better understand Hispanic audiences, who vary widely in areas such as acculturation, identity, language, and country of origin. The “5 for $5.95” value-oriented promotion for corn dogs was featured on Spanish television in the Texas and Arizona markets. In Los Angeles, a cross-channel marketing effort included Spanish blogger parties and radio remotes at stores, and sponsorships of local soccer tournaments. Whether offering free chili dogs to veterans on Nov. 11, sponsoring a professional motocross team, or touting 99cent, all-you-can-eat chili cheese fries on the first-ever Wiener Wednesday this past November 25, the appeal is in the details. The chili cheese fries offer, for example, was available with a coupon downloaded from the brand’s Facebook page; the offer was repeated on January 1, no coupon necessary. Koegeboehn, who joined Wienerschnitzel in 2015 after serving as the longtime account director for the brand at DGWB Advertising, encourages franchisees to look for as many varied communication avenues as possible to localize the marketing message at the store level. “I’m looking at the entire population around my restaurants. I’m only going after 20 percent of my audience that I know wants to come in and eat and using media vehicles and marketing messages that they engage in,” says Koegeboehn. “Don’t look at it as shotgunning, where

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“Marketing is not demographics any more. We are going after specific mindsets, attitudes, and behaviors.” —Doug Koegeboehn

Doug Koegeboehn you are doing all different types of initiatives,” he says. “If you look at each one of these initiatives, we are going for the same audience. It is the exact profile. I am just going to places where they are and speaking to them in a language that is appropriate. Spanish language or off-road racing language or any other group—they are all intertwined across the same audience.” Targeting Millennials Pancheros Mexican Grill, with 65 locations in 17 states, joins many franchises looking to appeal to a younger set. A rebranding effort launched two years ago has the fast

casual chain, known for its made-to-order burritos, salads, and bowls, getting back to its roots. Founder and CEO Rodney Anderson opened the first Pancheros on the University of Iowa campus in 1992, keeping his doors open until 3 a.m. to feed hungry students, whether they were burning the midnight oil studying or looking for a meal after the bars closed. Anderson stuck with the concept, expanding to other college campuses in the Midwest and in 2003 began franchising. The rebranding effort, which includes quirky slogans, packaging “that pops,” and brand-driven social media campaigns, has gone a long way to help Iowa franchisee Dan Sacco communicate a fresh message locally. Employees from his Davenport and Dubuque restaurants step out weekly to give out food samples and cards for free Chips & Queso at community events, appealing to young potential customers who “love free stuff,” says Sacco. He also targets his audience with hip music inside his restaurants and strategic ad placement in movie theaters during box office hits and on such shows as “The Walking Dead” and the “MTV Video Music Awards.” “We need to remind Millennials that we are here and keep Pancheros on the top of their minds,” says Sacco. “For other customers, we give them value for the money and food that is good every time.” Best in class As licensees of Best in Class, a Seattlebased tutoring company, Vietnamese refugees Lisa and Hao Lam grew the brand by adding enrichment programs and test preparation services—before buying, renaming, and franchising the company. The enterprising couple plan to have 100 centers open in the next 5 years. Tanmoy Kumar and Veronica Reyna, the first multi-unit franchisees of the renamed Best in Class Education Center, are busy crunching the marketing numbers to target clients for their education enrichment brand. The married couple, both college professors, opened the first of four stores planned for the Northwest Houston region. Initial marketing will focus on schools, festivals, community organizations, and events to promote the business, which relies heavily on word of mouth, says Kumar. Born and raised in India, Kumar is a mechanical engineer for an oil company

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MOVING TARGETS “From the opening, we will cater to students who cannot afford a private education or just want to be challenged above and beyond our public schools.”—Tanmoy Kumar and an adjunct professor at the University of Houston. He hopes to reach lowerand middle-income families interested in supplemental learning with price points below those of other education centers, which typically target upper-middleincome families. “From the opening, we will cater to students who cannot afford a private edu-

Tanmoy Kumar

cation or just want to be challenged above and beyond our public schools,” says Kumar. “Eventually we would like to make it affordable and be able to serve the underserved in the communities in the lower income groups.” Trucks to bricks The Halal Guys built a cult-like following for their food carts over 25 years of doing business on the streets of New York City serving up platters of chicken, gyros, and rice topped with a proprietary white sauce. Now The Halal Guys are taking their brand indoors—and global—in a fast casual, quick-serve format. In their first year of franchising, the company announced deals for 225 franchised units. The brand has partnered with Fransmart (the people who brought you Five Guys Burgers & Fries) to zero in on top real estate opportunities in mass-gathering areas such as airports, train stations, malls, and neighborhoods with significant late night demand. Development territories include Houston, Austin, Washington, D.C., Virginia, Connecticut, and the entire state of California, which sold out within the first months of franchising. International locations are planned for the Philippines,

Veronica Reyna Malaysia, and Indonesia. Ranked as a top 10 “most Yelped” restaurant in the U.S., The Halal Guys have even inspired a specialty sneaker from Reebok. “You just look at the lines, and it’s people from all walks of life. That right there is a franchise,” said Fransmart founder Dan Rowe in 2014.

HIRING FOR ENGAGEMENT

W

hile some companies have recruited franchisees who mirror their market and customers, franchisees are also finding it makes good business sense to do the same when hiring employees. • Liberty Tax Service is targeting a slice of the lucrative Hispanic market with specialized services. In 2014, the national tax preparation franchise launched SiempreTax+ as an independent brand under the Liberty Tax umbrella. Franchisees offer tax preparation for Spanishspeaking customers, along with a wide array of services in English or Spanish, including driver’s licenses, immigration, and state and federal applications for benefits and services. • At his Best in Class Education Cen-

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ter, Houston-area franchisee Tanmoy Kumar says he is looking for tutors who not only will engage students, but also who mirror the markets and customers he’s trying to capture. • The first person Tim Hershberger hired to work at his Dickey’s Barbecue Pit was the daughter of an Air Force member. In a recent job search advertisement he included the phrase “military spouses and family members encouraged to apply.” Hershberger also is working to get approval for a small sandwich shop in the NAS Pensacola flight line area to serve the large number of personnel in that area, who include flight training squadrons such as the Blue Angels and maintenance personnel who must drive 2 miles or more

for food. “If we establish a location on one of the bases we will attempt to hire military members or members of their family,” says Hershberger. “Generally, we know military family members are dependable, and most have a unique outlook on life that make them flexible and/or adaptable.” • Iowa-based Pancheros franchisee Dan Sacco says he looks to hire high school and college-age employees and has had great success by offering bounties to his workers when they refer a friend who is successfully hired. Customers can also make a go of it behind the counter. “We hired a young college freshman and he was so easy to train,” Sacco says. “He knew what to do because he’s been coming through the line five times a week.”

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CustomerService BY JOHN D I J U L I U S

Never and Always

what we can do. If someone asks if we can sell them something we don’t carry, we can answer, “While we do not carry Product X, what we do carry is Product Z. And the reason we carry Product Z is because it is proven to be the best, ou want customer loyalty? Be “Never and Always” list are things such longest-lasting, healthiest, etc.” By the brilliant at the basics. as “Always be professional” or “Always time you are done explaining the benWorld-class service compa- return calls promptly.” Why? Because efits of Product Z, that customer should nies have what I like to call a they are vague. What is professional to never want Product X again. Yet if for “customer bill of rights” that every person one is completely different to someone some reason they still want Product X, in that organization clearly knows and fol- else. What is “promptly”? To one person explain how and where they can get it. • “No problem” is a big problem. lows 100 percent of the time. Would you it may be two hours; to another it may The biggest slang responses used in evever expect to see a Disney cast member be two days. Here are three examples: • Always: Point versus show. This ery business today are “No problem” or on break, in full uniform, chewing tobac“Not a problem.” In fact, as a result co and spitting on the ground near ALWAYS of reading this, you will be shocked the front entrance where guests are NEVER walking? Doubtful. Would you ever at how many times you will hear “No Show them think a Ritz-Carlton employee, when Point problem” over the next two days. asked for directions to the ballroom, Joe Schumacker wrote an excellent would respond, “I don’t know. I work Say no Focus on what you can do blog titled “No Problem, Big Probin housekeeping.”? Highly unlikely! lem” that articulates this point really One of the most effective ways to well. “No problem” is a problem for Say “certainly,””my elevate your company’s customer Say “no problem” two reasons. The first issue is that pleasure,” “absolutely,” service level is by instituting your it consists of two negative words. “I would be happy to” own customer bill of rights. We shouldn’t be using any negative words with customers, let alone two If anyone is going to wear your Cold transfer Warm transfer back to back. uniform or name tag or represent your brand, you need only a small The second problem with “No Take care of it set (6 to 10 actions or standards) for Overshare problem” is that it sends the message your employees to live by. These nonthat what the customer is asking is negotiable standards are also referred to as is typically thought of in the hospitality not a problem for the employee. However, the “Never and Always” list. The critical business, for example showing someone when we are serving others, it is not about importance is that if they do occur, you to the restroom instead of pointing to it. our convenience, it is about what the cushave to be confident enough that your However, in the business-to-business and tomer wants. “No problem” places the employees recognize and understand call center world, pointing happens all the staff member’s comfort ahead of service the list and would “never” do this and time. For instance, it happens when we to the customer. Customers want to feel “always” do that instead. say things like, “You can get that from our that their interests are first and foremost If your company does nothing other website” or “You need to call this person in the mind of the staff member—not that than institute the “never and always” list, in this department.” Why are we making they may have inconvenienced someone makes everyone aware of it, and your cus- the customer do the work? We can send by being a customer. tomers rarely experience a “never” and them the link and we can transfer them Excellent alternative responses are consistently experience an “always,” then to the correct department. “Certainly,” “My pleasure,” “I would be you are in the top 5 percent of customer • Never: Say “no” instead of focus- happy to,” “Consider it done,” and “Abservice organizations! As you read through ing on what you can do. Eliminate the solutely.” These responses elevate the the list, you will see that they are all simple word “no” from your company’s vocabu- professionalism of your employees and and commonsense. Yet the majority of lary; no one should ever be allowed to start establishing a culture of hospitality businesses and front-line employees too use that word. You may not always be where the customer is first. often execute the “Never” list and don’t able to say yes, but offer alternatives and consistently execute the “Always” list. options, and never allow anyone from John R. DiJulius III, author Ideally, you want a maximum of 10 of your company to utter the word. You of The Customer Service each, following these criteria: will be amazed at how creative your team Revolution, is president of 1. Items are typically one to three will get at satisfying customers. I never The DiJulius Group, a cuswant a customer of mine to tell me that words long. tomer service consulting firm 2. They are black and white; there someone from my organization said “no” that works with companies to them. To me that is the worst word is no room for personal interpretation. including Starbucks, Chick3. They are crystal clear and do not you can use with a customer. While we fil-A, Ritz-Carlton, Nestle, PwC, Lexus, and cannot do everything our customers many more. Call him at 216-839-1430 or need any additional explanation. Some things you would not see on a request, we always can respond with email info@thedijuliusgroup.com.

Creating a customer-first organization

Y

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People BY JULIE MORELAND

Put Your People First Creating a magnetic culture: 3 examples

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hat makes a great company culture? Free food? Extra vacation time? Flexible hours? Employers spend more than $720 million on engagement every year, yet only 30 percent of the workforce is actively engaged. That’s because it takes more than “stuff” to truly engage team members. PeopleMatter recently partnered with workplace culture guru Laurie Ruettimann for a webinar on what it takes to build and develop a culture that helps you find and keep happy, passionate, loyal people. She says creating a magnetic culture boils down to six key things: 1) Mission-driven organizations are more fun. 2) Culture is a choice. 3) Straight talk with team members beats buzzwords and legalese. 4) Learn from the best; improved engagement and retention are possible. 5) Money is part of the equation, but there’s more. 6) Loyalty is a twoway street, and it goes a long way. That all sounds great, but where to start? We chose three clients who are rocking the culture game and wanted to share what they’re doing inside and outside their organization to better engage team members and give themselves a competitive edge. Texas Roadhouse If you think creating a magnetic culture is hard with a handful of locations, try making that happen with more than 400. But that isn’t stopping Texas Roadhouse. Their motto is also their commitment: “The Texas Roadhouse story is simple. Legendary Food, Legendary Service—all with lots of Legendary Fun!” Founder and CEO Kent Taylor is vocal about putting team members first and customers second. I think it’s safe to say that kind of sentiment from the CEO makes employees at Texas Roadhouse, affectionately known as “Roadies,” feel incredibly valuable. Even during tough economic times, the casual dining chain has continued to invest in recognition and celebration events because they understand that if they take care of their people, their people will take care of their guests. Isn’t that what it’s really all about? In an effort to further take care of their people, Texas Roadhouse started Andy’s Outreach Fund—a way for employees to help other employees and their families. If

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a team member is affected by a death, fire, natural disaster, or financial hardship, the fund provides money to help them. The Texas Roadhouse culture is one by design, not by default. It’s about giving employees a sense of identity, meaning, and belonging. Tender Greens I love the goal of Tender Greens’ founders: to have all employees look back and say that Tender Greens was the best job they ever had. I don’t know about you, but that makes me want to work there. Sure, Tender Greens also wants customers to have access to healthy, delicious food that feeds

People like to be a part of an organization that gives back and helps make the world a better place. the belly and the soul, but all of that starts with their team members. Tender Greens also understands that if you put your people first, everything else will take care of itself. Something that really touched me about Tender Greens’ culture is their Sustainable Life Project, which provides a structured working and learning environment to youths living in the foster system—with the goal of guiding and supporting them through a critical transitional period to help them become empowered, self-sufficient young adults. That means offering paid culinary internships, cooking and nutrition classes, and the opportunity to apply for a full-time job at the end of the program’s six-month period. People like to be a part of an organization that gives back and helps make the world a better place. It makes them feel like they’re a part of something bigger than themselves, and that’s a feeling you can’t replace. Boloco One of the things that’s made Boloco successful is the epiphany John Pepper, co-

founder and CEO, had one night. Pepper was mopping the floor after an employee hadn’t shown up for his shift and realized that “mopping sucks.” That made him question a few basic things: Who in their right mind would choose to do this work? Who would agree to get paid so little to do it? Where did people ever think this job would lead? Pepper realized that the company was playing a losing game by focusing on how it could get the most out of its people while paying them as little as possible. He asked himself, “What kinds of things can we do to give mopping meaning?” From there, Pepper began focusing on people—not just because of all the humanitarian positives, but also because he believed it would build a better business. To hire and keep the best talent, Boloco began offering employees transportation discounts, comfortable lounge areas, and higher-than-average wages—which led to record sales and profits in the years that followed. Fast food has traditionally been a terrible place to work, says Pepper. Boloco’s mission is to better the lives and futures of their people, and they use a burrito to do it. Pepper said he learned a few very important lessons in his early years with the company: • Make sure your organization has a purpose statement that inspires people. Answer the why for the company. Then communicate it clearly and often so everyone gets the picture. And use technology to reinforce it. • Understand the mission, vision, and values of your company and help employees understand them as well. • Work on becoming an authentic, self-aware leader who engages in behaviors that make people feel you believe they matter. Be open, curious, and vulnerable with your team. These three organizations have one thing in common: they’ve created a magnetic culture that gives their team members meaning and a sense of purpose. More important, they have anchored this in making the team members more important than the customers. By doing that, they are taking care of the people who will then take care of their customers. Every company has a culture. Why not make it one you and your team members love? Julie Moreland is senior vice president, strategy and people sciences at PeopleMatter. For more information, call 877300-6222 or email to info@ peoplematter.com.

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1/21/16 9:11 PM


InvestmentInsights BY CAROL M. SCHLEIF

Maintain Equanimity Learning to prosper from market volatility

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s we saw in graphic detail this past August–October, interim market swings in both directions can be violent. Major markets around the globe experienced their first correction in more than half a decade, only to make it all back up and then some within a couple of weeks. Assets hit the hardest on the way down (e.g., emerging market equities and tech stocks) were among the largest gainers on the way back up. Such whipsaws once were commonplace, though markets in recent years had not seen that level of volatility and had become frustratingly complacent. For those with a sound plan in place, interim market volatility can represent potential versus overt risk, as it allows the nimble to initiate or add to high-quality assets that become unduly stressed amid near-term panic. A few core strategies can help keep one’s perspective in view. • Plan and prepare. We are admonished in so many areas in life to commit our goals to paper, yet few of us actually do. With investing, however, this step is vital. Invest time to think through what you expect your investment funds to do for you. Be specific. For example: I need Pot A to fund my retirement in 2035; Pot B for the grandchildren’s college; Pot C for a rainy day and to fund the down payment on a second home next spring; and Pot D to hold the leftover “legacy” money. Investment in Pot A can take a longer view and withstand more day-to-day volatility with the goal of long-term growth. Money that may be needed in the near term, such as that in Pot C, should be held in extremely stable and liquid cash or cash equivalents. Be as specific as you can about your needs and intentions. Quantify the time frames and amounts needed. Consider separate account buckets to help you mentally account for the differing goals and needs each represents. • Have realistic expectations. Margin (either on brokerage accounts or unspent HELOCs) isn’t the same thing as cash and shouldn’t show up on the “asset” side of your mental balance sheet. Just think back to the recent financial crisis and the pain felt by so many over-leveraged, suddenly underwater homeowners. Leverage

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seems nice on the upside, as it can magnify returns, but it works the same way going down—and we’ve already established that the downside is a lot more painful than the upside is fun. Also, be sure your expectations for asset class returns are realistic. For example, to expect fixed income returns over the next five years to be as healthy as they have been over the past five isn’t realistic, given that a preponderance of global fixed income instruments are already trading with negative yields—even

For those with a sound plan in place, interim market volatility can represent potential versus overt risk. as central bankers in the U.S. begin to raise rates. It’s a mathematical given that when rates rise, bond prices will decline. • Diversify. Despite Wall Street’s relentless search for the ultimate “black box” to reliably predict market outcomes, market pundits remain as unable to accurately predict as ever. The best antidote for this inability to see reliably into the future is to populate one’s portfolio with assets that will do well in a variety of potential outcomes. For example, if you believe inflation will increase, by all means put assets in your portfolio that should do well in such an environment. But on the outside chance you are wrong, consider owning some investments that would do well in low inflationary or even deflationary environments. Further, actively seek readings and conversations with those whose opinions run counter to yours. Stay open-minded in asking “What if they’re right? Where are the grains of truth in their arguments?” Well-rounded portfolios and well-rounded income streams can help smooth the ride. Further, it’s important to remember that economic fundamentals and market move-

ments don’t have to “match.” In fact, the stock market is a component of the leading economic indicator series, meaning it is often out of sync with economic reality. Stock markets often start to rally not when things look rosy, but when they are “less bad.” A frequent conversation among technical analysts, for example, notes that when a market stops going down and stabilizes or rises even as bad news continues to flow—it’s probably worth a look. Indeed, most great long-term investment calls start from a place of mild to acute discomfort—not a place of comfort. • Focus on what you can control. The popular financial media—with its 24/7/365 pipeline to fill—breathlessly implies that there is some rational explanation for every market or asset price movement. Quite frequently, however, other explanations like “light trading volume on a pre-holiday/vacation day” can move prices—irrespective of underlying fundamentals, creating a great deal of interim noise. Paying attention to the daily din can easily lead to “short-termism” and reactionary impulses, given our innate (prehistoric) wiring aimed at insuring our survival. This is where having your goals and plans written down, so you can refer to them when things get hairy, is so helpful. Further, teach yourself to focus on what you can control. Things like fees paid, tax sensitivity of your managers and investments, matching income streams or specific assets (e.g., a maturing bond to pay a tax obligation) can help you take what can seem like violent swings in stride. Then too, training yourself to focus on “what could go right” versus the constant din of what’s wrong in the world is an interesting vantage point from which to start your portfolio construction. For example, while energy company stock prices have been devastated by the downturn in oil, gas, and coal prices, and fundamental stresses among over-leveraged smaller players are mounting, there are many places (including consumers) that benefit from low input costs. Carol M. Schleif, CFA, is regional chief investment officer at Abbott Downing, a Wells Fargo business that provides products and services through Wells Fargo Bank, N.A. and its affiliates and subsidiaries. She welcomes questions and comments at carol.schleif@abbotdowning.com.

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Finance BY ROD BRISTOL

More for You!

Create additional profit in 2016

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y now you’ve completed all of your financial budgeting and planning for 2016, have it set up on a month-by-month basis, and have organized your financial reporting to be able to measure your progress both on actuals to date and performance to plan. Right? Riiiiiight!! Perhaps you’re not at that point in the financial management of your company. But what is the minimal acceptable standard for financial reporting in a business today? It’s an income statement and a balance sheet delivered to you, the business owner, by the 15th day following the close of business of the previous month, every month, period! There is no other minimal acceptable standard. If you’re attempting to manage your business with quarterly, half yearly, or (Good grief!) annual financial statements, you are missing a tremendous opportunity to drive up the financial performance of your business. Accurate, timely financial information that you actually understand is the key to your improved financial success in 2016. There are no excuses! If you don’t like QuickBooks, try Xero. If you need assistance, terrific free counseling is available through America’s Small Business Development Center counselors, and there is probably one near you. (To find them go to americassbdc.org.) You will be amazed at what is available to help you get to the minimum acceptable standard of financial reporting. Give yourself a $50,000 raise This is your financial assignment for 2016, in case you haven’t given yourself one yet. I want you to look inside your business and I want you to find, create, figure out, and implement a 1 percent price increase. If a significant portion of

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what you sell is incredibly price-sensitive, find something that isn’t and increase it by more to ultimately create a 1 percent overall price increase in 2016. Review all of your Cost of Goods Sold (that is everything you spend before creating your Gross Profit on your financial statement). I want you to find and save 2

Here is the hard, fundamental truth: To improve the bottom line in your company, you have to improve you.

percent on all of those costs. It could be that you need to negotiate better with your suppliers, perhaps adjust the pay scale of the people who actually perform the work created by the sale. I don’t know what it is for your business. I’m giving you the assignment to go figure it out and do it. I want you to look inside all of your General and Administrative expenses and find and implement a 2 percent decrease in your Administrative costs across the board in 2016. Review every expense that falls below your Gross Profit line (including administrative wages, bank fees, credit card fees, insurance, rent) and figure out a way to pay 2 percent less for

all of it. This requires work. However, the combination of all of the above pays great dividends to you. Let’s assume for a moment that your business generates $1 million in annual revenue. The 5 percent I have just described is your $50,000 raise next year. Today that 5 percent is going somewhere else, not to you. As the owner of your operation it is your responsibility to find it and deliver it back to you and your family. We teach that not all solutions come from driving up the revenue line. While increased sales volume is important, profit is actually created through the management of careful, incremental controls on all of the expenses that fall between the revenue line and profit line. More ODP for you! At Profit Mastery, our goal is to deliver to you more of what we call Owner’s Discretionary Profit: the amount of money available for you to do what you want with. Take it home, reinvest in the business, or pay down debt and reduce the risk for you and your family. Now, if you can honestly look yourself in the mirror and say you have absolutely no idea what I’m talking about and don’t understand any of the above terms, I have good news! Finance is not that hard to learn, and it’s actually fun when we teach it. If you’d like more information about how to study business finance online through Profit Mastery University, or are interested in having us come and present at an upcoming conference, please don’t hesitate to contact me. Here is the hard, fundamental truth: To improve the bottom line in your company, to drive up profits and cash flow and improve the standard of living for you and your family, you have to improve you. No one else can do it for you. Rod Bristol is executive vice president at Profit Mastery. Learn more at www. profitmastery.net, 800-4883520 x14 or write to bristol@ profitmastery.net.

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ExitStrategies BY DEAN ZUCCARELLO

Dealing in Reality Why do some deals fall apart?

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he M&A marketplace has seen some impressive activity over the past few years. Theoretically, this should have created a positive environment for all people looking to execute an M&A transaction. In spite of these favorable conditions, there are groups that can’t seem to get a deal done. In many cases, these are people who care more about “winning” than consummating a transaction. Let’s examine how to engage in industry standard business practices that can improve the likelihood of transaction success, while still getting the most for both buyer and seller. When an investor divests 100 shares of stock each worth $10, they go forward with a sale for $1,000 without question, because that is what the market has deemed fair and acceptable. There are constant sources of information readily available to validate transaction norms and fair market value. This dynamic can change when it concerns private, entrepreneurial-based M&A transactions. There is certainly more of an emotional charge to consider when someone is selling their own business rather than shares of Microsoft. However, the fact doesn’t change that a very established market still ultimately dictates the pricing and terms deemed most accurate given the quality of the assets and the current industry climate. Yet, regardless of this reality, some buyers and sellers fail to position themselves to execute a transaction because they feel the need to win at someone else’s expense. We truly appreciate the spirit of entrepreneurship and understand the competitive nature inherent in business owners, so we are not suggesting that a party shouldn’t seek to obtain the best deal possible. However, it’s important to realize and accept the fact that the majority of successful transactions happen in market-bandwidth terms, and the marketplace is well-informed. First and foremost, it is crucial to un-

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derstand market valuation parameters. The most frequent source of transaction failure is the lack of realistic understanding regarding transaction value versus transaction multiples. Some of this is the sincere result of misinformation in the market that sellers and buyers are relying upon. Every day we encounter parties who are hearing about transaction values that are just plain wrong. This provides the basis of a faulty valuation perception that is hard to overcome. However, in some cases, parties deliberately want to

Some buyers and sellers fail to position themselves to execute a transaction because they feel the need to win at someone else’s expense. incorrectly apply unrelated attributes or circumstances to their own situation, whether that is comparing different brands, geographies, growth potential, or otherwise. We have had more than one industry participant try to justify why their franchise business should trade at the same valuation multiple as their publicly traded franchisor. Then there are those clients who just want an “off-market” transaction. While these deals do happen occasionally, they are by no means the norm. If this is the only kind of transaction you are interested in, it is imperative that you communicate this early and openly; the market will take you more seriously if you concede the position that you are interested only in an opportunistic valuation. However, it is also necessary to recognize that even opportunistic valuations must be based

in legitimate market realities. Parties that want to buy at a 4x multiple but sell at 8x need to realize that although this situation is entirely appealing, it is also completely impractical. Not only will chasing after such outlandish valuations never result in transactional success, it will also do you a reputational disservice. Again, the marketplace is well-informed and does not overlook or accept nonsensical valuations. The second greatest source of failure is the lack of understanding of fairly accepted commercial purchase agreement terms and standards. Successful buyers and sellers engage knowledgeable M&A advisors and attorneys to help them through this part of the process. Others attempt to “go it alone” or engage a familiar attorney used for general business activities versus one that specializes in transaction work. Failing to use credible advisors in an M&A process will not only cost you time, it will almost certainly cost you treasure and potentially the deal itself. These advisors use a relatively standardized set of documents to provide consistency and reduce the recurring need to over-negotiate each transaction from the ground up, while simultaneously helping to eliminate some unnecessary brain damage and stress. At this stage in any transaction, deal fatigue can set in and degrade the likelihood of closure. One method we have experienced success with is when participants opt to bypass the LOI stage and go straight into APA negotiations. By investing a little money up front, firms can use marketbased agreements that serve as a solid jumping-off point for deal discussions and specific transaction tailoring. Another area worthy of discussion is certainty and speed of closure versus collecting every last dollar off the bargaining table. Transactions involve many types of tradeoffs. We ask many of our clients to put together a list of objectives and rank them by priority before launching a process, often reminding them and ourselves to revisit that list during the challenging days and weeks in the transaction marathon. You may seek to maximize price, which inherently decreases the interested audience and increases your counter-party risk once you

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go under exclusivity. Alternately, you may opt to solve for certainty of closure or retention of key personnel, in which case buyer selection and previous transaction track record must be weighed with great importance. It is critical to keep your specific priorities top of mind. Achieving what is most meaningful to you is the correct measure of success. Finally, it is important to keep in mind how others are perceiving you. The last thing you want to do is give yourself a reputation of being difficult to work with. Not only can this make people reluctant to work with you, it can also severely affect your chances of being considered as a viable buyer or seller. Parties who develop a bad reputation will ultimately miss out on opportunities because fair dealers will choose to avoid them, opting to work with people who share the desire to do business in a productive manner. Conclusion Overall, a “good for the goose, good for the gander” approach helps buyers, sellers, advisors, and everyone else involved in the process because it is both more

Taking impractical positions makes it more difficult for your advisors and attorneys to do their jobs successfully. efficient and reduces the time spent negotiating deal terms. While it is true that this approach might not automatically resonate with a longtime owner who is selling their life’s work to retire, it is important to remain as objective as possible. Remember that unnecessary negotiation affects goodwill between parties, creating a challenging climate in which to resolve the truly important issues. Taking impractical positions makes it more difficult for your advisors and attorneys to do their jobs successfully, especially if they are put into a position where they have to support unrealistic

terms. Doing so also can cause a loss of credibility in the eyes of the other party, not to mention the increase in the amount of legal costs that will be incurred by both sides. How you engage in a transaction and how your approach evolves over its course will directly shape your potential for success. Following industry norms and well-defined best practices may seem overly conventional to some, but we have demonstrated that an approach of fair dealing actually results in better execution, as well as happier clients. Dean Zuccarello is CEO and founder of The Cypress Group, a privately owned investment bank and advisory services firm focused exclusively on the multi-unit and franchise business for 25 years. He has more than 35 years of financial and transactional experience in mergers, acquisitions, divestitures, strategic planning, and financing in the restaurant industry. Contact him at 303-680-4141 or dzuccarello@cypressgroup.biz.

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FranchiseMarketUpdate BY DARRELL JOHNSON

Economy 2016 Slow, doesn’t-feel-good growth persists

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hat’s the plan for 2016? While we tend to evaluate economic activity one year at a time, economic activity does not function on that type of clock. Trends stretch across several years and reveal their implications only when looked at in the rearview mirror. However, such trends are important indicators of what is likely to come next, absent the occasional exogenous shock. Let’s take a look at them and see what they suggest for 2016. We are now approaching seven years of expansion. This is the sixth-longest economic expansion since the 1850s. While that should give us pause about 2016, economic expansions don’t die of old age. They are usually ended by some event. In the 2000s it was the housing bubble. Before that it was the dotcom bust, and before that, real estate and the S&L crisis. I am hard-pressed to find a looming economic shock. No industries look like bubble candidates. The stock market is fully valued, but certainly not overvalued. Capacity is well below pressure levels, hence we don’t have near-term inflation concerns. Energy and commodity prices are not showing any signs of significant moves upward. While we have unemployment levels near what most economists consider full employment, we are not seeing wage pressures at the lower skill levels, and only modestly so at the higher skill levels. I believe significant components of why are 1) the formal labor numbers do not reflect the real pool of job seekers, and 2) we have a big misalignment of skills versus job openings. Perhaps the foundation for a continuing expansion lies in how poorly this expansion has progressed. I would characterize it as the best economic growth period that hasn’t felt good. It’s hard to get excited about a recovery that has barely kept pace with population growth. Absent a shock, it ap-

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pears we are condemned to continue the slow, doesn’t-feel-very-good expansion of nearly a decade. What could the exogenous shock be? Ignoring wars and terrorist-type events that are not predictable, the world economy seems poised for decent growth, so no shock there. Domestic monetary policy could be a recessionary trigger, but the recent rate increase was so over-predicted that the market was more relieved than concerned when it was actually done. The Fed has done about as much as anyone could expect to get the economy on solid footing. Now it must carefully extricate itself from that stimulus effort. Historically, problems with the economy don’t begin with the first rate hike. The economy usually is pushed over the edge 6 to 12 months after a subsequent rate hike (which may be several rate hikes away). This suggests to me that

we are not likely to see a downturn in 2016 as the result of Fed policy. It would have to come from somewhere else. Banking has been complicit in the last three triggers. Based on hundreds of years of banking history in developed countries, I’d say we are in the final phase of a predictable pattern of behavior for banking following a financial crisis. This phase, which started more than a year ago, is marked by banks beginning to move out on the credit risk curve. For franchising, this means that banks move beyond doing deals just with

low-risk, successful multi-unit operators and begin pursuing less-experienced operators and first-time franchisees, albeit at tighter terms and higher rates. Are banks setting up the economy for the next decline? I think not, for two reasons. First, historically, the third phase lasts 3 to 5 years and is marked by competitive pricing for risk at the high end of the risk curve. We are only a couple years into this phase and banks are still inching their way into deals on the high end of the risk curve. Second, with each recovery, banks get smarter on some level. This time it was with understanding franchise credit risk information better. No longer are banks relying on inaccurate and misleading SBA failure data or other arbitrary attempts to quantify franchise risk when making lending decisions. Much better alternatives, such as FUND ratings and Bank Credit Reports, are available for lenders assessing franchise credit risk. Finally, we have election cycles to consider. A distinct pattern has emerged over the past 15 election cycles that suggests a much higher probability of a stock market bottom in the second year of a presidential term, followed by an economic downturn. In other words, the election year is usually an “okay” economic period, with a greater likelihood of an economic downturn starting in the first or second year of a new presidential term. Where does that leave us for planning purposes in 2016? Expect a continuation of the slow, doesn’t-feel-good growth we have experienced so far during this long recovery. While that isn’t exciting news, you’ve managed to grow nicely so far in this cycle, so expect that success to continue for a while longer. 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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Multi-Unit Franchisee Magazine - Issue I, 2016  

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