The Decision to Franchise
◦ How Franchising Works
◦ Alternatives
◦ Quality Control
◦ Legal Aspects of Franchising
Marketing Your Franchise
Selling Your Franchise
Creating a Successful Franchise Strategy
◦ Structural Decisions
◦ Financial
◦ Organizational Development
Questions and Discussion
Wearegoingtotrytocoveragreatdealofinformation,soweare askingthatyouholdyourquestionsuntiltheendofthesession unlesstheyareonaparticularslide.
More hands-on experience than any other firm
◦ Consultants with over 900 years of franchise experience
◦ 98 out of the top 200 franchise companies
◦ Offices in Chicago, Dallas, Los Angeles, Boca Raton, Miami-Fort Lauderdale, Atlanta, Toronto, Dubai, UAE, and Riyadh
More “senior level” experience
◦ Hands-on experience at start-up and established franchisors
◦ Former CEOs, CFOs, EVPs of more than 50 different franchise companies
Adia (now Adecco), Armstrong Tile, Auntie Anne’s, Dunkin Donuts, LINE-X, Pearle Vision, McDonald’s, PIP Printing, Schlotzsky’s, Snap-on Tools, Snelling & Snelling, and other national brands
The ability to bring more resources
◦ Faster completion
◦ Ability to assist in several areas simultaneously
Breadth across four functional areas
◦ Strategic planning
◦ Quality control
◦ Marketing
◦ Organizational development
Franchise experience in 50+ countries
Six years in a row, voted the #1 Franchise Consulting Firm in North America in an independent survey of over 1,100 franchisors
Numerous awards and publications
A premier fully-integrated public relations and digital media agency specializing in franchised businesses
◦ Public Relations
◦ Digital Lead Generation
◦ Search Engine Marketing
◦ Content Marketing
◦ Social Media Publishing
◦ Pay-Per-Click Advertising
◦ Website Design & Development
Both franchise development and consumer branding
Team with Hands-On Franchise Experience
◦ Real world experience with nearly two dozen brands
◦ Efforts have resulted in tens of thousands of franchise leads
◦ And many hundreds of franchise sales
Recent honors and awards:
◦ Top supplier from Entrepreneur five years in a row
◦ Best New Agency (Ragan & PR Daily Ace Awards)
◦ PR Agency Elite – Mission: Fit to Own (PR News)
◦ Best Website Finalist (PR News)
◦ Best Media Relations Campaign Finalist (PR News)
◦ Best SEO Finalist (PR News)
A premier franchise development and sales organization
Helps emerging brands realize their full potential
Placed over 1,100 unites with more than 600 franchises
Beyond Sales, serves as an outsourced development partner with a consultative process
Support brands across diverse sectors
◦ Residential and Commercial Services
◦ Automotive
◦ Quick-service Restaurants
◦ Fitness
◦ Health and Wellness
◦ Beauty
◦ Pet
◦ Youth Enrichment
◦ And More
Recent honors and awards:
◦ Top Supplier Award from Entrepreneur
◦ Employee Satisfaction Award from Franchise Business Review
Considering franchising your business?
Franchising less than one year?
Franchising more than one year?
Wearehappytosendyouacopyofthis presentation,soyoucanlimityournotetakingif yousodesire. Also,happytosendacopyofa videoandabookifinterestedinexploring further.
FTC rule 436 cites three elements that legally define a franchise:
◦ The use of a common trademark
◦ The exercise of control or provision of assistance
◦ The collection of fees, royalties, mark-ups or other monies from the franchisees
If you have all three elements, you are a franchise, regardless of what you call it
Some state definitions vary, but are similar
Do not have to use the “f-word”
Franchisee typically pays
◦ Franchise fee average about $35,000 to $45,000
◦ Royalty range between 4% and10%
◦ Advertising range between 1% and 2%
◦ Franchisor will often sell product to the franchisee
Franchisor typically provides
◦ Use of trademark
◦ Initial training
◦ Operations manual and systems
◦ Ongoing supervision and support
◦ Marketing support
◦ Other support services like purchasing, R&D, etc.
Leverage Capital
Speed of Growth
Motivated management
Reduced risk
Few operational concerns
Higher quality
Organizational leverage
Must “share profits”
◦ Franchise unit will usually generate less profit than a profitable unit
◦ But far more profit than an unprofitable company-owned operation
Less Control
Good relations with franchisees take work
MYTH: Litigation
orLicense = Name
= Dealership Distributor Agency
SalesRep
The decision should be goal driven
◦ Distance
◦ Speed
◦ Obstacles
◦ Risk tolerance
A Volvo or a Rocket Ship?
Don’t have to choose only one vehicle
Don’t decide to franchise (or whatever)
◦ Instead, decide:
Do I want to build a third-party distribution channel?
Do I want that channel to be branded?
If it is branded, do I want to control quality?
How do I want to be paid?
The law (or your lawyer) should never dictate your good business decisions
Credibility
Differentiation
“Sizzle”
Buyer appeal
Value Proposition
The franchisee should make a return on the time they invest
◦ No different than if they were to go out and get a job
◦ Salary should be “market rate”
The franchisee should make a return on their investment
◦ No different than if they invested in a stock
◦ Return should be commensurate with what they would make if they were to make an investment of similar risk
◦ Ability to sell back their investment at the end of the term
Franchisees expect that they will need to build their business
◦ Will expect these returns in three years or less
Annual Cash-on-Cash R.O.I. at the unit level – our criteria
◦ 15% for Owner Operators
◦ 20% for Area Developers (who will support additional overhead)
Occasional exceptions
Perfecting the business
◦ If you have perfected your business, SELL IT!
◦ If you are standing still, someone is gaining
◦ McDonald’s in 1955
Quick vs. Slick
◦ If you are going head to head with more established competition and your business model is not highly differentiated – be sure to refine first
◦ More unique, the sooner you should franchise
Risk: Someone with a camera and a notepad
First mover advantage
Who was the first . . . ?
Business plan/strategic direction
Legal documents and registrations
Operations manuals
Training program
Quality control mechanisms and systems
Effective marketing plan
Franchise collateral materials
Website and web-based marketing
Advertise
Design and implement a sales strategy
Staff an organization to implement the plan
Capital
You are entering a new business.
Goals drive your business. Start with support and cost structure.
What do you need to do to help your franchisees succeed?
Don’t rely on guesswork: The futureofyourbusinessisat stake.
Financial analysis is essential.
Reverse engineer your success.
There are certainly a large number of neophyte franchisors who take a “Ready-Fire-Aim” approach
◦ Often rely on guesswork
◦ Or analysis of what comparable franchisors are offering to make major decisions
“Me-Too” is not a strategy – it is a recipe for disaster!
◦ Uniqueness is important to success, whether achieved through the business model, marketing, support, structure, fees, or marketing.
◦ Me-Too assumes that business economics are the same, support is the same, and that a new franchisor will simply differentiate themselves based on great franchise marketing
◦ But established franchisors often have many advantages not shared by newer franchisors
◦ So the Me-Too strategy that is taken by many new franchisors can actually be responsible for their failure
The impact of a 1% royalty mistake
◦ If a single franchisee generates $500,000 in revenue
◦ 1% = $5,000 off the bottom line
◦ But franchisees will never tell you that they are paying too little and often inertia will keep the royalty where it is at for years
Many people think franchises have lower level of quality – just the opposite is true
The Quality Trade-Off ◦ More difficult to control
Higher Caliber
More highly motivated
Longer term
Studies show franchisees outperform Anecdotal evidence
Role as a sales tool
Role as a training tool
Role as a reference tool
Role as in reducing liability
Extension of the legal documents
Discussions with Key Stakeholders
Review existing material, forms, & documentation
Develop preliminary outline Determine gaps in current documentation
Assign responsibility for content creation
Onsite observation of units & documentation Interview Subject Matter Experts Identify Subject Matter Experts for gaps
Resolve Best Practices Conflicts
Draft material to cover all identified gaps Edit all material into common style & “voice”
Revise first draft of Operations Manual based on client input
The FTC rule
◦ Disclosure document with 23 items
◦ Disclosure fourteen days prior to sale
◦ Final Franchise Agreement seven days prior
◦ Financial Performance Representations
◦ Consistency with Franchise Disclosure Document
State regulations
◦ 14 registration states
◦ Regulate advertising
◦ Business opportunity states
◦ Determining applicability (even definitions vary – NY)
