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Maintaining Brand Standards When Franchising


About the Speakers • Dave Hood , President, the iFranchise Group – 27 consultants across four functional specialties – 500+ years of experience in franchising – 98 of top 200 franchisors

• Harold Kestenbaum, Partner, Gordon & Rees – – – –

Named one of the top 100 franchise attorneys in America 30+ years in franchise law Former board member of publicly traded franchisor Noted author: “So You Want to Franchise Your Business”

• A lot to cover, so please hold questions • Will email copies of this presentation, so you do not need to write notes • A little about you?

Copyright, The iFranchise Group, 2013 All rights reserved

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The Quality Control Trade-Off • 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 corporate operations

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The Four Pillars Of Quality Control

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Quality Control The Four Pillars of Quality

• Franchisee Selection • Documentation & Training – the Tools • Support • Legal Documents and Compliance

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Quality Control Comes at a Cost The Four Pillars of Quality

• Franchisee Selection – Cost of walking away from a check – Higher costs of marketing

• Documentation & Training – First class tools, Intranet, video, etc. – More staff required for more training

• Support – Cost of Staffing – Frequency of visits (travel costs, etc.)

• Legal Documents and Compliance – Enforcement actions – Costs of losing a franchisee (even an underperformer)

Copyright, The iFranchise Group, 2013 All rights reserved

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Franchisee Selection

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Franchisee Selection • Maintaining quality control starts with the franchise selection process • Philosophy of granting franchises vs. selling franchises • Need to find like-minded franchisees who are a good fit with your system • Franchisees need to “buy into” your operating system • Look for franchisees who want to work within a system rather than change the system • Use of personality profiling

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Five Critical Points of Qualification

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Intelligence

Capitalization 

Biggest reason for failure

Can cause franchisees to cut corners

Work Ethic

 

“Job Specific” requirements Personality 

Experience in leading a team

Tendency toward being an entrepreneur

Honesty and ethics

Philosophy and cultural fit

Nature (Confrontational or adaptive)

Compatibility (you are “married” for the next 20 years) Copyright, The iFranchise Group, 2013 All rights reserved

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Franchisee Versus the Entrepreneur

Franchisee       

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Straight A Student Long tenure with job Corporate job Drives family car Few tickets Married Looking for security

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Entrepreneur       

B or C Student Moved from job to job Owned businesses Sports car Lots of tickets Divorced “Never saw a rule he didn’t want to break.”

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Ways to Maximize Success in Selecting Franchisees • Be proactive rather than reactive in generating leads • Develop and then follow a well defined sales process • Focus more effort on understanding the candidate’s qualifications and goals, and place less focus on closing the sale • Consider incorporating a work experience into your sales process • Have multiple people in your organization assess the candidate • Speak with the candidate’s professional references, not only their personal references • Don’t be afraid to reject candidates

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Cash Flow Modeling for Growth Conservative Growth $ Only incremental cost is franchise marketing and that can be a variable cost after a start-up allocation

The Golden Rule: Grow No Faster Than Your Ability To Support Your Franchisees

Second Hire

Royalty & Gross Margin Revenues Leverage Existing Staff and Minimal Advertising

First Hire

Loss

Time


Tools to Improve Franchisee Performance 13


Best Practices Operations Manual • Key here is “best practices” • Serves many functions – – – – – –

Sales Tool Training Guide Reference Tool Liability reduction Enforce system standards for Quality Control Extension of the legal documents

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Developing a Best Practices Manual • Determining what to document • • • •

Scope of the manual Standards to be enforced Procedures to be required Procedures to be recommended

• Manual development process • Gathering pertinent information • Determining best practices • The drafting and review process

• Use of Subject Matter Experts

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Development of Best Practices Operations Manual

Discussions with Key Stakeholders

Review existing material, forms, & documentation

Develop preliminary outline

Determine gaps in current documentation

Assign responsibility for content creation

Identify Subject Matter Experts for gaps

Interview Subject Matter Experts

Onsite observation of units & documentation

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

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Beyond the Operations Manual • Faster growth requires formal training programs – For your staff – For franchisees

• Train-the-Trainer too – Franchisee will train their staff – Should have tools to do so

• Video pushes QC to lowest level of organization • On-line training decreases costs, increases quality, and can decrease liability – Customized by employee – Document what is reviewed and test scores – Lowers on-site training time and costs for both the franchisor and the franchisee Copyright, The iFranchise Group, 2013 All rights reserved

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Additional Tools for Documentation and Ongoing Communication • • • •

Franchisee intranet platform Third-party quality assurance programs Mystery shop programs Franchisee advisory councils

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Best in Class Ongoing Support 19


Focus Within a Franchise Support Program

Compliance 20%

IMPORTANT ROLES: • • • • •

Brand Ambassador Trainer and Coach Operations Expertise Marketing Support Financial & KPI Analysis

80% Helping franchisees increase revenues and profits

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Building Blocks for Supporting Franchisees

• Pre-opening support • Real estate • Facility design • Construction • Operations training • Marketing planning • Vendor set-up

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Building Blocks for Supporting Franchisees

• Ongoing support • Brand development • Local marketing support • Field business support • Ongoing training • Best practice sharing • Vendor management

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Field Support Process Primary decisions to be made:  Qualifications for the field support position  Compensation structure  Where should reps be located?  Ratio of reps to units  Frequency of visits  Routing efficiency  Agendas for each visit  Business planning tools  Tracking all communications

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Staffing Considerations for Support • Frequency of visits – – – –

Complexity of business Need for quality control Type of business (restaurant vs. retail) Need for on-site monitoring (can you monitor KPIs remotely – sales franchise?)

• Clustering of units • Type of franchise – – – –

Individual franchises Area development Conversion Area representative/Sub-franchise

• Speed of growth

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Legal Issues In Managing Quality Control 25


Legal and Sales Best Practices

Limiting your liability:  Be sure your contract and FDD have the necessary levels of control  Document should allow you the flexibility to make changes as the system matures  Develop and monitor a system for monitoring contract compliance  Develop and monitor a system for determining financial qualification  Train your franchise sales force on quality standards for franchisee selection  Notice to cure and default process used when appropriate

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Accounting and Auditing Best Practices

Limiting your liability: ď ś Install a system for tracking and documenting that each franchisee is maintaining proper insurance coverage ď ś Install a system for tracking and documenting that all franchisee licensing is kept current ď ś Install a system for documenting appropriate franchise background checks, financial diligence, representations.

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Operations Documentation

Limiting your liability:  A good Operations Manual can help you avoid litigation  A bad Operations Manual can be a franchisor’s worst nightmare  Operations Manuals must provide you with adequate brand control but should not be too prescriptive – a fine line  Must avoid creating an inadvertent “agency” relationship  Must avoid potential areas of negligence or take great care when prescribing actions  Should cross-reference regulations and not cite them  Should be updated annually and reviewed by professionals and attorney. 28


Operational Support

Limiting your liability:  Have a standard compliance checklist for field support that does not leave room for interpretation  Make sure your support people document everything and that you keep a detailed file on each franchisee including all correspondence, contracts, FA, FDD, etc.  Supplement field support visits with Secret Shopper Programs  Document all client calls using Contact Management Software  Train your staff on a regular basis on appropriate franchisee communication and interaction, as well as best practices communications techniques – especially emails!  Develop a Field Support Manual for identifying problems and maintaining best practices. 29


10 Common Mistakes in Quality Control 1.

Hiring support staff that is under-qualified

2.

Giving insufficient training and direction to support staff

3.

Failure to convey detailed (and current) standards to franchisees

4.

Failure by the franchisor to measure the results of its support efforts

5.

Looking the other way on minor infractions or playing “favorites”

6.

Trying to be a “nice guy” and a friend to the franchisee instead of viewing your role as the “keeper of brand standards”

7.

Failure to give the franchisee’s “tough love” when they fail to live up to those standards

8.

Failure to enforce the same quality standards relative to your own company-owned operations

9.

Unwillingness to look for alternatives to help “move” a failing franchisee or a poor operator

10. Lack of willingness to terminate if all else fails


Questions


Maintaining brand standards