My Podner in this episode is Michael Peterson and he’s going to talk with us today about the mistakes that new franchisors typically make during their first year of operation. Some of these mistakes can be quite expensive, while others can lead to the death of your entire system. If you are a newly minted franchisor, or if you are about to start your journey, this is one that you won’t want to miss.
Michael Peterson Intro
Get to know Michael Peterson
Topic Segment: New Franchisor Pitfalls
Topic Segment: Quick Draw Questions
TOPICS DISCUSSED IN THIS EPISODE:
Key areas franchisors miss in their first year:
Not getting the FDD to fully capture the business model. This leads to something so prevalent that I came up with a name for it; the 2nd year re-write. So many franchisors make massive changes to their second year FDD either because they didn’t capture the existing model in the first year, or they didn’t have someone walk them through the thought processes they should be going through on every item before they commit it to paper.
Having “to be implemented” clauses in their agreements. The most common one I have seen here is a national ad fund, though I have seen tech fees quite a few times as well. When your franchisee #1 or #2 has been operating for 3 years, paying you your royalty only, and suddenly you decide your system is big enough to justify the advertising fund of 1-3%, believe me they will not be happy. Start taking this from day one, even if you turn around and spend it in their market.
Cutting corners or coming in underfunded. This is probably the #1 cause of failure of young franchisors. Deciding to write an operations manual in-house, find the cheapest franchise attorney possible (or, worse yet, trying to do an FDD without a franchise attorney), not having quality marketing materials, not having funds set aside for franchise sales; these are so self-defeating.
A bad operating manual can lead to system problems and even litigation.
If you succeed as a franchisor you will end up using a good franchise attorney, if you start out with inexperienced or ineffective counsel, you’ll just pay in negotiation, litigation, or just headaches before you switch to better counsel.
Your marketing materials are your first impression, you have to make them count.
Franchise sales cost money, period. If you don’t have a good marketing budget, you will struggle to grow. Think about this. Each year, you are going to spend between $6,000 and $25,000 on renewal, depending on how many registration states you go into and how complicated your audit is. I would guess the average is close to $12,000. If your lead generation spend results in one sale, then you have an extra $12,000 in costs for that sale. If you have a robust budget and someone solid handling franchise sales, and you award 3 franchisees, then the renewal is only adding $4,000 cost-per-close. Big difference.
Hands down, the biggest mistake a franchisor can make is bringing in the wrong franchisee. If you have been doing all the ‘right’ things, spending money, having a professional franchise salesperson either in-house or outsourced, reaching out to brokers to talk about your brand, and 6 or 12 or even 18 months in you don’t have a franchise sale, that can be frustrating. It also might happen; the first franchisees are the hardest to find (lets delve into that). I have seen this situation cause many franchisors to award a franchise to someone they shouldn’t and regret it for years to come.
Not having a culture of compliance from day 1 is another seemly small issue that will come back to haunt you. If your FA calls for quarterly or annual financials from your franchisees, get them even if you don’t know what to do with them! If your franchisees have a required add spend, monitor it from day one. Or better yet, engage with them and help them spend it correctly, but either way make sure they are spending it. If there is a clause you are not enforcing from day one, throw it out.
A problem many new franchisors think they wish they had; growing too fast. I have been in this position. I am talking about 4 stores open in January and 120 open that December fast! Trust me, you don’t want this kind of growth out of the gate.
Compromising to get a deal. . . I put this one last because it very well may be something you need to do. As I mentioned, first franchisee is HARD! It may be reasonable, appropriate, or even necessary to ‘give’ on the first franchisee, maybe even on the first few. But be careful. If you are giving a bigger territory, are you really setting that franchisee up so that there is no chance of you putting someone into the same market and putting local brand awareness 100% on their shoulders? Are you offering a refund clause that you can’t really afford, from a capital cost of onboarding stance? Make sure your attorney is involved here and be careful. And again, don’t be afraid to say no and walk away.
My Podner in this episode is Tom Portesy and he’s going to talk with us today about how to maximize the return on your investment at a franchise expo, how to avoid the pitfalls, and best practices that will help you represent your brand in the best light.
Tom Portesy Intro
Get to know Tom Portesy
Topic Segment: Maximizing the Franchise Expo
Topic Segment: Quick Draw Questions
TOPICS DISCUSSED IN THIS EPISODE:
What is a franchise expo
Short history of the expo
How to manage realistic expectations of an expo
Know your objective
DOs and DON’Ts at an expo
Take advantage of the free training offered by MFV
My Podner in this episode is Jackie Hoegger and she’s going to talk with us today about how to market to prospective franchisees. This conversation spans topics such as website design, digital marketing, even down to how you treat your existing franchisees. This is our first episode on the topic of marketing and we came out of the chute with a GREAT one.
Jackie Hoegger Intro
Get to know Ms. Jackie
Topic Segment: Marketing to Prospective Franchisees
Topic Segment: Quick Draw Questions
TOPICS DISCUSSED IN THIS EPISODE:
Brand on Fire (00:21:49) – Elevate your brand as the key authority in the franchise world – Go beyond simple brand awareness and stand out….provide MORE value than your competitors.
Know your “story”
Know your passion and learn to convey your passion to the prospective franchisee
This is a marathon, not a sprint
Hone in on your God given skills
What is it that makes your concept special
Most franchisors will need help developing this point
Social All The Way (00:29:12) – Tell your story as a Franchisor on social media – your new franchisees are watching. Get them to trust you as a leader before they ever make the call or the link online to talk.
Social media is the best ROI on delivering your message
Know the target profile of the perfect franchisee, then dial in your social media advertising
Social media not only allows people to see you from the outside, it also allows people to be able to trust you
The Power of the Existing Franchisees (00:32:16) – Let them sing your praises! Let them garner the attention of YOU!
Your franchisees are your #1 asset. Nobody can credibly sing your praises better than your current franchisees
Prospective franchisees are most interested in what your existing franchisees say about you, and the WILL ask.
Coach your prospective franchisees before they make the validation calls so that they know how and when to ask follow up questions. If they talk to an existing franchisee who does not sing your praises, then teach them how to ask questions such as “How much do you spend on marketing?”
Marketing isn’t just advertising, it is much more. It also includes soft skills such as how you treat your franchisees. Existing franchisees are a DIRECT arm of your marketing
Communication is king
Web oh Web (00:37:02) – Your website needs to simply rock – It’s the front door to your business and future franchisees will go there FIRST! Make it EASY PEASY to find out how to gee a Franchisee.
Spend money on your website – it IS marketing
Spend money on a good CRM software that will allow you to grab a lead and not lose it
Calculate the value of a prospective franchisee over the life of the contract to help you stay motivated NOT to lose a lead
It may take several touches with a prospect before they decide to move to the next step. Use the CRM to maintain communication with a prospect.
Keep is Simple in a Complicated Process (00:46:00) – Give them a simple process from the first bite. As you discover if they can fit into your culture ad family – make them feel welcomed! Of course – Discovery Day is your wow factor!
They should look back and thing, “This was the easiest thing I’ve ever done.”
Make it fun, energetic, and educational
Assign the prospect to one person and that person “owns” them. This makes the prospect feel special and prevents them from falling between the cracks
Eyeballs and Attention (00:49:04) – Optimize your Appeal and let them see the way you treat your current franchisees as true partners…..support programs – rapport with each other – and mostly – the dream to have multiple units.
Treat franchisees as true partners
Franchisees are watching EVERYTHING you do, as if you were on a first date
They pick up on kindness, humility, and compassion, and this is the best marketing you can do
The power of corporate culture is under-appreciated
You can do all the marketing you want, but at the end of the day, if your guest experience isn’t there, you are fighting a losing battle.
Hire an Agency (00:55:21) – They can develop a 3 pillar strategy to drive conversions to your website which leads the first touch.
Do what you do well, and hire done what you cannot do
It’s OK if marketing is not your “gig”, but if it isn’t, you should hire it out.
Have a marketing budget before you begin. Your marketing “war chest” should have $50K+. However, every marketing campaign is different.
My Podner in this episode is me, Kit Vinson (finally!), and I’m going to talk to you about what franchisors should know about their franchise operating manual. The guest host for this episode is Mr. Jack Monson from Social Geek Radio.
Kit Vinson Intro
Get to know Kit Vinson
Topic Segment ?The franchise operating manual
TOPICS DISCUSSED IN THIS EPISODE:
What?s Included in a franchise operating manual?
Every manual is customized to the industry of the company, but there are elements of a franchise operating manual that are common to all manuals.
Human Resource chapter
Daily Operating Procedures chapters
What is the process for producing a franchise operating manual?
Creation of the custom outline for the manual
Legacy documentation review
Identification of the content experts
Information gathering phase
Make the manual creation process fun so that you can start the flow of your team?s creativity juices.
How often does the typical franchise manual need updating?
Manual updates should be completed on a regular basis. Younger franchise systems will need to update their operating manual more frequently because their systems seem to evolve at a much faster pace than that of a mature franchise system.
If you do not keep your franchise operating manual updated regularly, you increase the probability of you having to explain to a judge why your manual isn?t up-to-date.
How are franchise operating manuals typically distributed to the franchisees?
Hard copy (paper)
Web based platform (Wiki-style)
Hard copy manuals have extreme limitations. They are not secure. They are only a snapshot of your system on that day. Media limitations.
PDF manuals are searchable, but they are not secure. They are also a snapshot of your company?s system on that day.? They are relatively easily to update but you run the risk of having multiple versions of your manual floating around your system.
Web based, online operating manuals are secure, they are extremely easy to update, you can track your franchisees activity in the manual, and you can include multimedia content such as videos.
What are the functions of a franchise operations manual?
First, the Franchise Operations Manual is the authority document of the franchise System Standards. The System Standards are the standard procedures that a franchisor requires of all franchisees in order to duplicate the customer experience in every location. The customer experience is the driving force behind profitability. If you can duplicate a favorable customer experience, then you may have a business that you can franchise. If you have a well prepared Franchise Agreement, it will refer to the Franchise Operations Manual as the System Standard. This way, as your system grows and your System Standards change, you only have to update the manual instead of updating the Franchise Agreement.
Second, the Franchise Operations Manual is the most effective tool for protecting your Brand. A company?s Brand is one of its most valuable assets. The Brand is also the asset that is at most risk when a company decides to franchise. When you franchise a concept, you are putting your Brand in the hands of other people, all of whom likely have different ideas about the best direction for the company. A properly prepared Franchise Operations Manual, with well-defined and organized System Standards, will be one of the few tools you have to manage the Brand and control the franchisees when they try to act on their vision for what is best for your Brand.
Third, the Franchise Operations Manual will likely be the principal tool for training new franchisees. It is the ?Your Company for Dummies? book. You have to assume that most of your franchisees will not have experience in your industry. They may not have any business experience at all. It is very common for a retired schoolteacher or a retired military person to invest in a franchise. This is not to suggest that schoolteachers or military personnel don?t have any business savvy, it is only to say that they were not formally trained in business and have not practiced it during their career. Your manual needs to be a document that not only trains them on your system of providing a favorable customer experience, but also one that brings them up to speed on how to manage a business.
Fourth, a well prepared documentation of the procedures that has helped make your company a success will help you sell your concept to potential franchisees. Put yourself in the shoes of a potential franchisee. If you received a Franchise Disclosure Document (FDD) that showed you that the company had a 50 page document describing all of its operating procedures, you might be a little concerned.
You will also take your Franchise Operations Manual with you when you meet with potential franchisees for the first time. In that meeting, you will attempt to sell the concept to the prospect. Like all good sales people, you will likely have a few sales tools to assist you. You will probably present a PowerPoint presentation of the concept, you will review the company?s performance in the FDD, and you will present the Franchise Operations Manual as your proof that you have a well documents system for success.
Fifth, you don?t get very many opportunities to convey your corporate culture to your franchisees. Initial training lasts a week or so. Annual conferences last a few days per year. Ultimately, it is the franchise operating manual that will have the most contact with your franchisees, so what better place to show them who you are.
Brendan Charles talks about what franchisors should be teaching their franchisees about site selection, real estate negotiations, and build-out. Bad decisions in these areas can be detrimental to the success of the location. Everybody has some skin in the game here. This discussion will benefit both new and seasoned franchisors.
Brendan Charles Intro
Get to know Brendan
Topic Segment ?Site Selection, Real Estate, and Buildout
TOPICS DISCUSSED IN THIS EPISODE:
You only get one chance to get the real estate right.
Real estate is one of the three main controllable in a franchise business model but real estate is only a ?controllable? until you sign the lease.
If you don?t know what your break even is BEFORE you start looking for real estate, then your real estate decision could break you.
#1 rule in site selection ? Never fall in love with a space.
The real estate brokers? incentives are not necessarily aligned with yours ? the more you pay in rent, the more the broker gets paid on commissions
Know exactly what your site selection criteria are BEFORE you start your search
How do you develop site selection criteria when you only have one location to go by?
Utilize the free services of your real estate broker to provide the demographic reporting
Once you have multiple locations in operation (data points), then you can compare performance with location attributes and fine tune your site criteria
Onboard your broker about the brand ? make sure they share the enthusiasm of the brand?s potential as they will be your #1 sales person when presenting the concept to potential landlords
Spend a full day viewing all available locations in the ?Market Tour?. Take copious notes on the good as well as the bad locations
Boil your options down to 3-5 locations
Time kills all deals. You have to move FAST after your market tour and get the letters of intent out quickly.
The franchisor should be very involved in the site selection process ? don?t sit on the sidelines
Submitting a good letter of intent is the most important step in the whole landlord negotiation process ? rent, term, tenant improvements, etc.
If you don?t get the Letter of Intent right, there is no way you will get the build out right, and if you don?t get the build out right, you?ll be behind schedule and way out of budget
Once the letter of intent is delivered, the landlord is on notice to respond, however, that doesn?t mean that you can stop looking.
Always have backup sites in your pocket
Use two LOIs to leverage the deals against each other.
Once you reach the lease stage, the due diligence of the space continues ? make sure that the space is exactly what the landlord advertised it to be. This is done with a site survey
The drawings from the landlord aren?t always accurate so don?t rely on them
It is best to utilize a national architect for every franchised location rather than local architects
Floor plan design in a restaurant ? the dining room is your money maker and should be maximized
Familiarize yourself with the design review process ? go down to the city offices and meet the people who will be doing the plan review
Identify general contractor bid pool ? qualify them ? Have they built in the market you are in? ? Do they have the relationships with the city officials, etc. Avoid too many GCs in the bid pool
At the time of the build-out, the interests of the landlord are in line with yours because they get rent money once you open your doors for business, so they can be a good source of referrals of general contractors.
Poorly planned design submitted to the city will stall the process
Be aware of a TAP Fee ? a fee by the city in order to tap into the utilities. This can be very expensive
Ensure you have a plan to get your FF&E paid for and delivered on time according to the contractors timeline
Qualify the bids by ensuring that everything in the bid is supposed to be there and nothing is there that isn?t supposed to be there. Be sure to clarify who will be responsible for what activities and purchases. Make sure there is a clear matrix of responsibility.
No hammer can swing until the building permit is issued
There is no return on investment for the franchisee to be on site every day once hammers start swinging, rather, they should be focused on the bigger picture of doing the activities in preparation for the opening day such as hiring staff and marketing for the grand opening
Andy Erskine and Bob Gappa of Management 2000 talk with us today about the importance of customer loyalty, what drives it, and how to manage it.
Andy Erskine Intro
Get to know Andy
Topic Segment ?Creating Customer Loyalty
TOPICS DISCUSSED IN THIS EPISODE:
What is customer loyalty?
Transaction count is NOT the same as customer loyalty.
Another term for disloyalty (brand adultery)
Customer loyalty is tightly woven into Brand, which is made up of the emotion that you create with your customers
What makes customers loyal?
Loyalty is built around emotions and emotions come from the customer experience
The way that you interact with your customer (operating system) is what creates positive or negative emotions.
Repeat customers are a result of your team members creating an emotional bond with the customer through the delivery of your product or service.
Brand standards should focus on creating the emotions that make customers want to talk about their experience with their sphere of influence and go back.
The Operations Manual is in place to create customer loyalty.
To understand what creates positive or negative emotions in a customer, we need to understand the customer journey.
The customer journey is literally every interaction that a potential customer has with you before, during, and after doing business with you
Visible versus invisible standards – both affect the customer and loyalty. Invisible standards are those not customer facing, like ordering a sufficient amount of material to deliver the product.
The issue with system standards is that there isn’t enough forceful compliance when they aren’t being followed and there isn’t enough positive reinforcement when they are, and so they don’t seem important to either the franchisee or franchisor.
Brand icons are as important to customer loyalty as brand standards. Brand icons are the aspects of your business that you are absolutely known for.
Emptions are what create the brand rather than a well-known company.
How do you measure customer loyalty?
Technology is how to track customer loyalty through cell phones and credit card transactions
Knowledge is power. Know your customers behavior data and use that to create the emotional connection in them to make them loyal.
By understanding what customers value, we can create customer loyalty
Prism will segment your credit card transactions into demographics and behaviors
What do you do with customer loyalty data after you get it?
Data helps you refine your message to your real customers ? understanding what they value so you can deliver the value that they want, which in turn creates loyalty
Don’t confuse frequency due to convenience with loyalty.
What should I be doing today as it relates to customer loyalty?
Start enhancing what it is that the customer values by understanding who the customer is.
Stop thinking of yourself as a franchisor and start thinking about yourself as a steward of a brand.
Stop having a franchisee advisory council and start having a brand advisory council
Answer three critical questions. Know who your customers are. Know what they value. Know how to enhance what they value.
Know how to make their experience personal.
Help the customer make a connection to your brand
Select employees, don’t simply hire them.
Focus on how to create a great place to work
Team members should know that their job is to create an experience that makes the customer want to come back
Training a team member is usually only focused on the activity, which is simply skills, knowledge, and abilities. In addition to that, you should focus on developing people’s understanding and emotional commitment to the purpose of their job, which is to get the customer to want to come back.
Red Boswell talks with us about how to generate franchisee leads. This is one of the hottest topics with franchisors. This discussion will benefit both new and seasoned franchisors.
Red is a unique character, and I mean that in a good way. This guy has been driven to make money ever since he was a kid. Starting in grade school when he was selling NFL pencils for a profit, into hos twenties when he build up a pet services franchise system? all the way up to 148 units. He?s been operating in the world of franchising practically his entire adult life. He?ll give us more details in just a few minutes.
Red now gets to fuel his business building passion as President of the International Franchise Professionals Group (IFPG), The World?s Largest and Most Respected Franchise Consultant Organization.?.
Red Boswell Intro
Get to know Red Boswell
Topic Segment ? Generating Franchisee Leads
TOPICS DISCUSSED IN THIS EPISODE:
The cost of a lead
The average cost of a lead in 2019 is $10,000
That number does not including commissions
That number includes large companies that don?t need to spend anything for leads because their brand is so well knows that they don?t need to advertise to get leads
Small companies usually pay a lot more to generate leads since their concepts usually don?t have any brand recognition
16 sources of leads
Consumer / Clients
Industry / Conversions
Live events / Expos
Mobile / Roadside
Upgrade / Multi-unit Operators
The marketing mix is a moving target and is different for every concept. There is no silver bullet, one size fits all solution for the marketing spend mix.
Do a lot ? do it for a long time ? test and measure
Every option will involve one or all of these three
The trick is to utilize the options that require the resources you have the most of.
Red?s Favorite Five
Red says that every solution must be customized to the individual concept, but if he HAD to pick his favorite five, the would be:
Best option for any size franchisor
You pay to be a member then pay a commission per close
Many broker groups won?t accept smaller start-up concepts
Big saver of time and resources
Hire a PR firm
Find one who is familiar with the world of franchising
IFA members a plus
Validate with their past clients
Converting existing business people who are struggling
You never know who may be disenchanted with operating their own concept and who would love to convert
These are cold calls usually
Live Events / Expos
Usually between $5k and $10K per event
Use common sense and work it hard
Energy ? follow-up ? is key
You could make online all five
PPC Pay per click / Banners
SEO of your own franchise site
Develop a GREAT portal that grabs and tracks leads and conveys the information well. Portals tend to generate? a lot of volume with lower quality, but still worth the spend
Social media posting
Big data targeting
Job boards ? make a job advertisement? with the tag ?some investment required? ? describes a dream job
Bonus Source: Guerilla Marketing
Example: flyers on every windshield at the local franchise expo
Common mistakes made by franchisors as it relates to lead sources:
Lack of infrastructure ? be able to walk away from your business for 6 months
Don?t try to run your business and franchise it all by yourself
Franchise Development person
Onboarding / Training person
Field support person
Lack of good ops manuals
Not charging enough for the franchisee fee in order to pay for the costs associated with lead generation and other expenses
Negotiate a broker commission too low ? nobody will show your system if the commission is too low