Strategies for Managing a Franchise presented by Benjamin C. Litalien, CFE

1. Strategies for Managing a Franchisepresented byBenjamin C. Litalien, CFE Doing Business 2.0: Starting a Franchise January 12th, 2011

2. “Strategies for Managing a Franchise” Today’s Objectives • Give you perspective on the key elements of a franchise system • Provide you with practical information about franchising • Give you actionable ideas to consider pursuing a franchise • To create more “students of franchising” Doing Business: 2.0 – Starting a Franchising

3. “Strategies for Managing a Franchise” Franchise Building Blocks • Must Manage Each Area: • Growth Strategies • Franchise Operations • System / Franchisee Support • Franchisor / Franchisee Relations • Formulating an integrated approach • Getting easier everyday! Doing Business: 2.0 – Starting a Franchising

4. “Strategies for Managing a Franchise” Growth Strategies • Single Site • The right to operate one franchise unit • Predominant strategy for franchising • Provides high-touch process • Numerous risks (competition, density) • Key Considerations • What are your financial goals? • Can the franchise concept accommodate my goals? • What does the future look like? Doing Business: 2.0 – Starting a Franchising

5. “Strategies for Managing a Franchise” Growth Strategies • Multi-Site • The right/obligation to operate multiple units • Provides better economies-of-scale • Can be good health predictor of franchisor • Numerous risks (capital invested, site economics ) • Key Considerations • Can you manage multiple sites? • What is the make-up of the franchise system? • What does the future look like? Doing Business: 2.0 – Starting a Franchising

6. “Strategies for Managing a Franchise” Growth Strategies • Area Development • This license usually grants the franchisee the right to open a certain number of franchises in a given area. • There is usually a production schedule where the area development franchisee must open a certain number of franchises during a certain period. • As long as the area development franchisee stays on track in opening franchises in the area, he/she has an exclusive area where no other franchisees are allowed to open a franchise. • Becoming very popular with franchise systems Doing Business: 2.0 – Starting a Franchising

7. “Strategies for Managing a Franchise” Growth Strategies • Area Development, continued • Generally you pay reduced franchise and royalty fees but requires significantly more capital • Rapidly expanding concept but attractive primarily to investors • Provides for faster market penetration but can dilute the quality of single-site results • Key Consideration • Can you afford it? Doing Business: 2.0 – Starting a Franchising

8. “Strategies for Managing a Franchise” Franchise Operations • Operations is the backbone of the system • Extensive documentation on operating the concept • Must be able to attract ‘non-experience’ operators • Must be able to create success within a reasonable time frame • Creates the necessary ‘web’ to connect all the franchise system components • Eliminates ‘guessing’ by franchisees and support staff Doing Business: 2.0 – Starting a Franchising

9. “Strategies for Managing a Franchise” The Value of Your Time “A franchise system must allow an owner to ‘stick to the knitting’ of the business. Many entrepreneurs simply spend too much time on tasks not associated with their overall mission.” - Fred DeLuca, founder of Subway Doing Business: 2.0 – Starting a Franchising

10. “Strategies for Managing a Franchise” Franchise Operations • Two basic platforms • Retail stores • Foodservice, Automotive, Education • Requires a ‘location’ which drives up complexity and cost • Service providers • Handyman, Residential/Commercial Cleaning, Pet care • New energy in the sector driven by advances in technology Doing Business: 2.0 – Starting a Franchising

11. “Strategies for Managing a Franchise” Franchise Operations • Retail stores • Complexities include: • Site Selection • Lease Negotiation • Construction • Signage • Changing demographics, consumer trends • Economics • Local laws & jurisdictions Doing Business: 2.0 – Starting a Franchising

12. “Strategies for Managing a Franchise” Franchise Operations • Service providers • Complexities include: • Customer Service • Customer Engagement • Hiring & training of consistently competent staff • Monitoring of authorized activities • Compliance with system requirements Doing Business: 2.0 – Starting a Franchising

13. “Strategies for Managing a Franchise” Operational Elements • Manuals • Critically important for consistency • Often tied to Franchise Agreements • Information Systems • The communications ‘web’ connecting all • operational elements • Training & Ongoing Development • Dedicated versus Outsource Doing Business: 2.0 – Starting a Franchising

14. “Strategies for Managing a Franchise” Franchisee / System Support • “After the Sale” • Franchise Launch • critical time for relationship building • big ‘let down’ time after training • Building the Business • gradually gain independence • franchisor must not ‘let go’ too soon • Ongoing Operations • franchisee should assume leadership role • try to stay ‘in the boat’ with franchisor Doing Business: 2.0 – Starting a Franchising

15. “Strategies for Managing a Franchise” Franchisee / System Support • Home Office • Back-office support • Accounting, call center, warehousing, procurement • Advertising/marketing materials development • Field Staff / Offices • On-site, in-store, territory relationships • Systemic evaluations • Periodic Gatherings • Convention, vendor meetings, special events Doing Business: 2.0 – Starting a Franchising

16. “Strategies for Managing a Franchise” The Relationship “What does the franchisee want? What they would do for themselves if they weren’t running the business everyday!” -famous franchise expert • Knowledge Transfer • Competition, industry know-how, regulation • Newsletter, bulletins, ‘data dumps’ • System Development • Increased efficiency, growth, alliances Doing Business: 2.0 – Starting a Franchising

17. “Strategies for Managing a Franchise” The Relationship • It’s a matter of leadership • must be driven from the top • must permeate the entire organization • must be documented in FDD • How can you know? • talk to several franchisees • visit corporate headquarters • read the FDD Doing Business: 2.0 – Starting a Franchising

18. “Strategies for Managing a Franchise” A Consumer Perspective "That's the name of the game ... pleasing the customer. If we ever lose sight of that fact, we've lost the ball game." -Ray Kroc Doing Business: 2.0 – Starting a Franchising

19. “Strategies for Managing a Franchise” Leveraging Franchise Power… • Unique Aspects in Franchising: • Shared Risk – don’t reinvent the wheel • Communal Learning – concept enhancement • Association – education, R & D • Liquidity – documented higher resale value • Economies of Scale – buying power Doing Business: 2.0 – Starting a Franchising

20. “Strategies for Managing a Franchise” Influence is Local… • Your most powerful position • Leverage of your franchise “We find that large cascades of influence are driven not by influential's but by a critical mass of easily influenced individuals.” -Journal of Consumer Research Doing Business: 2.0 – Starting a Franchising

21. Franchising is NOT... • A Guarantee of Success • There are real risks to consider • It’s easier to get in than out of a franchise • For Everyone • You must be willing to give up some personal preference for the good of the system • You need plenty of working capital • A Short-Term Commitment • Average contract is 10 years Doing Business: 2.0 – Starting a Franchising

22. Thank you! Ben Litalien, Principal Franchise Well, LLC www.franchisewell.com ben@franchisewell.com 540.657.1427 cell 540.845.2885 Doing Business: 2.0 – Starting a Franchising