Disability Service Provider Sustainability in the Ever-Changing Marketplace: The Era of the Social Franchise

1. Disability Service Provider Sustainability in the Ever Changing Marketplace:Welcome to the Era of the“Social Franchise” State Use Vendor Training Conference April 1, 2014 Oklahoma City, Oklahoma

2. Presenter – Dr. Ben Litalien • Certified Franchise Executive • 20+ Years of Franchise Management • U.S. Franchise Manager, ExxonMobil On the Run Convenience Stores • Principal, Franchise Well, LLC • Strategic Advisor to Source America • Georgetown University, Franchise Management Certificate Program • Doctor of Management, Franchising • Mountain Climber Oklahoma State Use Program

3. Introduction Oklahoma State Use Program "Your success in life isn't based on your ability to simply change. It is based on your ability to change faster than your competition, customers and business.“ — Mark Sanborn

4. Today’s Objectives • Take a look into the franchise sector • Developing an understanding of the “Social Franchise” concept • Considering how a nonprofit organization would benefit from owning a franchised business • Insights from other agencies on their franchise journey • Implications for nonprofits pursuing a Social Franchise Strategy Oklahoma State Use Program

5. Franchisor • Know-How • Support- Trademark • Network Franchisee • Initial Fee • Royalty • Marketing Fees- Infrastructure What is Franchising? Regulated by Federal Trade Commission • A marketing method in which the owner of a product or service, known as the “franchisor”, offers the right to operate and manage his product & service to others, the “franchisees”, in return for a fee and ongoing royalty payments. Oklahoma State Use Program

6. A Franchise Overview • A Brief History Lesson • The ‘roots’ of franchising • A progression through time • Modern day applications • The Current View & Trends • Business Format • Corporate Applications Oklahoma State Use Program

7. A Regulated Industry • Governed by the Federal Trade Commission • Patterned after SEC regulations • Governs the ‘offer and sale’ of franchises • Will respond to complaints of fraud, misrepresentation • Further Regulated by the States • 15 States Have Additional Franchise Laws • May provide you with additional protection • Good to know the specifics in your State and where you plan to operate the business • Generally doesn’t matter whether the business is for profit or not for profit Oklahoma State Use Program

8. A Strong Community • International Franchise Association • Started in 1960, the IFA is the world’s oldest and largest organization representing this unique way of doing business • Mission: Enhance and safeguard the business environment for franchisors and franchisees worldwide • Currently have over 30,000 members, spanning 75 different industries, doing business in more than 100 countries • Excellent resource for prospective and active franchisees – www.franchise.org Oklahoma State Use Program

9. Franchising Stats …a franchise opens every 8 minutes of every business day… • More than 900,000 franchised businesses in the United States • The franchise industry accounts for nearly 10% of the private sector output ($1.53 Trillion ) • Provides jobs for more then 18 million Americans • Franchising generates one out of every seven jobs in the private sector • Franchises exist in over 100 different industries Oklahoma State Use Program

10. U.S. Franchise Market Oklahoma State Use Program

11. What is a “Social Franchise”? • A Visionary Step • Charting a course for nonprofit “community wealth” generation • A Pioneering Journey • Traveling together • Embracing the future Oklahoma State Use Program

12. What is a “Social Franchise”? • “A nonprofit owned franchised business…” • Generally a wholly owned subsidiary of the parent nonprofit organization • Can be “for” or “non” profit entity depending on: • Underlying purpose of the entity • Mission alignment • Business Success vs. Mission • Requires learning a new sector • A long-term business strategy Oklahoma State Use Program

13. The Process… Understanding Your Assets Creating The Criteria Finding The Right Match • Determine What You Can Leverage • Create a Positioning Strategy • Identify the Benefits to Your Organization • Create a SF Vision • Consider the ‘Mission Fit’ • Consider the ‘Culture Fit’ • Determine the Financial Borders • Identify Obstacles • Evaluate Candidates • Negotiate the Right Relationship • Execute Franchise Agreement • Consider Partnership Opportunities Oklahoma State Use Program

14. Select The Right Franchise Company Concept Fit with Nonprofit Mission Strong Overall Company / Concept Geographic Location Match / Expansion Required Investment Level Ability to Adapt to Nonprofit Requirements Willing to “Invest” in Partnership 3,000Franchise Companies The Best Match Oklahoma State Use Program

15. Franchisor Goals • Growing the System • Economies of Scale • Increased Profitability • Building the Brand • Creates Demand • Provides Better Liquidity for All • Generates Additional Revenue Opportunities Oklahoma State Use Program

16. A Compelling Case… • Opened Rocky Pop Popcorn at Denver Airport • Acquired Auntie Anne’s • More stable job opportunity • Greater revenue potential • “Just Like Any Other Franchise” • SBA loan; Completed training; Personal guarantees • Focus on bottom line • Have Since Acquired Four More Locations • 60% of employees are Platte River clients • Generating significant cash flow / net income • Raised organizational awareness nationally • Recently purchased Service Master franchise Oklahoma State Use Program

17. A Challenging Case… • Opened over 40 Partner Shops in the past 15 years • There locations still operating today • Lack of education on either side • Poor choice of concept by NPA’s • Poor choice of locations • Under-estimated level of support needed to sustain the business model • Lack of marketing and message integration to mission • Tremendous loss of disposable dollars and donor trust • Virtually all issues were avoidable Oklahoma State Use Program

18. A Recent Example • Provides access to and insight on jobs in the region • Creates stronger connections to the business community • No personal guarantees; clear exit strategy • Providing additional support • Open since July ‘10 • Considered automotive, business services, staffing and printing • Focus on creating jobs for persons with disabilities • Secondary goal of diversified revenue streams • Board member of Source America; supportive of innovative strategies • Considering launching a franchise concept for nonprofits Oklahoma State Use Program

19. A Recent Example • Acquired the franchise rights to the entire State of Texas • Must open six owned locations; support franchisees • Share of revenues from all franchise operations • Influence franchise owners to consider hiring ex-offenders • Opening 1st store mid-year 2014 • Considered various job creation opportunities but landed on automotive • Focus on transitional employment for qualified offenders • Primary goal was a commercially viable business model • It needed to have the ability to scale to a significant size to support sustainability Oklahoma State Use Program

20. Negotiating the Relationship • Franchisors Don’t Understand the NP Sector • Requires educating them on the realities and the benefits • Creates potential for modifying the contract • NPA’s Must Leverage their Assets • Franchisors are not easily swayed from their model • Most NPA’s are exempt from the FTC rule • NPA’s must define and demand the support necessary for success with a Social Franchise Oklahoma State Use Program

21. Questions You Need to Ask… What are the pros and cons of pursuing a franchise for your organization? What franchise do you think would be best for your organization? How did you come to this decision? What steps will you need to undertake to get this franchise up and running? What is your long-term social franchise strategy? How will you measure success? Oklahoma State Use Program

22. Pros & Cons of a Social Franchise • Acquiring a franchise may cost more money, but often reduces the uncertainties and risk • It is legal for nonprofit organizations to own/operate a franchise business, either ‘for’ or ‘not for’ profit Oklahoma State Use Program

23. Evaluating Your Organization • Established, Stable Organization • Strong, Committed Leadership • Mission Connection / Integration • Entrepreneurial; Social Enterprise Desire • Scalability (multi-unit and/or concept) • Capacity to Support a New Venture …then the hard part Oklahoma State Use Program

24. Executing the Strategy Launch Phase Ongoing Operations • Capitalization & Funding • Site Selection • Lease Negotiation • Attending Training • Hiring Staff • Grand Opening • Performance Monitoring • Periodic Gap Analysis • Annual Business Plan Update • Marketing & Promotions • Ongoing Training Oklahoma State Use Program

25. Franchising is NOT... • A Guarantee of Success • There are real risks to consider • For Every Organization • You need Leadership, Mission Fit • You need Capital and a Champion • A Short-Term Commitment • Average contract is 10 years Oklahoma State Use Program

26. Summary • “Social Franchise” is an emerging sector opportunity, pioneering effort • Nonprofits can and do own franchise businesses, primarily for profit generation • Use a deliberate approach to determining if your organization is right, and if so • Use a disciplined approach to find the right franchise opportunities • Negotiate an agreement that reflects the unique aspects of your organization Oklahoma State Use Program

27. Thank you Dr. Benjamin C. Litalien Principal & Founder Franchise Well, LLC 44 Mine Road, Suite 161 Stafford, Virginia 22554 www.franchisewell.com ben@franchisewell.com Oklahoma State Use Program