So You Want To Franchise Your Business? by Harold Kestenbaum and Adina M. Genn by Harold Kestenbaum and Adina M. Genn - Read Online

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So You Want To Franchise Your Business? - Harold Kestenbaum

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Entrepreneur Press, Publisher

Cover Design: Desktop Miracles

Production and Composition: Eliot House Productions

© 2015 by Entrepreneur Media, Inc.

All rights reserved.

Reproduction or translation of any part of this work beyond that permitted by Section 107 or 108 of the 1976 United States Copyright Act without permission of the copyright owner is unlawful. Requests for permission or further information should be addressed to the Business Products Division, Entrepreneur Media Inc.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

ebook ISBN: 978-1-61308-298-0

Contents

Acknowledgments

Foreword by Fred DeLuca

Preface

PART I

Why Franchise?

CHAPTER 1The Benefits of Franchising

In Summary

CHAPTER 2Not So Fast

In Summary

CHAPTER 3Not All Roses

The Importance of Personal Rewards

The Opposite of Cushy

Brand Consistency

Recalcitrant Franchisees

Lack of Funds

Not the Right Concept

In Summary

PART II

Moving Forward

CHAPTER 4The Right Advisors

The Business of Franchising Is Unlike Any Other

Finding the Right Franchise Attorney

Finding the Right Financial Advisor

The Real Estate Connection

Procurement Advisors and More

In Summary

CHAPTER 5An Operations Manual Is a Beautiful Thing

The Value of a Professionally-Prepared Manual

A Lesson in Excellence

You Get What You Pay For

Details, Details

A Never-Ending Cycle

In Summary

CHAPTER 6What Else Do I Need Before Bringing My Franchise to Market?

The Need for Consistency

The Importance of Buy-In

Give Them the Proper Tools

The Internet—A Powerful Marketing Tool

Language and Tone

The Best Marketing Tool Ever

Grassroots Marketing

Public Relations

Direct Mail

The Goodwill Advertising Budget

The Marketing Makeover

In Summary

PART III

Rolling It Out

CHAPTER 7Selling It

All Your Ducks in a Row

The Right Attitude

The Suitable Franchisee

The Right Fit

A Savvy Approach

The Importance of Allowing for Breathing Room

The Importance of Personality Profiling

Women and Minorities

Interviewing

The Review Committee

Communication

Discovery Day

A Word about Earnings Claims

Master Franchising

Financing

In the Beginning

Challenges for Startups

Once You Sell

For Those Who Have Made Mistakes in Selling Units

In Summary

CHAPTER 8Train ’Em

A Numbers Game

Critical Training Tips Before a Franchisee Opens a Unit

Training Practices for the Franchisee’s Opening

Best Practices for Ongoing Training

Avoid These Mistakes

In Summary

CHAPTER 9A Perusable Website

That Global Presence

A Strong Website Entices both Prospective Franchisees and Customers

What Every Website Needs

In the Beginning

The Importance of Working with Someone Reliable

In Summary

PART IV

Keeping It Going

CHAPTER 10Advertising, Marketing, and Public Relations

Ways to Build Buzz

Advertising

Internet Advertising

Media Coverage and Public Relations

A Word About Coupons

Grassroots Strategies

In Summary

CHAPTER 11Online Support

The Intranet as a Training Tool

A Matter of Convenience

A Caveat

The Intranet as a Communications Tool

For Franchisors

If at First You Don’t Succeed

And Don’t Forget Branding

Not Enough by Itself

In Summary

CHAPTER 12Fine-Tuning Your Program

Join a Professional Association

Build a Team

Consider the Company-Owned Store

Increase Your Offerings

Evaluate, Evaluate, Evaluate

Build a Culture

Achieve Unit Economics

Never Sit in One Spot

In Summary

CHAPTER 13Dealing with Recalcitrant Franchisees

Different Kinds of Wayward Franchisees

Your Options

Communications Go a Long Way

Audits

The Tough Questions

Prevent Issues Whenever Possible

Manage Their Expectations

Reasons to Stay Proactive

When Not Everyone Is On Board

In Summary

CHAPTER 14Best Practices of Top Performing Franchisees

Dr. Casey Cooper, Franchisee, It’s A Grind

Laurie Baggio, Franchisee, 1-800-GOT-JUNK?

Jim Roark, Franchisee, Mr. Appliance

Mitch Cohen, Franchisee, Dunkin’ Donuts and Baskin-Robbins

In Summary

CHAPTER 15Creating an Exit Strategy

Bullish on Franchising

Timing Is Everything

The Importance of Planning

Going Public

Other Options

In Summary

APPENDIXAFranchise Disclosure Document

APPENDIXBGuidelines for an Operations Manual

Operations Manual

Table of Contents

APPENDIXCFranchise Resources

Experts

Glossary

About the Authors

Index

Acknowledgments

We thank all of the knowledgeable franchisors and professionals who so willingly shared their stories, experiences, and areas of expertise.

We are especially grateful to Fred DeLuca, co-founder and president of Subway, for his early support of this book. We thank the design, editing, and marketing team at Entrepreneur Press, and especially Editorial Director Jere Calmes and Acquisitions Editor Courtney Thurman. And our gratitude goes to Bob Diforio, who helped make this book possible.

Of course, we would like to thank our families. In particular, Harold thanks Felice, Ben, Michelle, Mike, and Nathan, for their support during his many long and arduous years working in this very exciting industry, and in loving memory of his sister, Arleen Kaye, a truly inspirational lady. Adina especially thanks Michael, Alyssa, and Ethan and her extended family for their enthusiastic encouragement.

Foreword

by Fred Deluca

As anyone familiar with my story knows, when my family friend and business partner, Dr. Peter Buck, wrote me a $1,000 check to launch Pete’s Super Submarine’s (now known as Subway) in 1965, we never dreamed of growing it into the brand it is today. Initially, our goal was opening a submarine sandwich shop where customers could enjoy a sandwich and I could build up enough revenue to pay my college tuition at the University of Bridgeport.

Like most entrepreneurs, we made our share of mistakes. We also learned a lot along the way about the sandwich business, building up a customer base, keeping vendors happy, selecting the right location, and turning a profit. We learned to think on our feet, take risks, and remain persistent. Most importantly, we learned to think boldly. For instance, we opened our second store, even though our first store performed dismally, just to help build our brand. And, like most successful owners, we could not have achieved even a fraction of our success without the support of family—in particular, my parents who, in the early days, helped with strategy and developed important relationships with vendors.

While these ingredients were an integral part of our story, they were not enough to get our business to the next level. Our goal was to have 32 stores by 1975, but by 1973 we were only half way there. So we looked at franchising.

We knew very little about franchising at the time. But I knew I needed a first franchisee. Here, persistence helped. In 1974 I asked my good friend Brian Dixon to step up to the plate; I even offered to loan him the funds to get started. Leery of the risks in starting the business, Brian at first declined, opting instead for his 9-to-5 job and the steady paycheck. But when his employer went bankrupt a few months later Brian suddenly found franchising appealing.

Family members again helped us with our initial growth. My aunt and uncle opened our first New York store in Staten Island, and my wife’s brother opened a store in Springfield, Massachusetts. With that came calls from people seeking franchise opportunities, and Subway soon opened franchise locations in other states.

Franchising enabled us to get to 200 stores by 1982, and thinking boldly again, we set an extremely aggressive goal of having 5,000 stores operating by 1994. Many were skeptical of our ability to achieve that goal, but when you have a solid business system in place; when you have happy franchisees who want to open additional units; and when customers become ambassadors of your brand, returning again and again with their family and friends, who in turn become regular customers at other locations, business flourishes; aggressive goals can be met through the power of franchising.

Today, with 85 percent of our 27,500 locations operating in North America, and a growth pace of 2,000 units per year, we’re well ahead of our goal of having 30,000 outlets operating by 2010. Simultaneously, we are building the foundation for strong international growth in 85 countries, and, if we build a good foundation, I believe that Subway will be operating more than 50,000 restaurants worldwide by 2020.

By definition, franchisees contribute greatly to the success of any franchise company. While running their everyday operations they make observations and develop opinions, and it’s important to include them in the decision-making process in a constructive setting. For instance, we have franchisees who sit on local and national advertising boards to decide how to spend our advertising dollars. Not everyone in the franchise community would recommend this strategy, but it worked for Subway. Many would argue that this level of decision-making should stay only at the corporate level. Yet some of our best ideas have come from our franchisees, including our seven under six campaign, promoting seven sandwiches that featured six or fewer grams of fat. Another success story? Jared Fogle, the Indiana University student who lost 245 pounds by eating two Subway sandwiches a day. After the media picked up Jared’s story, one of our Chicago franchisees suggested creating an ad campaign around it. Jared’s now famous, and the campaign has helped position Subway as a destination where anyone can find heart-healthy, low-fat food, at great value.

Back when we first started, franchising was hardly the phenomenon it is today. It has grown into a vital economic force, enabling more and more people to achieve the American dream. The number of franchisors seems to have grown tenfold since we began franchising in 1975. Even Ray Kroc, who grew McDonalds into the brand it is today, was a relative unknown back then. Things have certainly changed over the years!

But some elements have not changed at all. To make a go of franchising, you need capable franchisees who understand your product or service, and know how to turn a profit. You also need expert advice.

I first met Harold Kestenbaum in 1986 at the International Franchise Association (IFA) Convention in Maui, Hawaii. He was introduced to me by a writer for Restaurant and Institutions magazine and we got to know each other during the few days of convention activities. Harold has become synonymous with franchising: he has advised some of the most popular franchises, from the startup phase to the established. Along with business journalist Adina Genn, Harold has written this book, with you, the small-business owner, in mind. I wish I had had a similar guide when I first took a look at franchising. The wisdom shared inside the pages of this book—spelled out by Harold, along with experienced franchisors who reveal their trials and tribulations—might have spared me some of those sleepless nights that entrepreneurs encounter whenever pushing on with something new.

I wish you every success in your journey—this book will certainly help you.

—Fred DeLuca

President and Co-founder

Subway

Preface

You don’t know what you don’t know. We hear this expression routinely from franchisors, both new and established. This is because in franchising there are so many critical details, from designing the concept to competing for quality franchisees to training to marketing and much, much more. Well, you see the picture: It is impossible to know everything.

Which is why we wrote this book. In our everyday dealings with new and wannabe franchisors we realized where they struggle. And in our regular dealings with seasoned franchisors, as well as the franchise experts well versed in growing a system from the ground up, we recognized a passion to mentor. So we decided to bridge that divide by collaborating on this book.

This book is designed primarily for entrepreneurs thinking about franchising their business but who are in need of critical information. It is also chockfull of strategies that existing franchisors can apply to their system and help grow it to the next level. It also provides useful insights for would-be and existing franchisees who want to know more about the industry so that they can be successful in their endeavors. For instance, Chapter 14, Best Practices of Top Performing Franchisees, features successful franchisees who talk about what drew them into franchising, and how they make the system work for them. This chapter will also benefit franchisors who are eager to understand the traits of a quality franchisee so that they know what kind of characteristics to look for when awarding franchises. These qualities are important, for as this book demonstrates, in order to grow, a franchise system needs so much more than just a franchisee who can write a check.

This book is also designed for consultants to franchisors who want to improve their service to clients, whether offering support in marketing, accounting, law, web design, or sales, and more.

Once you immerse yourself in the world of franchising, you will see that it is a very tight-knit community filled with a pay-it-forward spirit. One person shares wisdom with another and, as a result, that person, ever grateful for the spot-on bit of business advice, helps the next newcomer to the industry. Speak with experts in California, for instance, and they invariably recommend that you also call another expert in, say, Virginia, and to use their name as a referral. Sure, this trait exists in industries everywhere, but it seems especially prevalent in franchising. We tried to capture that spirit in the pages of this book, where you can read about franchising luminaries such as Fred DeLuca and others who share their stories for the purpose of mentorship.

Though franchising is not for everyone, it is a powerful method of distributing goods and services to both consumers and other businesses. In many ways, franchising is a system like no other. Yes, you can make a handsome living, but you will work hard for it. And the successes are not only found on the franchisor side. In fact, sometimes, those on the corporate side believe in the system so strongly that they become franchisees themselves. In other instances, franchisees switch sides and join the management side of a franchisor. Such scenarios are not unusual, and serve as a testament to the power of franchising: When it works well, it really works.

To work, your concept must be franchisable, meaning it can be replicated in a cost-effective manner and with consistency from unit to unit. To build a powerful franchise you will need to build a solid infrastructure. That means choosing the right advisors to guide you in areas that will sometimes be unfamiliar. It means creating an operations manual that is easy to follow for both franchisees and their employees. It means developing a business plan and a marketing plan. It means learning how to find the right franchisees to help you build your system, and training them so that customers enjoy the same brand experience whether they are in Montana or Maine. We cover all of these components in this book.

With a solid infrastructure in place and an environment where there is constant support—in the field, on the phone, via email, and through online training methods that are available to franchisees 24/7—you may be on your way toward building a regional or even national or international brand.

We wrote this book for two reasons: We wanted readers to understand precisely what is needed to start and grow a franchise company, and we wanted them to understand if they have what it takes to do so—before they spent perhaps hundreds of thousands of dollars and years of their life pursuing what might be the wrong endeavor.

In the following pages we examine the tools needed to start and grow a franchise. Part I covers the reasons for franchising. Part II focuses on how to move a concept forward. Part III discusses how to roll out a system. Part IV looks at how to keep a system going. There is also an appendix that features the items contained in a Franchise Disclosure Document.

As a franchisor you will need to take a proactive stance and keep the lines of communications open with franchisees so that there are no surprises. Sometimes this means dealing with franchisees who are no longer pulling their weight. A difficult predicament, for sure, but not uncommon. And, again, no one said franchising would be easy. Yet the system offers rewards like no other. Read on to see how you can build what truly may be the next national brand, and one that enables hardworking people who share your mission to become business owners.

PART

I

Why Franchise?

CHAPTER

1

The Benefits of Franchising

Let’s say you own a gym. Not just any gym, but the best gym in town—that’s what your clients and trainers tell you. You aptly named the gym Fit, and the moniker doesn’t just describe your clients, it depicts your business. The place is immaculate, well located, and features the best equipment. No wonder the place is humming from 6 A.M. to 10 P.M.

The gym practically runs itself. Your trainers are the finest in the area and they know how to treat customers. Your services are priced fairly. Your programs are scheduled to attract early-morning commuters, moms, kids, athletes, and the corporate crowd. And your marketing plan works like clockwork, enticing folks to keep their New Year’s resolution in January, shape up for spring in March, and take advantage of cool summer specials in June.

One day, you have a vision. You imagine your gym not just in your town, but in the next town over. And the town beyond that. And in the next county. OK, throughout the entire region. Suddenly, you envision going national, even international.

For a moment, it all seems possible. You could simply duplicate your fool-proof operation so that there are hundreds of well-located, immaculate Fit gyms not around the country, but across the globe. Then reality sets in. Where would you get the capital? A bank? Maybe a banker would loan you the money to open a second location. But to expand rapidly? Not so likely. Venture capital? That could mean giving away the farm, which is what most early venture firms would expect in return. Plus, you would then need to contend with the hassle of someone looking over your shoulder, telling you how to run Fit. Most entrepreneurs would not find that scenario all that appealing. We know we wouldn’t.

With franchising, people pay you for your proven business model. Even better, they pay royalties. But you will need a good concept, good management, and the right amount of capital to be successful. A franchise can be defined simply as an entity that has three factors: 1) the grant of trademark rights, 2) a prescribed marketing plan, or significant control or assistance in the operation, or a community interest, and 3) payment of a franchise fee for the right to participate.

Then it hits you: Franchising. By franchising, people will actually pay you for your tried-and-true business model so that they, too, can run a profitable enterprise. Even better, they will pay you royalties based on their sales. But does franchising really work? It has for more than 50 years and, for the most part, successfully.

The history of franchising is filled with success stories.

Ray Kroc got his start as a mixer salesman whose California clients, brothers Dick and Mac McDonald, ran a popular hamburger restaurant, McDonald’s. Mr. Kroc purchased the restaurant and transformed it into today’s giant operation through franchising.

Fred DeLuca, the Subway Restaurant founder, launched his business as a 17-year-old when a family friend wrote him a $1,000 check so that he could open a sandwich shop in Connecticut. After opening 32 other Subways in the state, the company grew nationally and internationally by franchising.

Tom Carvel, the famous ice cream maker, launched his business with a $15 investment, selling ice cream from a truck. Later, as a refrigeration