Franchising: A Dynamic Business Model 2013 Rehabilitation & Transition Conference Inclusion. Choice. Employment. April 10 - 12 | The Osthoff - Elkhart

Franchising: A Dynamic Business Model

2013 Rehabilitation & Transition ConferenceInclusion. Choice. Employment.

April 10 - 12 | The Osthoff - Elkhart Lake, WI

2013 © Copyright - Franchise Well, LLC

Presenter – Dr. Ben Litalien Certified Franchise Executive 25 Years of Franchise Management U.S. Franchise Manager, ExxonMobil

On the Run Convenience Stores Principal, Franchise Well, LLC

Professor UMUC, SNHU and GU Georgetown University, Franchise

Management Certificate Program BBA, MBA and Doctor of

Management

Social Franchise Model


As We Get Started…


"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


What is a “Social Franchise”?

Why should you want one?

How do you get one?

Are you ready for a Social Franchise?

AGENDA



“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




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.

What is Franchising?

Franchisee- Initial Fee - Royalty- Marketing Fees- Infrastructure

Franchisor- Know-How - Support- Trademark- Network

Regulated by Federal Trade

Commission



A Brief History Lesson The ‘roots’ of franchising A progression through time Modern day applications

The Current View & Trends Business Format Corporate Applications

A Franchise Overview



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

A Regulated Industry



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

A Strong Community



U.S. Franchise Market Over 3,000 Franchise Concepts More than 100 Industries



A Recent Example


Considered automotive, business services, staffing and printing

Focus on identifying jobs for persons with disabilities

Secondary goal of diversified revenue streams

Supported by Paul Atkinson, Board member of NISH

Undertook disciplined approach with franchise consultant

Provides access to and insight on jobs in the region

Creates stronger connections to the business community

No personal guarantees required; clear exit strategy

Providing additional support Opened in January 2011

2013 © Copyright - Franchise Well, LLCSocial Franchise Model

In depth engagement to study their organization and the marketplace

Evaluated numerous assets to leverage

Primary goal of diversified revenue streams

Sought partnership with franchise company that could embrace mission

Concept was strong based on broad menu offering, flexibility

Company was eager to partner with YWCA and provided flexibility in contract negotiations

Agreed to substantial support Opened in 4th Quarter 2010 to

strong sales / results

A Recent Example

2013 © Copyright - Franchise Well, LLCSocial Franchise Model

Existing franchisee in the local market looking for buyer

Company was eager to partner with nonprofit(s)

Willing to be flexible in contract negotiations

Agreed to substantial support and ongoing development

Took over the franchise in 4th Quarter 2010

Executive Director attended Franchise Well seminar at Peckham, Inc., hosted by MARO

Goal to generate jobs in the community

Desire to reduce dependence on outside funding

Sought partnership with franchise company that could embrace mission

A Recent Example


Initial Franchise Fee 70% of franchise systems have a fee of

$30,000 or less

Start-up Costs 75% of franchise systems require start-up

capital of less than $250,000

Royalty Payments Typically 3-8% of monthly gross sales Pays for trademark usage, training, etc.

Average Franchise Costs


Must Consider Each Area: Growth Strategies Franchise Operations System / Franchisee Support Franchisor / Franchisee Relations

Formulate an integrated approach Consider each element for each franchise Look beyond the surface and the emotion

Franchise Building Blocks



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?



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?



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



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?



Franchise Operations Operations is the backbone of the system

Extensive documentation on operating the concept

Must be attractive to ‘non-experienced’ 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



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



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



Franchise Operations Retail stores

Complexities include: Site Selection Lease Negotiation Construction Signage Changing demographics, consumer trends Economics Local laws & jurisdictions



Franchise Operations Service providers

Complexities include: Customer Service Customer Engagement Hiring & training of consistently competent staff Monitoring of authorized activities Compliance with system requirements



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



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



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



The Relationship“What does the franchisee want? What they

would do for themselves if they weren’t running the business everyday!”

Knowledge TransferCompetition, industry know-how, regulationNewsletter, bulletins, ‘data dumps’

System Development Increased efficiency, growth, alliances



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





How do you get one?


AGENDA



Sustainability is Hard

“By golly, gentlemen, I believe we’ve found it – the Fountain of Funding!”



Sustainability is critical to mission achievement

Sustainability requires stable income Needs are outpacing philanthropic

dollars Capital markets are inefficient

Social enterprise is emerging as a powerful strategy

An Imperative for Many…



Why Consider a Franchise?

Pros Cons

Turn-key Systems

Training and Support

Brand Name/Value

Economies of Scale

Better Labor Model

Less Freedom

Additional Fees

Higher Start-up Costs

Complicated Contracts

Long-term Commitment

It is a compelling business strategy…

Acquiring a franchise may cost more money, but often reduces the uncertainties and risk

It is “mainstream” to own/operate a franchise in today’s business sector



……a franchise opens every 8 minutes of every a franchise opens every 8 minutes of every business day…business day…

Franchising Stats

There are 828,138 franchised businesses currently operate in the United States

Franchised businesses provide 9,125,700 jobs, or 6.2 percent of the U.S. private nonfarm workforce

Franchised businesses supply an annual payroll of $304.4 billion, or 4.2 percent of all private nonfarm payrolls in the United States

Franchised businesses produced goods and services worth $802.2 billion, or 3.4 percent of private nonfarm output in the United States

Franchised businesses contributed $468.5 billion to GDP, or 3.9 percent of all private nonfarm GDP in the United States

*International Franchise Association, 2011



Strong Intersection of Values

Franchisor NonprofitCreates Growth

Create mutually beneficial relationship to cross promote

Unrestricted Revenues

Job Training PlatformDevelops Brand

Allows both parties to have a stronger impact on the communities they serve

Social Partnership


Systems to Follow




How do you get one?


AGENDA



International Franchise Association Convention, Classes, Seminars

Georgetown University Certificate in Franchise Management

6 days of instruction (Thu/Fri/Sat) Comprehensive overview of franchising Engaged program with franchisors CFE Certification

Consider Hiring a Consultant NISH, TIBH, Eggleston Service, YWCA, Goodwill

Become Educated…



The Process…

Understanding Your Assets

CreatingTheCriteria

FindingThe RightMatch

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



Select The Right Franchise Company

3,000 FranchiseCompanies

The Best Match

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





How do you get one?


AGENDA



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?

Questions You Need to Ask…



Evaluate 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



Executing the Strategy

LaunchPhase

OngoingOperations

Performance Monitoring Periodic Gap Analysis Annual Business Plan

Update Marketing & Promotions Ongoing Training

Capitalization & Funding Site Selection Lease Negotiation Attending Training Hiring Staff Grand Opening



A Guarantee of SuccessThere are real risks to considerFranchises sometimes fail

For Every OrganizationYou need Leadership, Mission FitYou need Capital and a Champion

A Short-Term CommitmentAverage contract is 10 yearsCan be difficult to exit

Franchising is NOT...



Summary “Social Franchise” is an emerging sector

opportunity, pioneering effortNonprofits can and do own franchise

businesses, primarily for profit generation job creation or both

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



Questions / Comments


Dr. Benjamin C. Litalien Founder & Principal

Franchise Well, LLC

44 Mine Road ■ Suite 161

Stafford, VA 22554

www.franchisewell.com

[email protected]

540.657.1427 cell 540.845.2885

Documents

Franchising: A Dynamic Business Model 2013 Rehabilitation & Transition Conference Inclusion. Choice. Employment. April 10 - 12 | The Osthoff - Elkhart