Awarding Franchises

In the franchise business, there is a lot of hype about awarding / selling franchises. It’s hard to determine what it means to award a franchise when some franchisees make commitments for one or many franchise units, but in some cases they are not obligated to open those locations for a long period of time. This is complicated by the fact that in some cases the franchisee is purchasing large areas with substantial commitments for both developing the franchise and supporting new franchisees.

If you are unfamiliar with the world of franchise sales, you will likely find it confusing when a company talks about awarding hundreds of franchises, but they only have two open locations. The franchise disclosure document is a good place to go to understand the number of units that are opened, the number that are committed to be opened, and the number that have closed. If you are evaluating a franchise, you can gather a lot of good information from those details.

All of that aside, awarding franchises is a rewarding job. We love to help brands find people that will help their businesses grow in new territories.

This year, at Franchise Foundry, we have awarded commitments for over 400 franchise units across our portfolio. Some of those locations are under construction or have already been opened and others are committed over the coming years. In every case, we have worked hard to ensure that the franchise candidates are qualified and committed to the success of the business. We are proud of every franchise brand we work with and we love watching them grow.

We are thrilled with what we have been able to accomplish during the first half of the year and excited about what the rest of 2013 has in store.

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It’s the Unit Economics, Stupid!

I had a good conversation with David Leoncavallo of Sopra Capital today. Sopra and Foundry operate in a similar space so it is always interesting to spend some time talking about trends we see in franchising. One of the things we have both run into recently is that too often for emerging brands, unit economics takes a back seat to everything else when it should be the focus.

When we talk about unit economics in franchising, we are referring to the individual franchisee’s ability to make money by following the franchise system. If you are evaluating a system, you can generally find information about how well existing franchisees are doing by taking a look at Item 19 of the Franchise Disclosure Document. Many emerging franchisors leave Item 19 blank, which means you need to talk to existing franchisees about how well they are performing. Remember that franchisors can only talk about financial performance that is disclosed in Item 19.

If you are a franchisor struggling with unit economics, here are three tips to consider:

1. Focus on expense reduction strategies. 

The best place to start when it comes to improving unit economics is expense reduction. This is because every dollar saved is a dollar in your franchisee’s pocket, while revenue always comes with additional expenses (the cost of delivering the service or product). Look at ways that you can use the scale of your franchise system to negotiate volume price discounts for everyone in the system. This could be through the use of centralized printing solutions, like Divvy, or through negotiating better food distribution contracts with your network.

2. Don’t forget the revenue. 

Even though expenses are the place to start, a strong system also includes strong revenues. Once you have franchisee expenses under control, the increased revenues will be more profitable to the franchisees. Marketing has changed dramatically in recent years and that means that there are a number of cost effective ways to drive your business. Develop and execute a digital marketing campaign to support your franchisees, but also remember that the best marketing is free and it comes from your customers. Solutions like Listen360 help you and your franchisees understand the quality of the customer experience at individual franchisee locations. You want your customers to become your brand’s best promoters.

3. Track and measure your efforts. 

Most franchisors only collect revenue information from their franchisees. It’s difficult to have a complete understanding of your system’s financial performance if you don’t also have a firm grasp on the expense side. We recommend ProfitKeeper‘s tools to help franchisees and franchisors track profit and loss at the unit level. Identify a baseline of performance prior to implementing any expense reduction or revenue generation strategies so you can see the impact of your efforts. It is easier to get franchisee compliance with new programs if you can demonstrate measurable success.

If your unit economics are strong, it makes marketing and selling the franchise system much easier. Good unit economics leads to happier franchisees. Happy franchisees will provide strong validation of the system to candidates interested in your system. On the other hand, weak unit economics can make awarding franchises extremely difficult and no amount of marketing or PR will completely solve your problem.

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Analytics and the Franchise Awards Process

People often ask me how I ended up in franchising, and the truth is that I’m not exactly sure — I feel like I just landed here and stayed because I love it. Prior to Franchise Foundry, I co-founded two technology companies, both with an analytics emphasis. The first was Sharp Analytics. At Sharp, we did some really cool work for companies like Procter & Gamble, Princess Cruise Lines, Sprint, and other well known brands. These companies came to us because they wanted to understand their customers better in an effort to attract more “best customers.” For example, we did a customer segmentation and analysis for a very high end skin care line. We overlaid purchase behavior with demographic information to identify what the best and worst customers looked like. We used that information to create a marketing campaign aimed at finding new customers that looked like the very best existing customers. And of course, we measured the results.  It was rewarding work because it produced results.

So when I ended up in franchising, it was natural to look at the awarding franchises through the same lens. What do the best franchisees look like? Is there just one profile, or are there several franchisee profiles we should be looking at? What messages will those candidates respond to? Where are they? How do I find them? And how can we systematize and measure the process of discovering new candidates and awarding new franchises?

When we kick off development for a new brand at Franchise Foundry, we bring this type of thinking to the table. We start with what the ideal franchisee looks like, and identify demographics that will help us find people like them. We develop messaging specific to each targeted segment and roll out measurable marketing based on our plan. We rarely get it exactly right the first time, which is why we measure everything we do. We want to know what works and what doesn’t so we can fine tune the process.

The result is that year over year, we have awarded more franchises per generated lead than the national average by a wide margin. And we plan to continue to fine tune the process, improving our conversion rates this year by tracking our efforts closely and throwing out the stuff that isn’t working and spending more time on the stuff that does.

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Let’s Get Together

Let’s get together at the upcoming IFA Convention — either for business or to just meet and chat. Either way, let’s make the most of what is sure to be a great event.

I’m always excited to work with startup and emerging brands in franchising. The passion exhibited by founders is something that I truly cherish. To that end, my own passion is helping them achieve their goals.

With the IFA Convention just around the corner, I’m looking forward to sharing how Franchise Foundry can help franchisors:

  • Improve system sales and unit-economics
  • Strengthen franchisee relationships and communications
  • Increase franchise interest and actual franchise sales
  • Explore strategic or financial partnership for future opportunities

So, if you’re a franchisor with any of these objectives, we should meet in Vegas and explore the possibilities. I’m confident Franchise Foundry can help you achieve your goals. Of course, if you’d just like to get together for coffee or a drink and have a meaningful discussion about challenges franchisors are facing today, I certainly look forward to that as well. Or, maybe we should just exchange cards and agree to touch base after the convention? That works, too.

In any event, please contact me at psegreto@franchisefoundry.com. Let’s make the most of the IFA Convention experience… together!

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Why Sweeto Burrito?

I love food. So when Jon Pierre Francia, the founder of Sweeto Burrito, invited me up to Idaho Falls to sit in his truck and try out some of his burritos, I grabbed my 10 year old son and hopped in the car.

2012-11-28 09.02.40welcome-idaho

It’s about a 4 hour drive from Provo to Idaho Falls so we planned to stay the night with family in Rexburg (thanks Carly) but we were going to spend the afternoon in the truck to see Sweeto in action. We were headed up in November and Sweeto Burrito is a food truck in Idaho Falls. I have to admit that we weren’t expecting a crowd to be standing outside in near freezing temperatures, but there they were and once we tried the food, we understood.

Ben and I shared a burrito – they are big. We started with the Papi Chulo — what seems like a traditional carne asada burrito but it is amazing. It’s everything you could hope for in a carne asada burrito and then some. After we ate, we went inside. Jon Pierre runs a tight operation and the people there love it. There is something very cool about being inside the truck watching Jon Pierre’s team work side-by-side. They have worked together in North Dakota and at the Sturgis motorcycle rally. They have a really cool story and you can tell that it has brought them together. But most importantly, they make amazing food and their customers love it.

My son and I watched as customer after customer would come up and wait outside in the cold for their Sweeto fix. Here’s my son eating his share of a Buff Chick — an unbelievably tasty burrito:

2012-11-28 15.14.34

I’ve since been up a couple times and Sweeto Burrito never disappoints. The Foundry team is excited to be backing Sweeto Burrito. We are going to help them prepare to offer franchises and then we will support their development efforts and oversee franchise support. This is a great opportunity for Franchise Foundry and we believe it will be great for Sweeto Burrito as well. And now I have a reason that I have to eat Sweeto — quality control.

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Handling the Onslaught of Leads

Spikes in lead flow always present an interesting challenge. Our client, Sub Zero Ice Cream and Yogurt, was on ABC’s Shark Tank last night and it generated a tremendous amount of interest in the Sub Zero franchise opportunity. Sub Zero has never had trouble generating interest in the franchise, but Shark Tank definitely increased the number of inquiries we received.

So how did we prepare to deal with the lead flow? Here are a couple things we did and they seem to be working. Hopefully they are useful to you if you find yourself in a similar situation:

  1. We use a great CRM. At Foundry, we use Salesforce.com. There are a number of CRMs that are exceptional and some of them are designed specifically for franchising. We use Salesforce.com because we are nerdy enough that we want to be able to completely customize our workflow and autoresponders. It has been a great tool for us because we know how to use it. It’s overkill for many development operations but it works for us.
  2. We use MailChimp. I am a huge fan of the simplicity of MailChimp for sending out and managing lists. We were able to directly import all of our new contacts into MailChimp and send out an email campaign to everyone who responded to the show.
  3. We setup a public calendar to simplify setting up phone calls. One of the hardest parts of lead qualification is trying to get people on the phone and arranging schedules. This posed an especially difficult problem for our team with the huge influx of leads. We wanted to spend more time on the phone and less time trying to arrange schedules. By posting our available times at Doodle.com and allowing interested parties to schedule a time with us, it greatly enhanced our ability to get people on the phone.
  4. We updated our electronic collateral to highlight the show. This provided relevant information to people who had seen the show and wanted to know more. We also updated the website and social media channels to make sure everything was in order so that people could explore and learn more before submitting an inquiry.

It’s a work in progress, but so far so good!

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