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Chapter

12

Franchising

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Franchising

• An entrepreneurial alliance between two organizations, the franchisor and the franchisee• Franchisor – the concept innovator who grows by

seeking partners or franchisees to operate the concept in local markets

• A large-scale growth opportunity based on a partnership rather than an individual effort

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Top Ten Franchisors, 2010

Franchise Startup CostsSubway $84,300 - $258,300

McDonald’s $995,900 - $1,842,700

7-Eleven $40,500 - $775,300

Hampton Inn $3,716,000 - $13,148,800

Supercuts $111,000 - $239,700

H&R Block $26,427 - $84,094

Dunkin’ Donuts $537,750 - $1,765,300

Jani-King (commercial cleaning) $11,400 - $35,050

Servpro $102,250 - $161,150

ampm Mini Market $1,835,823 - $7,615,065

Source: http://www.entrepreneur.com/franchises/franchise500/index.html

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Fastest Growing Franchisors, 2010

Franchise Startup CostsJan-Pro (cleaning) $3,145 - $50,405Subway $84,300 - $258,300Stratus Building Solutions (cleaning) $3,450 - $57,750Dunkin Donuts $537,750 - $1,765,300Anago Cleaning Systems (cleaning) $8,543 - $55,306McDonald’s $995,900 - $1,842,700CleanNet USA (cleaning) $5,425 - $91,150Bonus Building Care (cleaning) $9,000 - $15,000Liberty Tax Service $56,800 - $69,900Vanguard Cleaning $8,125 - $38,100

Source: http://www.entrepreneur.com/franchises/fastestgrowing/index.html(based on number of units added in 2008-2009)

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Franchise Opportunity Recognition

• Primary Target Audience (PTA) identification• Service delivery system (SDS) design• Training and operational support• Field support• Marketing, advertising, and promotion• Product purchase provision

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Assessing a Franchise

• Multiple market presence• Outlet pro forma disclosed or discerned• Market share• National marketing program• National purchasing program• Margin characteristics

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Accessing a Franchise

• Business format• Term of the license agreement• Site development• Capital required per unit• Franchise fee and royalties

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• Exercise• Using the earnings claims on the next slide

(governed by FTC disclosure regulations), would this be a profitable opportunity if:

• 1. working capital per store$166,000 (including franchise fee)

• 2. real estate development expense per store$250,000

$416,000 total capital required per store• 3. Royalty rate: 5%, Advertising rate: 3%• What questions would have for the

franchisor?• How would you finance this plan?

• P.S. Prices are about 50% higher today.

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CUSTOMER ACQUISITION, CONTRACTING, AND ETHICS

CONSULTING SKILLS

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Customer Acquisition (Weiss)• “The easiest sales take place in an atmosphere of

need”…combine need, competency, and passion• There is never a good excuse to cold call

• Word of mouth, referrals, networking the way to go• If you really have to start from scratch, ask:

• Do you have strong experience in the target industry and with the type of issues?

• Can you cite a third party to validate your work?• Can you visit the target economically and reach people who

can help pave the way?• Can you speak in front of key managers at an external event

or publish something or meet informally?

• Less is more, rifle not shotgun

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Preparation (Weiss)

• Consulting is a relationship business:• Know the name of the “economic buyer” who

signs the checks, arrange to meet them (give me 5 ways), act as a peer.

• Avoid gatekeepers

• Ten techniques to infiltrate:• Become a customer, perform pro bono work,

create a study, engage in civic activities, write about your prospect, become a visiting professor, write a letter of praise, befriend an employee, serendipity, meet the buyer socially

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If the buyer comes to you…

• Become more prescriptive, less diagnosis• Presumably they like what you are offering

• Provide options on how to use you (not why)• Find out what the budget is• Provide one option above budget• Be prepared to “walk away”

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Relationship Building

Assertiveness

Orientation

Task

People

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MotivationsType Likes… Dislikes… Objection

Driver(determined)

Power/Results

Wasting time

No time or need

Expressive(imaginative)

Attention Ignoring needs

No trust

Amiable(supportive)

Acceptance

Threats No hurry

Analytic(methodical)

Facts/Data

Guesswork No money

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Rebuttals

• No time/need• Show how the buyer’s power or results will be

enhanced – de-emphasize how good you are.• Cite examples of other trusted organizations doing

it• “To make the best use of your time, there are just

four things I’d like to know”• “What is the most fundamental issue you wish you

could solve tomorrow?”

• No trust• Let the buyer get comfortable with you

• Use anecdotes, ask a lot question about the buyer’s background, find points of commonality, LISTEN

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Rebuttals ctd.

• No hurry• Buyer wants assurances, guarantees, references,

pilot tests etc.• Provide references and testimonials, provide “fail

safe” options and contingencies, create sense of urgency (the timing is never perfect – show ‘em it could be a hell of a lot worse), provide a guarantee (if possible)

• No money• Provide details of cost savings, focus on value

not fee, stress investment not cost, offer options, money-back guarantee, provide analyses: spreadsheets and charts showing ROI.

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Contracting (Block)

• Setting up the first meeting…telephone questions• What do you want to discuss?• Who is the client for the project?• Who else will be at the meeting?• How much time will we have?• Do you know that you want to begin some

project, or are we going to discuss whether to do anything at all?

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Contracting (Block)

• Before you negotiate the contract…• Ask who the client is (including the less visible

parties)• Elicit the client’s expectation of you• State clearly and simply what you want from the

client• Say no (or postpone) a project with less than

50/50 chance of success• Probe directly for your client’s underlying

concerns about exposure and vulnerability• Discuss directly with the client why the

contracting meeting isn’t going well when it isn’t

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Contracting Process (Block)

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After the Agreement…

• Ask for feedback about control and commitment• “Is this project something that you really want to

see happen?”• “Do you feel you have enough control over how

this project is going to proceed?”

• Give support• “Starting a project like this takes some risk on

your part and I appreciate your willingness to take that risk with me”

• Restate Actions• Make sure you and your client know what each of

you is going to do next

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Common Problems

• Client has low motivation• Perhaps the client is feeling coerced by his or her

boss• Go back to source – avoid the use of go-betweens

• Start with a small step project• “Is there any way we could set this up so that you don’t

feel …stressed/losing control/waste of time”

• Ceaseless negotiations• Including defining the problem to death

• No more than 20 mins or 35% of meeting on problem

• Credentials• Tell a war story, name their concern, reassure that

you will get the job done

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Contracting Observations (Block)

• Ground rules for contracting…• A contract should be freely entered• You can’t get something for nothing

• There must be consideration from both sides

• All wants are legitimate.• You can’t say “You shouldn’t want that”

• You can say no to what others want from you. Even clients (and professors).

• You don’t always get what you want.• You can contract for behavior but you can’t

contract for the other person to change their feelings

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Contracting Observations ctd.

• You can’t ask for something the other person doesn’t have• You can’t promise something you don’t have to deliver

• You can’t contract with someone who’s not in the room (such as a client’s boss). They need to be in the room.

• Contracts are always negotiable.• Be grateful they are asking to alter the contract rather

than doing it without a word

• Contracts require specific time deadlines or duration• Good contracts require good faith (and good fortune)

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Pro Forma Contract

• http://smallbusiness.findlaw.com/business-forms-contracts/business-forms-contracts-a-to-z/form1-35.html

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Ethics (Block)

• The most surprising ethical snare is the willingness of line managers to follow the fashions and buy what is popular (do you sell it if they don’t need it, do you push it if they need it but it’s new)

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Ethical Guidelines (Block)• Say No (to Work) As Often as You Say Yes• Stay True to Your Self

• Setting high growth targets means you take on marginal business

• Grow On Your Own Terms• Give business away if you are too busy

• Show How Everybody Counts• Not just top management

• Leave It All Behind• Measure your work by the optimism and self-sufficiency you

leave behind, teach clients to learn and create by themselves• Forgive Yourself

• Sometimes we take the job for the money, or we over-promise, or buy into a fad – but be honest, at least with yourself, self-delusion is the worst sin