franchising mabc - 10-18-11
TRANSCRIPT
Should Your Client* Franchise?
Franchising as a Growth Strategy
Presented byMike BaumSophia Consulting LLCOctober 18, 2011
TO MABC – MADISON, WI *Or you?
My Life in Franchising• 1984-1994: Chicago management consultancy
specializing in franchising• EVP/general manager 1991-1994• ~1000 new franchise programs, + redesigns &
studies• Among my clients:
•Britannica Learning•Sterling Optical•Mobil Oil•Valvoline•Farmland Industries
•Culver’s•Jimmy John’s•Hyatt Legal Services•Texaco Europe•Pollo Campero
Sophia Consulting LLC – Mike Baum
Franchising Today• 40% of all retail sales - 10% of the U.S. GDP• >75 different industries• >900,000 franchised businesses• Directly employ 11 million
▫ 21 million total jobs▫ 14% of private sector employment▫ $661 billion in payroll – 11% of total US payroll
• >$1.53 trillion in revenues• >$2.3 trillion in total economic output
Source: the iFranchise Group
Sophia Consulting LLC – Mike Baum
Franchising ThrivesOn Recessions
Franchised jobs increased 12.6% versus 3.5% for other businesses
Franchised payroll increased 21.6% versus 15.4% for other businesses
Output increased by over 40% versus 25% for other businesses
Franchised establishments grew 18.5% versus 15.9% for other businesses
Source: The iFranchise Group
Sophia Consulting LLC – Mike Baum
It Isn’t Just Fast Food• Restaurants only 25%• Retailers• Direct sales• Services
• Manufacturing
B-to-B B-to-C
•Consulting •Law firms
•Advertising •Medical, health
•Placement •Hotels
•Internet related •Lawn & home services
•Tax prep & accounting •Home meals, senior care
Sophia Consulting LLC – Mike Baum
What Is a Franchise?
• Contractual arrangement between franchisor and franchisee to run a branded business
• Original “virtual company”• Should be win/win
Franchisor gets… Franchisee gets…
•Accelerated growth •Proven business
•Minimal capital requirements •Training
•Motivated unit management •Brand name
•Operating leverage •Support & collaboration
•Ideas •Network power
Sophia Consulting LLC – Mike Baum
Legal Definition
Name
System
FeeFranchise Fee
RoyaltyAdvertising[Product]
Franchise
Sophia Consulting LLC – Mike Baum
Name
System
Fee
Franchise=
Name
Fee
TrademarkLicense
=
System
Fee
Business Opportunityor License
=
Name
System
Dealership
=
Distributor
Agency
Joint Venture
Sales Rep
System
Name
Fee
Source: The iFranchise Group
Sophia Consulting LLC – Mike Baum
Hawaii
CA
WA
SD
ND
MN
WI
IL IN
MI NY
VA
MD
RIUT
NE
TX
FL
GA
SC
NC
CT
ME
KY
AL
IA
LA
OH
OK
NH
Legal Regulations VaryLegal Regulations Vary
States having no franchise or business opportunity laws
States having franchise registration laws
States having business opportunity laws
States having both franchise registration and business opportunity laws
Source: The iFranchise Group
Sophia Consulting LLC – Mike Baum
Growing by Franchising vs. Owning
PRO• Time (faster growth)• Capital from franchisees• Unit management• Reduced risk• Less focus or staff on
daily operations• Organizational leverage
CON• Limit to income (vs. all
revenues)• Quality Control [Myth]• Litigation [Myth]• Good relations with
franchisees take work• Starting a(nother)
new business
Sophia Consulting LLC – Mike Baum
Sophia Consulting LLC – Mike Baum
Ways to Think About Franchising
• Means of distribution• Source of capital• Organizational structure• Management incentive plan• Liability shield• Risk hedge• Portfolio management• International option
Sophia Consulting LLC – Mike Baum
So…Should My Client* Franchise? Depends…
• Goals▫ Really fast growth? ▫ Competitive pressure? ▫ Quick exit?▫ Captive distribution?
• Capital▫ Accessible by client▫ Amount required per unit▫ Financeability of unit
investment
• Type of business▫ Individual operating units?▫ Value in branding?▫ Trainable?
• Personality▫ Control freak?▫ Detail & service oriented?
Sophia Consulting LLC – Mike Baum
*Or I?
Should Your Client* Franchise?Maybe…
• Goals▫ Really fast growth? √▫ Competitive pressure? √▫ Quick exit?▫ Captive distribution?
• Capital▫ Accessible by client ▫ Amount required per unit √▫ Financeability of unit
investment √
• Type of business▫ Individual operating units? √▫ Value in branding? √▫ Trainable? √
• Personality▫ Control freak?▫ Detail & service oriented? √
Sophia Consulting LLC – Mike Baum
*Or you?
Should Your Client* Franchise?
• Capitalize on intellectual property?▫ Maybe trademark licensing is
simpler▫ But is ancillary service
important to the integrity of the brand?
• Sell products?▫ Maybe just sell to retailers▫ Can be hard to get shelf
space, mindshare
• Beat the rush?▫ Remember frozen yogurt,
fast lube, & eBay stores
• Create a captive distribution channel?▫ Remember Pepsico
• Grow a really great idea fast?▫ Now you’re talking!
Sophia Consulting LLC – Mike Baum
What is s/he* trying to accomplish?
*Or you?
Sophia Consulting LLC – Mike Baum
400+ storesFounded 1985
400+ storesFounded 1921
Components of a Franchise Program• Feasibility study• Strategy & structure• Franchise agreement & offering circular• State franchise registrations• Area/subfranchise agreement(s)• Operations manual(s)• Training materials & agenda• Franchise brochure• Franchise marketing plan• Franchise sales process/training• Franchise sales video• Site selection process/manual• Web optimization plan
Sophia Consulting LLC – Mike Baum
•Mike Baum – [email protected]•The iFranchise Group – iFranchise.net
Sophia Consulting LLC – Mike Baum