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4 from the Editor’s Desk Franchisee satisfaction sparks growth 7. Lead 8 CEO Profile: Kevin Cushing AlphaGraphics transforms itself 12 CEO Profile: Steve Kuhnau shoots for 10,000 14 fEature: Trading Places Franchisee experience guides these franchisors 18 fEature: Franchise Startup EarthFruits Yogurt sets sail for success 22 lEadership Guru: Firehouse Subs CEO Don Fox leads by example 24 human Resources Train your talent for greatness

22 27.Market 28 fEature: Is All Marketing Local? Boosting unit-level sales 32 CMO Q&A: Auntie Anne’s Heather Neary on franchisee partnerships 34 CMO Roundtable “What role does franchisee satisfaction play in your overall marketing strategy?” 36 Legal Dot-complicated! New domain names up for grabs 38 Consumer Data Retail sales, gift cards show late-year uptick 39 Connecting with Customers “Moneyball” teaches customer loyalty lessons

28 41. Grow 42 Challenge the Pros “How does franchisee satisfaction affect your referral program and relate to your overall development planning and process?” 44 afdr Stats Developing intelligence: Highlights from the new 2012 report 46 sales Smarts Lessons from real-world mystery shopping responses 47 market Trends Don’t let the FTC Rule get you down! 48 it’s Closing Time Take the test: What are you saying to candidates?

Franchiseupdate Issue I, 2012 3 42 From the editor’s Franchise desk update|Q1 CHAIRMAN Gary Gardner CEO BY Kerry Pipes Therese Thilgen President Steve Olson Vice President Operations Sue Logan Vice President Marketing Satisfaction Guaranteed Kimberlie Guerrieri Vice President Business Development ick Jagger of the Rolling programs and how that relates to their Barbara Yelmene Business Development Stones famously sang, overall development planning and pro- Executives “I can’t get no satisfac- cess. All three said franchisee satisfac- Jeff Katis Lorena Leggett tion.” How frustrating tion was a cornerstone of their referral Judy Reichman M Executive Editor that must have seemed for the bud- and development strategies. Themes Kerry Pipes ding rock star in 1965. Somehow I like “listening and responding,” “open Managing Editor doubt he really had trouble with this dialogue,” and “franchisee recognition” Eddy Goldberg ART DIRECTOR particular topic. were just a few of the sentiments opined Franchise Update media group Satisfaction can be frustrating for by these execs. Samantha Calden a franchise brand ignoring the needs Elsewhere in the issue, we asked DESIGN & PRODUCTION FRANCHISE UPDATE MAGAZINE and desires of its franchisees. On the some CMOs how significant franchisee www.petertucker.com other hand, brands that are working to satisfaction is to their brand’s overall Internet Content Manager create a culture of satisfied franchisees marketing strategy. Not surprisingly, Benjamin Foley Sales and Subscription are reaping the benefits. And it’s to this it’s huge. When you consider that your Department, Office Manager topic—franchisee satisfaction—that we franchisees are the front-line “face” of Sharon Wilkinson have devoted this first issue ofFranchise your brand—the people your custom- Senior Project Manager, Media and Business Update for 2012. ers interact with daily—why would you Development Clearly, franchisee satisfaction is a not want to be doing everything you Lyola Shybanova Contributing Editors big subject whose significance cannot can as a brand to keep these franchise Tom Epstein Don Fox be overlooked or ignored. After all, sat- “partners” satisfied? Keith Gerson Darrell Johnson Marc Kiekenapp Steven S. Little isfied franchisees are generally happier We also spoke with Auntie Anne’s Jack Mackey Steve Olson and most likely more successful. Fran- CMO Heather Neary about franchi- CONTRIBUTING WRITERS John Carroll Debbie Selinsky chisee success means a stronger brand see satisfaction. Perhaps she summed Tracy Staton Helen Bond with stronger validation and more refer- it up best when she said, “In order for Advertising and Editorial Offices rals. And we haven’t even touched on our franchisee partners to be satisfied, Franchise Update Media Group 6489 Camden Avenue, Suite 108 how all of this creates happy customers we need to go above and beyond on San Jose, CA 95120 who continue to visit the brand time every facet of our business operations. Telephone: 408-997-7795 Fax: 408-997-9377 Send manuscripts after time. That signifies dollar signs. When our franchise partners are satis- and queries about story assignments to: Perhaps your leadership is focused fied, they are able to focus on their day- [email protected] on franchisee satisfaction and actively to-day operations in their store(s) and franchiseupdatemedia.com franchiseupdate.com pursues solutions toward that end. That’s can better serve our customers, which franchising.com great. But if you could use a refresher means greater success and profitability mufranchisee.com course, I think you may find a few good for all parties.” Franchise UPDATE magazine is published four times annually. ideas in this issue. Mick Jagger aside, satisfaction can Annual subscription rate is $39.95 (U.S.) For subscriptions email For example in our Challenge the be found. Just add it up—satisfied fran- [email protected] Pros section, we asked three develop- chisees, cheerful employees, and happy or call (408) 997-7795 For reprint information ment executives to tell us how fran- customers—and you have a formula for contact chisee satisfaction affects their referral franchise success. n Foster Printing at (800) 382-0808 www.fosterprinting.com

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22

8 CEO Profile: Kevin Cushing 8. AlphaGraphics transforms itself

CEO Profile: Steve Kuhnau 12. Smoothie King shoots for 10,000

12 Feature: Trading Places 14. Franchisee experience guides these franchisors

Feature: Franchise Startup 18. EarthFruits Yogurt sets sail for success Leadership Guru 22. Firehouse Subs CEO Don Fox leads by example Human Resources 24. Train your talent for greatness

24

Franchiseupdate Issue I, 2012 7 By Kerry Pipes

Lead CEO profile: Way To Grow! AlphaGraphics CEO focuses on transformation Market

evin Cushing began deliv- “I had a good friend who was an Al- become the largest provider of market- ering newspapers in Chi- phaGraphics franchisee,” he says. “I did ing services to small and medium-sized

Grow cago when he was in second some due diligence before deciding this businesses.” K grade. He eventually deliv- was for me.” It was a good move. Starting ered more than 1 million. “I knew I had in 1995, Cushing was a successful fran- Leadership to get those papers out or the readers chisee and recognized by AlphaGraphics would not know what was going on in as one of their Gold Circle winners for What is your role as CEO? Visionary, their world,” he says. strong system performance. architect, builder, and captain. (1) Vi- Lofty goals for the lad, who says it By 2004, he was eager to be “more sionary: define a unifying direction for was during these early years that he aggressive” and was searching for ways the organization; evolving the brand to became what he calls “a lifelong small to do so. A call from AlphaGraphics maintain relevancy and appeal as a fran- businessman.” Today Cushing is CEO chising business opportunity. (2) Archi- of Salt Lake City-based AlphaGraph- “Together with our tect: develop strategy for achieving the ics, where he has held the reins since vision. (3) Builder: form the team that June 2004. franchisees we are is inspired and motivated by driving the Cushing graduated from college in writing the story of strategy. (4) Captain: drive the execution 1978 and began working with a shop- of the strategy through all levels of the ping center leasing company called Ter- one of the greatest organization. Accountability through ratron, which oversaw retail properties franchisor and franchisee teams. in Wisconsin and Minnesota. Some of transformations the shopping centers’ tenants were in- of a brand in the Describe your leadership style: Con- dependent restaurants, and when they structively challenging and collabora- would go out of business Terratron history of small tive. Continually leading and mentor- needed something to replace them. That business and ing team members to grow and evolve “something” turned out to be franchised our organization and themselves to the Hardee’s restaurants. franchising.” next level. “We started with just a couple of units and did well with them,” says corporate, asking if he’d be interested What has inspired your leadership Cushing. Eventually, Terratron oversaw in leading the organization, solved that style? Great mentors. I’ve been lucky 81 Hardee’s units in 7 states. In 1991, problem. He was hired in June that to have many great mentors in my life he became president of Terratron and same year. who have helped me grow into who I began to experience the itch for own- At the helm, Cushing is characteris- am today. I can only hope that I can ing his own business. tically pushing for change, growth, and provide a similar service to those I lead. system-wide advances. Technology is Name: Kevin Cushing changing the way marketing and printing What is your biggest leadership chal- are done, and he is busy incorporating lenge? Franchisees are “entrepreneur- Title: CEO these progressions into AlphaGraphics. like” in that they possess the independent Company: AlphaGraphics “We’re focusing on taking our prod- thinking and drive of CEOs. They have uct from a print-centric approach to one the ambition, risk profile, and desire to No. of units: 282 of multi-channel communications,” he own and build a business, but within Age: 55 says. “We’re going beyond just provid- the context of a well-designed business ing mail flyers for customers. Now we model with like-minded business own- Family: Wife Jill; children Jack, Patrick can help them acquire new customer ers. The best franchisors successfully (PJ), Claire, and Sean databases and design specific marketing draw on those attributes while deliver- Years in franchising: 33 campaigns to help them reach custom- ing a top-notch brand experience that ers in a more focused way.” offers a high level of consistency across Years in current position: 7.5 His goal for AlphaGraphics? “To the network. The reality is that every

8 Franchiseupdate Issue I, 2012 CEO profile:

brand has a bell-shaped curve, and we sure that I have all of the information. Together with our franchisees we are strive to have a “tight” bell that is well to I collect their feedback, ask for recom- writing the story of one of the great- the right of other brand averages. This mendations, and make the decision est transformations of a brand in the represents a high degree of consistency that I think is best based on the vision history of small business and franchis- and financial performance. Easier to say of our company and then go the extra ing. That’s worth getting out of bed than to do, but our franchisees get high mile-plus to communicate the decision for every day! We are very proud of marks from me in this regard. and enlist support. In a network like Al- and grateful for our franchisees. My phaGraphics, we have more than 260 management team is made of seasoned, How do you transmit your culture from CEOs with valid concerns and insights. skilled individuals. We have great em- your office to front-line employees? We draw out their thinking, make the pathy for small-business owners. I am Passion. I love what I do, and my man- decision we feel is best, and move for- currently a franchisee while also being agement team loves what they do. It is ward as a network. CEO. Our team has a healthy mix of genuine and contagious. This passion real-life business experience and own- trickles down and creates something Do you want to be liked or respect- ership, industry-specific experience, truly special among our 3,000-plus ed? This may sound strange, but I am and franchising experience. We’re all AlphaGraphics employees worldwide. generally a likable guy by nature and reaching toward a common goal. And People see how jazzed we are, and they I don’t worry too much about that. I we’re all in agreement that we will be want to share in that excitement. think I am trusted by our franchisees the leading provider of marketing and and my team because we encour- business communications services to Where is the best place to prepare for age authenticity in our interactions. small and medium-sized businesses in leadership: an MBA school or OTJ? I work hard to make well-informed the world. The team comes to work Even more important is self-awareness decisions in the best interest of the each day working toward that vision and a thirst to learn. Couple that with brand long term and uphold our sys- experience and great mentors, and it tem standards. Challenging us to be is hard for any degree to match that. the best we can be and leading with I benefited from that as well as a great integrity engenders respect, which education, and each experience con- is more important than winning tributes in its own way. Since this is an the popularity contest. either/or question, street smarts edge out book smarts. Both are valuable. An Advice to CEO wannabes: Get active learner will augment their OTJ outside of the jar. Work on your with outside learning opportunities to business more than you work in develop a broader perspective. your business. Take the time to clearly articulate your vision and Are tough decisions best taken by the strategy to achieve that vision, one person? No. Surround yourself and then focus your energy on with bright individuals that you trust, keeping your team motivated and honest conversations amongst the and inspired to drive the strat- group will typically render the best re- egy to success. My six favorite sults. It doesn’t mean it’s a democracy words: learn, learn, learn, grow, where everyone’s vote counts equally, but grow, grow. you have to trust those you put around you. At AlphaGraphics, we are highly Management collaborative with our colleagues and franchisees. It develops a better decision Describe your management style: rather than compromising the best. I Informed, collaborative, account- have no problem making tough deci- able, communicative, and genuine. sions, nor do my executive teammates. What does your management team How do you make tough decisions? look like? I have a management team I have a great team that I have worked that is very intense and passion- very hard to build. When making tough ate about success. They decisions, I work with my team and our are AlphaGraphics Network Leadership Council to make evangelists.

Franchiseupdate Issue I, 2012 9 CEO profile:

dream of successful business owner- ship for our franchisees and engage in meaningful work… that’s pretty special.

Personal

What time do you like to be at your desk? Between 5 and 6 a.m.

Exercise in the morning? Absolutely. I love to ride my bike to and from work, about an hour each way. My new hip will allow me to resume that!

Wine with lunch? No. Never even thought about it!

Do you socialize with your team af- ter work/outside the office? Yes. I surround myself with individuals who share the same values as I do. Naturally, there is some overlap. We enjoy being together. AlphaGraphics is a special group of people.

Last two books read: Steve Jobs by Wal- ter Isaacson, and Jack Kennedy: Elusive Hero by Chris Matthews.

What technology do you take on the road? BlackBerry, iPad, laptop.

How do you relax, balance life and work? Exercise, play on a men’s hockey team, golf, ski, cycle, read, travel. Fam- ily time. and rallying their teams to be as fanati- the ones who execute the strategy. They cal about reaching goals as they are. are instrumental in our success. Favorite vacation destinations: Maui, Europe, anywhere with mountains and How does your management team Favorite management gurus: Do you water! help you lead? I can be very hands-on read management books? I am an avid if needed, but my preference is to work reader. Some of my favorites are: The Favorite occasions to send employ- “on” our business and “what’s next.” I Path of Least Resistance by Robert Fritz; ees notes: Birthdays and service an- tend to be an effective delegator, and my The Fifth Discipline by Peter Senge; It’s niversaries, special times, or challenges. team is thirsty to take on responsibility Not What You Sell, It’s What You Stand and be held accountable. They aspire For: Why Every Extraordinary Business Is Favorite company product/service: I to grow in their ability to lead organi- Driven by Purpose by Roy M. Spence, Jr.; hate to shop but love Nordstrom, Ama- zations and I want them to succeed, so Groundswell: Winning in a World Trans- zon, and Apple. I take mentoring as one of my key re- formed by Social Technologies by Charlene sponsibilities. I give them a big picture Li and Josh Bernoff; and TPS-Lean Six and a goal and they work together to Sigma: Linking Human Capital to Lean Bottom Line achieve it. It is the best group I have ever Six Sigma by Hubert K. Rampersad and worked with! They help spread the vi- Anwar El-Homsi. What are your long-term goals for the sion and strategy to their teams. They company? To be the leading provider help hold their teams accountable for What makes you say, “Yes, now that’s of business and marketing communica- reaching specific goals. They are really why I do what I do!” I help enable the tions services to small and medium-sized

10 Franchiseupdate Issue I, 2012 businesses in the world. This means viduals who used to be very bankable are history of small business and franchis- helping business owners maximize their now getting turned down by banks. That ing. We’re in the middle of this process, profitability and return on marketing makes growing the brand a challenge. but I am confident that our journey will investment with trackable and measur- Luckily, we’ve always prided ourselves result in unbelievable success and will be able marketing programs. on having top-tier franchisees, and these the defining moment for AlphaGraph- challenges haven’t affected us as heavily ics and myself. How has the economy changed your as they have others in our space. goals for your company? Both posi- Any regrets? You can’t move at the tively and negatively. Positively, the Where can capital be found these speed required to build and grow an downturn has encouraged us to take a days? Finding capital can be a chal- industry-leading brand without mak- closer look at our business model and lenge these days. We’ve experienced it ing some mistakes. Regrets only come value proposition. Because of this, we firsthand while working with lenders on when you make the same mistake twice. have evolved our brand and service offer- financing packages for potential fran- ings to be more relevant to our custom- chisees. Thankfully, we have a proven What can we expect from your com- ers. We are shifting from being a print business model with sound operating pany in the next 12 to 18 months? It service provider to being a business and procedures, and that’s what lenders want will be an exciting time at AlphaGraph- marketing communications provider. to see. The money is out there, you just ics. The launch of our new branding Also, we have seen a number of in- have to work harder to get it. will position us much differently in the dependent printers looking to become a marketplace. With an expanded service part of our brand because of the systems How do you measure success? We have offering, our franchisees are no lon- and procedures we have to encourage a strategic roadmap that our company ger having conversations about paper success. Many independent printers lives by. While it is a living strategy that color and quantity; we’re now having have seen business decline drastically in is frequently updated, it has specific goals conversations about business growth recent years. By joining AlphaGraph- and milestones that must be reached at and profitability. We’re being seen as a ics, they adopt systems and procedures specific dates. We define success by our strategic partner in our customers’ eyes. that help maximize profitability and ability to reach the goals and milestones In 12 to 18 months, we’re going to be success. Because of this, we have added spelled out in that document. even closer to reaching our vision of a number of what we call “conversions” being the leading provider of business to our system. What has been your greatest success? and marketing communications services Negatively, we have seen many can- As mentioned earlier, AlphaGraphics is to small and medium-sized businesses. didates for new start-up AlphaGraphics in the process of authoring one of the Check back with us, or better yet, hop centers struggle to get financing. Indi- greatest transitions of a brand in the on board—it’s going to be a wild ride! n

Franchiseupdate Issue I, 2012 11 By Kerry Pipes

Lead CEO profile: The Original Smoothie King Bringing health and wellness to QSR

Market 600 locations worldwide and would like to see 10,000 before they step away from the blenders. Today Kuhnau remains the driving

Grow force behind the Smoothie King brand. A self-proclaimed team player, he works tirelessly for his brand and expects his team members to do the same. He re- mains positive about his organization and its direction, and says he loves “being the healthiest QSR focusing on nutritional/functional products for an on-the-go healthy lifestyle.”

Leadership

What is your role as president and CEO? Over the course of more than four decades in the smoothie industry, I’ve worn many hats—from blending and mixing the smoothies myself to creating new flavors to launching our franchise strategy and coming up with interesting marketing initiatives! As teve Kuhnau’s struggles with ments, eventually developing the first the business has grown I’ve definitely food allergies in his teen years nutritional smoothie in 1967. His grow- moved into more of a big picture and led him to a lifelong fascina- ing passion for health and nutrition led managerial role, strategizing on where S tion with nutrition. So much him to a job in nursing while stationed we will go next. so that he began blending fresh fruits, at Fort Sam Houston in Texas, and proteins, vitamins, and mineral supple- later to open Town & Country Health Leadership style? I’m definitely a team Foods in Kenner, La., where he sold player, and I surround myself with a Name: Steve Kuhnau what would become the first Smoothie team that is committed to the brand. King smoothie. A lot of our employees have been here Title: Co-founder, president, and CEO of Smoothie King; originator of the Kuhnau and his business partner for a long time and have grown with nutritional fruit smoothie Cindy quickly realized how popular the company, and I trust them. Rather their smoothies were, and on May 5, than making decisions totally on my Company: Smoothie King Franchises 1987 Smoothie King was trademarked, own, I involve the leadership team, get No. of units: 602 worldwide incorporated, and officially born. The their input and ideas, and from there Age: 64 first Smoothie King franchise opened in the creativity flows. 1989 on Baronne Street in . Family: Wife, Cindy, co-founder of Smoothie King Franchises; 2 daughters, Two years later the two were married. What has inspired your leadership 2 sons, 10 grandchildren “The beginning is always the hard- style? Walt Disney. He was a true vi- est. Most of the time success doesn’t sionary. Years in franchising: 24 come fast or easy,” he says. “We were Years in current position: I’ve been the first to do what we do, so getting What is your biggest leadership chal- making smoothies since 1967. In 1973 I off the ground and opening our first 40 lenge? I see the good in everyone and opened Town & Country Health Foods, stores was our biggest challenge.” They give everyone a chance, which is a great and finally Smoothie King in 1987. So in not only did it, they did it well. To date, thing. But at times it can distract me total, 44 years in the smoothie business. they’ve steered the brand to more than from the bigger picture.

12 Franchiseupdate Issue I, 2012 CEO profile:

How do you transmit your culture from Tough decisions our relationships professional. your office to front-line employees?By being an embodiment of the Smoothie aren’t easy... Last two books read: The pH Mir- King brand; being an example of good acle and Change Your Water, Change health, showing it and sharing it with The best thing Your Life. everyone involved. to do is make What technology do you take on the Best place to prepare for leadership: a decision and road? Can’t live without my iPhone. an MBA school or OTJ? I’m not dis- counting the importance of education, then move How do you relax, balance life and but nothing quite compares to rolling work? My ultimate pleasure consists up your sleeves and getting dirty—so forward and of quality time spent with my grand- definitely on the job. don’t look back. children. Are tough decisions best taken by Favorite vacation destination: Des- one person? Decision-making at How does your management team tin, Florida Smoothie King is generally a collab- help you lead? They are driven, profes- oration between the franchisees and sional, and work hard. They know what Favorite occasions to send employees the corporate office. We hold weekly they have to do and they make it happen. notes: Birthdays—it’s all about them. franchise advisory committee meetings to share ideas, plans, and goals—and Favorite management gurus/books? Favorite company product/service: we take all suggestions and feedback The One Minute Manager and Who Moved Immune Builder with extra immune seriously. At Smoothie King we work My Cheese? powder. as a team, and that is what makes us so successful. What makes you say, “Yes, now that’s Bottom Line why I do what I do!” It’s definitely all How do you make tough decisions? about our guests. Hearing some of these What are your long-term goals for Tough decisions aren’t easy, but in life amazing testimonials—whether it’s the company? Growth and more in- we all have to make them. The best thing how Smoothie King helped them with ternational expansion! I’d love to live to do is make a decision and then move weight loss goals or was their favorite to see 10,000 stores around the world. forward and don’t look back. meal during a battle with cancer. It feels great to know you are putting a product How has the economy changed your Do you want to be liked or respect- out that people really love. I also enjoy goals for your company? It has defi- ed? Both! meeting new franchisees who have as nitely taught me patience. It takes more much passion as I do. time to find quality franchises, meaning it Advice to president and CEO wan- takes a bit longer for new stores to open nabes: Set the example you want to Personal and growth doesn’t come quite as fast. see. Walk the walk, talk the talk. What time do you like to be at your Where can capital be found these Management desk? The early part of my day usu- days? I wish I knew. If anyone knows, ally consists of meetings, so I typically give me a call! Management style? Simply leading don’t sit down at my desk for the day from example. I like to bring in experts until about 1 p.m. How do you measure success? One to educate our employees and franchi- smoothie at a time. sees on best practices and new ideas. Exercise in the morning? Absolutely. I We always strive to bring in the best walk 5 miles a day, rain or shine. Chas- What has been your greatest success? ingredients and continue to promote ing my 10 grandchildren around is also Creating the nutritional fruit smoothie better health within all of our stores. great exercise. way back in 1967.

What does your management team Wine with lunch? More like a smoothie Any regrets? I don’t live with regrets. look like? A diverse group of fine pro- at lunch! fessionals who each bring something What can we expect from your com- unique to the table, making this com- Do you socialize with your team after pany in the next 12 to 18 months? In- pany what it is. I’ve had employees who work/outside the office? Everyone has ternational expansion, new franchisees, have been here for 15 years, so we’ve a life outside the office—their family, a focus on health and wellness, and new all grown together. groups of friends—so I generally keep products to support it. n

Franchiseupdate Issue I, 2012 13 By Debbie Selinsky Lead Market

Grow Switch Hitters Why franchisees make great franchisors here’s something to be said for having walked for years in another person’s shoes, for having come up the ranks to a leadership position. Em- T pathy and understanding come to mind, as well as the hard lessons that can be gained only from years of hands-on experience. That’s one big reason so many suc- cessful franchise executives agree that their past (and for some, still current) lives as franchisees have informed the way they lead their brands. We asked five franchise execu- tives to tell us how their past experiences as franchisees inform their role as franchisors today.

Lifetime of preparation Russ Umphenour was an Arby’s franchisee for 32 years before selling his nearly 800-unit company, RTM Restau- rant Group, to Triarc Systems in 2005. During his time as “Since I still think a lot like a franchisee, I could easily identify with the needs and wants of our 1,100 franchisees at Focus Brands.” —Russ Umphenour

14 Franchiseupdate Issue I, 2012 Arby’s largest franchisee (more than $900 million in sales), The leader he has become to his brands’ franchisees he also owned two other franchise brands: Mrs. Winner’s has been lent credibility by his decades as a franchisee. Chicken & Biscuits and Lee’s Famous Recipe Chicken, “Contrary to a lot of the leadership at some brands, I have with both corporate and franchised stores. had the experience of making payroll and making a busi- In November 2008, Umphenour was named CEO of ness successful. My franchisees know I’ve walked in their Focus Brands, the Atlanta-based franchisor and opera- shoes, and that it affects the way in which I lead and work tor of more than 3,300 Carvels, , Schlotzsky’s, with them,” he says. Moe’s Southwest Grills, and Auntie Anne’s. Big change? “The right kind of leadership for me as a franchisor in- Not so much as it might appear. cludes setting a good example and influencing franchisees “Everything I’d done for 32 years had prepared me for to do the right thing for the brand and for themselves. the franchisor role,” he says. “In the last two or three years Now I have only one purpose: to help my franchise part- at my old company, I had presidents of two brands under ners make money. If they do well, all our other problems me, as well as 775 Arby’s units, so I had already begun the go away.” transition to franchisor leadership. Since I still think a lot like a franchisee, I could easily identify with the needs and Big hat, bigger picture wants of our 1,100 franchisees at Focus Brands.” Gordon Logan, CEO and founder of Texas-based Sport As a franchisee, Umphenour was something of a “be- Clips (840 locations in 38 states), always saw his role as a nevolent dictator,” he says today. “But when I became a franchisee as more than just taking care of his own units. franchisor, I became an influencer and a facilitator. When “As a franchisee for Command Performance Styling Sa- you’re dealing with your franchise partners, they are in- lons, I was actively involved in the Chapter 11 process as dependent business people who run their own show. We a member of the creditors’ committee. We renegotiated may control the brand, but we don’t control our part- the franchise agreements and the franchisees came out of ners,” he says. Some leadership traits and values have remained con- stant through both his franchisee and franchisor roles. “It’s always been about having integrity, working hard, building teams and relationships, and doing what you say you’ll do,” he says. “As a franchisee, I was always service- minded toward our guests. Now, as a franchisor, I’m ser- vice-oriented toward our franchise partners.” “Successful franchisors are sensitive to the needs of their franchisees, but also recognize that the good of the system as a whole takes precedence over... individual franchisees.” —Gordon Logan

Franchiseupdate Issue I, 2012 15 Switch Hitters Chapter 11 owning 40 percent of the franchisor and hav- of the system, leading to a lack of consistency and brand ing two seats on the board of directors,” he says. Logan identity that was eventually the downfall of that system. I Lead served as one of the two board members and later became also saw the detrimental effects of a franchisor that played president of the franchisee association. favorites with franchisees: resentment, pushback, and a In 1991, when he and another franchisee bought the general lack of mutual respect.” brand (which would become Sport Clips), he not only car- He’s no longer a franchisee, but Logan describes his ried with him the trust of the franchisees who had been brand’s philosophies and agreements as franchise-friendly.

Market his peers, he’d also learned some tough lessons about be- “I’ve continued to be sensitive to the needs of our franchi- ing a franchisor. sees, developing national buying programs to give them “Successful franchisors are sensitive to the needs of better pricing, instituting national styling competitions their franchisees, but also recognize that the good of the to encourage technical excellence, and manager training

Grow system as a whole takes precedence over bending to the programs and national manager meetings to build their whims of individual franchisees. A franchisor has to be leadership abilities, creating a strong company culture, willing to take necessary actions to protect the brand when and initiating a cost-effective store re-design to bring the appropriate,” he says. “I learned that lesson as a franchisee salons up to industry standards with a distinctive look.” when I saw the result of a weak franchisor that lost control Sport Clips has 22 company-owned stores used for testing innovations before introducing them to the sys- tem, as well as to demonstrate the correct way to run the Learning as She Grows business, he says. “We operate only in markets where we Shelly Sun, co-founder with husband JD Sun of control the entire market. It is our policy not to compete BrightStar Care (250 locations), sees many similarities with our franchisees. When franchisors operate stores in in the leadership styles required for both franchisees the same markets as franchisees, there are potential con- and franchisors. flicts that can damage the relationship.” When she began as a hotel franchisee, she says, “I It’s no accident that Sport Clips’ legal fees are prob- sought to understand what it ably as low as any franchise out there (mostly for FDD took to be successful in the preparation), says Logan. “We test our actions against our industry as well as within values—do the right thing, do your best, and treat others our franchising system. I as they want to be treated—with the result that we have went to all the training ses- minimal friction within the Sport Clips system.” And to sions our franchisor offered keep the communication clear and open, the company has and followed the model a Team Leadership Advisory Council and an Area Devel- they provided. I networked oper Advisory Council. with fellow franchisees to Logan says that both sides of the franchise fence require learn everything I could leadership by example, team development, and success- from them. It’s the same ful planning and goal-setting. “At the franchisor level, a model I follow as a franchi- ‘bigger picture’ outlook is required since franchisees are sor. Benchmarking with my depending on their franchisor to have the vision necessary peers, regardless of indus- to move the system forward and to identify and stay ahead try, is how I consistently evolve our model and ensure of developing trends. But both franchisor and franchisee we’re supporting our franchisees at a high-quality level.” need to be able to inspire people to follow them and go In 2005, when she began life as a franchisor, there the extra mile.” were some adjustments in leadership style needed, she says. To achieve them, Sun says she became a “student Doing it right of franchising,” joining the IFA, attending conferences, John Metz, CEO of West Palm Beach, Fla.-based RREMC and networking with established franchisors. “I had to and franchisor of Hurricane Grill & Wings (48 units and roll up my sleeves and learn to wear multiple hats. To expanding rapidly), has a fundamental goal as a newly grow and expand at the rate we wanted, I needed to fledged franchisor: to treat his franchisees the way he transition out of the day-to-day tasks of our franchise always wanted to be treated by his franchisors. That is, and entrust them to our employees.” fairly, up-front, and as a true partner in the shared goal Sun, who remains a franchisee of a couple of hotel of unit-level and system-wide profitability. brands, believes her time as a franchisee has made its Metz says he had an “Aha!” moment as a franchisee stamp on how she relates to BrightStar’s franchisees years ago when he watched fellow franchisees facing bank- today. “It frames the lens through which I look and un- ruptcy because of a clause in their franchise agreement derstand the investment and risk my franchisees take. that allowed the franchisor to collect royalties on future This drives my willingness to invest for the long term or failed stores. “I disliked that clause so much that I got in people and technology.” them to waive it in my agreement. But I worked with a

16 Franchiseupdate Issue I, 2012 Switch Hitters “You have to invest in the success of others. I consider our franchisees to be our partners.” —John Metz lot of other franchisees who didn’t have that waiver and lost everything,” he says today. “It didn’t affect me finan- cially, but I thought it was a travesty—kicking some good people when they were down.” Based on that experience, as well as that of being a franchisee for multiple brands, Metz is convinced he can do things better as a franchisor—a lot better. “I felt there needed to be more disclosure and cooperation between the franchisee and the franchisor, which is exactly how we do it now,” he says. Still a franchisee of several hotel brands as well as 36 Denny’s and a Dairy Queen, Metz says he’s been called a “rogue” franchisee over the years because he has “pushed the envelope” on what franchisors were doing to support him as a franchisee. “But I did it within the system,” he says with a grin. Today, as a franchisor, he is well-pre-

Mutual Respect pared to deal with any future rogues of his own, but he Jim Rudolph, vice chair and minority owner of Rita’s has bigger things in mind as he works to fine-tune and Water Ice Franchise Company (about 550 franchise lo- rebuild a brand. cations in 18 states), says that although franchisee inter- Metz brings a canny insider’s knowledge of what it takes ests must be a priority for a franchisor, the franchisor’s to implement change in a system—especially when there’s role must be respected. a price tag attached. For example, he took an innovative “When I was a franchi- approach to making system-wide changes at Hur- see, there was no way I was ricane Grill & Wings. “Instead of sending a memo to ev- going to pay the royalties erybody to buy this and that, we sent out the equipment and then not listen to my they would need. We want to be consistent, and it’s hard franchisor,” says the for- for anyone to refuse to conform when someone is sending mer franchisee of Wendy’s, you the piece of equipment you need to do it,” he says. Chuck E. Cheese’s, and Then there’s the big picture: money. “The fact that I other brands. “Yes, I wanted never could grasp was that I, as a franchisee, had more to go beyond that—to be money invested in the company than anybody at corporate. even better—but I always There were bureaucrats and corporate executives making did it within the boundar- decisions based on the benefit to the franchisor—not on ies of what my agreement how it affected the bottom line and the franchisees,” he says. required.” “As a franchisor, you have to keep all your stakeholders For Rudolph, the “zee- in mind—your owners, employees, franchisees, and suppli- zor” relationship boils down to three essentials. “I say ers. You have to invest in the success of others. I consider it all the time: it’s about trust, respect, and belief. And our franchisees to be our partners. If they have financial it has to go both ways—100 percent. If we can do that difficulties, we try to solve the problem. If we can’t, we together, we’ll have a great relationship.” grant royalty relief for underperforming franchisees. It’s the right thing to do.” n

Franchiseupdate Issue I, 2012 17 By KEITH GERSON Anatomy Lead of a Start-Up Market A New Brand Grow Sets Sail Par t 4 EarthFruits Yogurt pursues its dream

18 Franchiseupdate Issue I, 2012 elcome to the final in- you have a significant North Ameri- plethora of multimedia with pictures stallment of “Anatomy can presence”; “You’ll need to rely on and videos of great-looking product, of a Franchise Start- lead generation websites”; “Don’t use videos of a store vibrant with happy W Up.” EarthFruits Yo- brokers”; and “You’ll need at least 100 customers and the surrogate represen- gurt, which began its journey in mid- leads a month to generate one sale.” tations that spoke to a business that, 2010, now has one and a half years We politely decided that what got for all intents and purposes, appears under its belt. Over the course of this you there yesterday may not get you to have been there for years. series, I’ve done my best to give you there tomorrow. This was critical in winning the a transparent glimpse into our new A few steps were critical, starting support of brokers, who could see system. In this last article, you might with our investment in a great-looking we had a going business and a clearly begin to draw your own conclusion as and informative website, complete differentiated brand. Now, our bro- to whether or not we have any chance with a “brand video” (which we cre- ker strategy won’t work for all; we of achieving our lofty vision of be- ated and executed on our own), and a were fortunate to have a previous and coming the “ of the Frozen proven reputation of being straight Yogurt Industry.” shooters and closers. We, every bit as much as our concept, were part of the Franchising sounds great: The economy initial appeal. Not all franchise bro- you go first is definitely kers invited us in at first. Two firms Few of us would disagree that franchise wanted us to have several franchisees sales in today’s economy is challenging creating open and operational for at least six at best. But how much more so for a months before they would invite us new and emerging brand that few have challenges for into their portfolio. The brave brokers even heard of? I believe the economy who opened their hearts to us initially is definitely creating challenges for those looking have been amply rewarded. We made those looking for franchise financing, our decision to favor the broker ap- but it also has created unprecedented for franchise proach, following a decision to not levels of interest for those looking to overspend on portals to less-than-likely break their reliance on the job mar- financing, stellar results. We concluded that, as ket by being in business for oneself. a start-up, we didn’t need a lot of tire I believe that the term “franchise but it also kickers—we needed the highest level sales” is a misnomer. You can’t “own” of pre-qualified prospects possible. the brand. In my estimation, what we has created This approach has paid dividends. Now are doing is helping to match our brand that we are finding our mojo, it’s time vision with the goals and aspirations unprecedented to diversify by employing a pay-per- of franchise prospects. We can cre- click and microsite strategy that we ate the environment, but it’s typically levels of are highly optimistic about to round your existing franchisees who “make out our franchise marketing strategy. the sale” through their goodwill and interest for positive validations. This can be ex- those looking Validating in a new tremely challenging when you have franchise system no (or a limited) proven history, no to break their One of our biggest challenges as a brand awareness, limited press, and new system was answering questions no validators. Now, allow me to turn reliance on related to earnings potential. We had convention on its ear. but one corporate location, and every the job market candidate invariably wanted to know A contrarian’s point of view how much they could make, or at the Experience is a great teacher, but there by being in very least information about the mar- are times you must blaze your own gins. Without any franchisees initially, trail. Many of my seasoned franchise business for we purchased an industry report from friends have offered advice, includ- FRANdata (also available from orga- ing: “Don’t franchise abroad until oneself. nizations such as Franchise Help and

Franchiseupdate Issue I, 2012 19 Anatomy of a Start-Up Lead

OpenFran.org) for a fee that included than happy to do what they could to Item 19 earnings representations in Through the end of help the brand grow. some cases. Making prospects aware our first full year Each Tuesday night, these franchi- that they could acquire these types sees (on their own) host a call for can-

Market of reports on their own and referring of franchising, we didates where they share their experi- the candidates was invaluable. There ences, projections, business plans, and is even a database of free FDDs avail- have licensed 30 answers to questions. We were quite able online at Cal-EASI ( U.S. locations and fortunate that all of our new fran- Grow Department of Corporations). At this chisees were intelligent, charismatic, point, it may feel like you’re selling have commitments open, communicative, and passionate the invisible, and though you may have about what we stand for. They all were limited information to share at this for 13 more. willing to share their experiences and, stage, there are no negatives. as a result, have contributed to more than 90 percent clos- Progressive ing rates for candidates discovery who actively enter our Following a comprehen- process. sive and proven process to qualify candidates, we Now expanding culminate in a discov- worldwide! ery day at our Salt Lake Through the end of our City headquarters. As first full year of franchis- it is in our EarthFruits ing, we have licensed 30 cafes, it’s all about the U.S. locations and have experience. As candi- commitments for 13 dates enter our offices, more. We are closing in they are greeted with a excess of 90 percent of physical lineup of all of everyone who becomes our extremely approach- actively engaged in our able executives and em- process. We’ve licensed ployees in branded dress the rights to Qatar and shirts, their sole purpose are nearing completion to convey that we can of international devel- find our success only opment in the United by helping them to find Arab Emirates, for the their success. whole of , and at It has been critical least a half dozen other to convey that we are focused more Choose wisely international markets. I don’t believe on their success than on the physical If there is anything we’ve learned that any other frozen yogurt franchise growth of our system. Ours is a very during this journey, it’s not to be too experienced this level of development relaxed environment where we place anxious to secure that first franchisee. in their first year as we have. As a result, no pressure on the candidate to “buy”: Your first few franchisees will deter- I’m certain both our early adopters it’s a great fit, or it’s not. These po- mine your success. If you decide, as and we are going to enjoy the “fruits” tential franchisees always leave saying we did, to provide those early adopt- of our labor. n that one of the deciding factors was ers with certain advantages for being the honest, authentic, knowledgeable, pioneers (such as a larger territory Keith Gerson is COO of Sopra Brands, and caring manner in which all of our and extra support), be sure to ask for whose parent company, Sopra Capital, employees and management conducted a favor in return. Seek in exchange operates the brands EarthFruits Yogurt, themselves. We’ve learned that one their commitment to speak with other HouseMaster Home Inspection Services, of our greatest assets as an emerging qualified candidates and to serve as a Teriyaki Stix Japanese Grill, HomeSer- brand is our ability to provide direct promoter (if and when deserved). It’s viceNet.com, GFEazy, lunchboxers, and access to members of our executive the classic law of reciprocity, and all Hogi Yogi. Contact him at 801-503-9214 management team. of our initial franchisees were more or [email protected].

20 Franchiseupdate Issue I, 2012 Is Your franchIse sYstem credItworthY? You may think so, but do lenders? When a bank considers your mortgage application, it looks at your credit history. When a lender considers your franchisee’s loan, it looks at your Bank Credit Report.

The Bank Credit Report (BCR) A Bank Credit Report (BCR) addresses lender’s questions about the creditworthiness of your franchise system. In the current conservative lending environment, if you don’t provide information about your system’s performance history, lenders assume the worst.

Your BCR will provide lenders with an objective, 3rd-party evaluation of the performance of your system in comparison to your immediate peers and your industry. The report also provides you with an opportunity to explain any risk issues that may be present by allowing you to include appropriate Management Comments if you choose.

In the words of Shelly Sun, CFE, CPA, and CEO of Brightstar Franchising, “with hundreds of loan requests, the ones who make it easier and show they have nothing to hide, get the loans.”

To request a Bank Credit Report for your franchise system, call FRANdata at 800.485.9570 More than 80% or visit www.frandata.com/BCR. of loan packages that include a Bank Credit report are suCCessful.

© 2011 Franchise Information Services, Inc. 4300 Wilson Boulevard Suite 480, Arlington, VA 22203 Leadership franchise system. ary toward recklessness. guru Franchisees also look at the execu- I have faced moments like this in my tive team’s track record. They evalu- own business career. In 2008, Firehouse Lead ate the way the brand is managed, as it Subs was faced with the challenge of affects their operation of the business. declining comparable sales. In the ab- But more important, they are looking sence of a plan that would lift sales, I for brand leadership. The distinction allowed the franchisees to stop sending between management and leadership in their 2 percent advertising fee. In-

Market is significant. Great management is stead, I told them to keep their money. functional in nature, while great lead- In the absence of a winning advertising ership is inspirational and drives the campaign, I would empower them to people within the brand to achieve at market their business locally.

Grow a level higher than they might do on But before I had ever made that de- their own. cision, I thought through the contin- Great leaders restore calm and rea- gency plans. If the franchisees failed to son when the team is under pressure lift sales through their own local store and duress. Great leaders create an marketing efforts, I would have to be environment where team members prepared to step back in with a solution. have mutual respect for one another Empowering the franchisees didn’t and put the success of the team ahead work. But within six months, we were of their own interests. Great leaders in- well on our way to selecting a new agen- spire people to act because of a sense of cy. I later announced to our franchisees purpose, not out of fear of retribution. that I would not only start collecting The qualities a leader needs to instill the marketing fee again, I would also Leadership this sort of drive and motivation are ask them for an additional 2 percent far different than the recipe for a suc- that would enable us to purchase suf- by Example cessful manager, and your franchisees ficient media. We demonstrated lead- will certainly look for these points of ership by testing the program in our Earning the confidence differentiation. 25 company restaurants, a classic case Prospective franchisees will look at of leading by example. of franchisees your track record of critical decisions. The franchisees placed their trust in Existing franchisees will judge you on the leadership of the company. Since By Don Fox the basis of their direct experience under that strategy has been implemented, your leadership, and their commitment we have enjoyed more than 2 years of eadership is a fundamental to the business will be directly shaped comparable store sales growth, reached ingredient for the success of by that experience. an all-time high average unit sales vol- a franchise concept. When As the leader of a brand, you must ume, and have grown our system by franchisees invest in a brand, not dismiss this dynamic. You should more than 130 restaurants. This is the L be thoughtful and reflective, do your result of leadership at a critical time in they are casting a vote of confidence in the leadership team. After all, if the due diligence, and consult with oth- a company’s history. franchisees don’t believe in the leader- ers as part of your decision-making Without effective leadership, and ship team, why would they put their fi- process. But there will be times where without the accompanying confidence of nancial resources at risk with the brand? expediency is of greater consequence, your franchise community, your brand So, what might a franchisee be looking and it is at these moments great lead- will never reach its full potential. n for in terms of brand leadership? ers really shine. The franchisee’s first impression General Patton once said it best, Don Fox is CEO of Firehouse of America. may be of the leadership styles of the and I will paraphrase: A plan that is Under his leadership, the brand has grown CEO and executive team. Is there any 80 percent right, executed at the right to more than 475 restaurants in 28 states one right or best leadership style? The time, is better than a plan that is 100 and one U.S. territory. He sits on various short answer is “no.” Every leader, in percent right executed too late. In boards in the restaurant community and is some form or fashion, blazes their own business, this translates into the old a respected speaker, commentator, and blog- trail. But at the root of great leader- saying “paralysis by analysis.” There ger. He was named one of 10 Executives to ship must be the belief that before you are times in many walks of life where Watch in 2011 by Nation’s Restaurant can lead others, you must lead yourself, leaders must seize the moment. But News, is a 2011 Golden Chain honoree, and hold yourself accountable for your never forget that it should always be and was recently recognized by NRN as own actions and decisions. Leadership a calculated risk. A bold plan without 2011’s Operator of the Year. Contact him by example is a critical trait within a contingencies risks crossing the bound- at 904-886-8300 x248.

22 Franchiseupdate Issue I, 2012 Multi-Media Products for FRANCHISE RECRUITMENT

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right Market. Greater results. Human resources communications, when done properly, brand and our system unique? it is an investment in your business’s fu- • When people buy from our com- Lead ture success that is directly measurable. petitors, why do they do it? Devoting time, money, and effort • What do our best customers and enhancing the skill sets of your entire potential customers care about most? work force helps your system in so • What are the primary tasks an many ways. Bettering your employees individual needs to master to deliver Market and partners betters your chances for on total customer satisfaction? innovative problem-solving, customer • After someone has mastered the retention, employee retention, and primary tasks related to a specific job, ultimately, sustainable and profitable is there an opportunity to cross-train

Grow growth. on other tasks to ensure even better Conventional wisdom about train- customer experiences? ing in an economic downturn says When you can identify the answers it’s too important to cut off abruptly. to these questions and effectively train Unfortunately, many franchisors have people on them, you will have earned been forced to do it anyway. I maintain a distinct and sustainable competitive that their behavior is simply a survival advantage in any market. Regardless instinct. They know it’s only a short- of what is happening in your product term cash-flow fix, but they believe they or service category, company, or com- have no choice. Therein lies your op- munity, investing in your system’s tal- portunity for a long-term competitive ent always makes sense… and it makes Potential for advantage in today’s market. even more sense when others aren’t I sometimes have a problem with doing it like they should. Greatness the word “training.” The concept is so Here’s one final training opportunity. general it doesn’t really mean anything. No matter how hard I’ve tried in the Now is the time to I am concerned that too many franchi- past, there are two things for which I train your talent sors focus their training investment in can’t really train: innate problem-solving the wrong areas. I call it push-button ability and general pleasantness. I can’t By Steven S. Little training: “Here’s how you push the train someone to be smart and I can’t button on that point-of-sale system to train someone to be nice. I can improve make it work. Here’s how you push the their acumen on specific skills and I can “All of us do not have equal talents, button on your computer to produce increase their respect for other people but all of us should have an equal oppor- this report. Here’s how you push the to a degree. However, it is always better tunity to develop our talents.” button on the phone system to trans- to train smart, pleasant people to do —John F. Kennedy fer a call.” Too often “training” means their jobs better. People who struggle teaching new hires and new franchisees with learning have trouble grasping ur people are our how to work with your internal pro- what you need them to know. People greatest asset.” cesses and procedures. Obviously, some who don’t have good people skills can If somebody of this is necessary for any system, but improve those skills, but they never “O were ever to build it’s not the opportunity. approach the level of “great.” the Hollow Business Phrase Hall of Here’s your real training oppor- Never settle for less than potentially Fame, this one stands right up there tunity: Be sure that everyone who great people in your company—and with “Your call is very important to works with and for you is steeped in be sure this notion carries through us.” Everyone says it because it makes customer-driven training. What satisfies to your development strategy. It will sense. Yet when times get tough, too your ultimate customers and potential be next to impossible to get less than many businesses abandon investment customers is never obvious. Your entire great franchisees to attract, train, and in their people. Studies and surveys team benefits from training systems retrain truly great personnel. n for years have shown that business that continuously teach them what re- leaders recognize the value of train- ally matters to those they purport to Steven S. Little is a sought-after expert ing. You don’t need me to regurgitate serve. Answers to the following ques- on business growth and the future of op- these consistent findings to tell you tions are what effective employees at portunity. He is the author of three books on something you know is true. all levels really need to know: business growth and was a keynote speaker Developing your internal employees • Why do people buy from us? at Franchise Update’s Leadership & Devel- and your franchisees should never be • How do we do things differently opment Conference in October 2011. Visit viewed as a cost center. Like marketing than anyone else? What makes our him at www.stevenslittle.com.

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Sources: 2010 Mendelsohn Affluent; Head of Household Survey, HHI $100k+ ©2011 Dow Jones & Company, Inc. All Rights Reserved.

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Franchiseupdate Issue I, 2012 25 rke ma ting e i n s li h n a r O d Resources . it takes.

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$2,650 Value yodle.com/analysis Market Consumer marketing initiatives Feature: Is All Marketing Local? 28. Boosting unit-level sales CMO Q&A: 32. Auntie Anne’s Heather Neary on franchisee partnerships At the end of the day, as a franchisor, “we need to consistently make sure we are placing ourselves in our franchise partners’ shoes and fully understanding the challenges they are facing. 32 —Heather Neary ” 34

CMO Roundtable 34. “What role does franchisee satisfaction play in your overall marketing strategy?”

34 Legal 36. Dot-complicated! New domain names up for grabs 34 Consumer Data 38. Retail sales, gift cards show late-year uptick

Connecting with Customers 39. “Moneyball” teaches customer loyalty lessons

Franchiseupdate Issue I, 2012 27 By Helen Bond Lead Local Marketing Market Rules! Grow Ratcheting up unit-level sales

hen Lenny’s Sub Shop offered fans who Boca Raton, Fla.-based Synergy Brand Management, “liked” its Facebook page a free half-pound which provides turnkey branding solutions for franchises. sandwich as part of a Valentine’s Day promo- “The real focus in marketing has to be on the local W tion last year, the Memphis-based franchise level,” says Lechner. “What we talk to our customers about felt the love. In just one week, this 21st-century word-of- is the ‘war zone’—that one- to three-mile radius around mouth campaign attracted 40,000 new social media fans their location. They have to win that battle every day.” eager for a coupon to gobble down a -style sub on the house at their local Lenny’s. Local marketing vs. branding This February, Lenny’s planned to launch a different Historically, says Lechner, companies have taken a shot- deal with the same goal: reward loyal customers and use gun approach to marketing that can appear even more the virtual world to bring new folks through the door, says scattered than in past years with the advent of Facebook, Brent Alvord, president of Lenny’s Franchisor, which oper- Twitter, podcasts, and other digital tools that have put a ates 150 restaurants in 18 states. The successful sweetheart new face on “guerilla marketing.” This combination of local store marketing strategy is part of Lenny’s efforts to new media channels, fierce competition, and consumers become a strong national brand. with less cash to spend, have made it vital for franchisors In today’s economy, minding the local store can go a to assume a larger role in providing tools and formal sup- long way toward boosting a brand’s growth and nation- port systems, such as local marketing plans, to ensure their wide image, says Sandy Lechner, president and CEO of franchisees’ success through a consistent brand message.

Brent Avord

28 Franchiseupdate Issue I, 2012 “A successful franchise is on top of for the chain, Synergy assisted in cre- their marketing,” says Lechner. “Mar- “The real focus ating system-wide point of purchase, keting is just one of those things that, limited-time offers, and catering kits. traditionally, is ignored at the franchi- in marketing Once a company has the data in sor level. There has been a lot of focus place, Lechner advises clients to cre- on real estate and operations, but the has to be on ate and track a marketing plan aimed best way to sell franchises is to have at driving traffic, trial, and retention— successful franchisees that can validate the local level. with separate strategies and budgets for for you.” each. One of the biggest, most costly Most small to medium-sized franchise What we talk to marketing mistakes a brand can make is systems lack the market penetration and to send the same message to everyone. continuity, thus the economies of scale, our customers At Lenny’s, Alvord rarely prints a for brand marketing to pay off. Unless a coupon without plenty of forethought. franchise is an equity brand that enjoys about is the ‘war The company uses “measurable mar- a - or McDonald’s-like market keting” techniques, tracking results penetration, or a strong regional pres- zone’—that one- through its proprietary point-of-sale ence such as In-N-Out Burger, Lech- system, which allows management to ner advises branding efforts to focus to three-mile quickly assess the value of a strategy or on trackable, wisely spent local store program. For instance, marketing to local marketing (LSM) programs. radius around schools easily raised local store spirit, These ROI-based programs gather while a direct mail piece to pharmaceuti- customer information, build strong their location. cal representatives for catering services customer relationships, bring in new fell flat, says Alvord, whose background patrons or buyers, and keep them com- They have to at , FedEx, and AOL (who ing back—or, in “marketingspeak,” they can forget those ever-present installa- drive traffic, trial, and retention. win that battle tion CDs?) makes him well-versed in Synergy, which counts Lenny’s, Hun- the value of low-cost buzz. gry Howie’s, , and Oxi Fresh every day.” “Most of the time, franchisees can Carpet Cleaning among its clients, works see that marketing pays for itself,” he —Sandy Lechner with companies to create formality in says. In convincing his franchise advisory a brand’s marketing message, offering franchisors a one- council to embrace the Valentine’s Day giveaway, Alvord stop shop for driving traffic and building brand loyalty. estimated most of the customers would buy chips and a Franchisees can then use an online portal to take advan- , providing a margin that would help offset some tage of company-approved direct mail, apparel, banners, of the cost of the free subs. All but a handful of Lenny’s grand opening kits, loyalty programs, and other in-store franchisees participated in the promotion, which garnered materials designed to provide a cohesive message that a significant media attention and brought additional, new local unit can use based on its demographic needs. Under- customers through the doors. standing those local needs is key to a campaign’s success. Lenny’s has tried other social media methods to raise brand awareness and connect customers to local restau- Mine every opportunity rants, including Facebook’s “Social Wednesday” deals and Strong marketers know their local markets—those who “12 Day of Giveaways” campaign. During the December live, work, shop, and dine in the primary area surround- promotion, each day brought a new giveaway and re- ing their locations—that “war zone” Lechner describes. ward, such as Day 11, when the first two people to post Fortunately, with today’s technology, it has become vastly a photo of themselves in a Lenny’s with their sub and a easier to compile, slice, and dice demographic data to straw mustache received $50 in Lenny’s gift cards. How- create a marketing plan, reach every potential customer, ever, Lenny’s, which uses heavy direct mail and customer and evaluate the ROI. Even market mainstays can benefit loyalty and retention strategies, does not intend to be a from this approach. “discount trough,” says Alvord. The desired result, he says, Take Hungry Howie’s, for example, with 575 locations is “creating long-term relationships.” in 24 states. When Lechner conducted direct mail and No matter how you choose to market your franchise customer acquisition testing for the company’s CEO, the on the local level, in the end, each local franchisee must data revealed that some stores did business with only 20 deliver to complete the sale. Lenny’s encourages its fran- percent of area constituents. “He had successful units, chisees to make customers feel at home, emphasizing the but he was only skimming what he could be doing,” says brand’s sliced-to-order meats and cheeses and no-trash- Lechner, who partnered with Hungry Howie’s in its re- can policy. Says Alvord, “The best marketing we can do branding effort. In addition to creating a turnkey program is to provide service in our restaurant.”

Franchiseupdate Issue I, 2012 29 Local Marketing Rules! Lead

Local marketing winners “We miss you” message when a customer Local marketing methods make it easier hasn’t visited in 30 days. than ever to build relationships. Lech- • School and fundraising programs. ner’s take on the following strategies Fundraising programs create both emo-

Market provides plenty of ways to build your tional customer bonds and community brand at the local level. loyalty. These programs, aimed at Girl • Direct mail. It may not sound as Scouts, Boy Scouts, churches, syna- sexy as social media, but direct mail still gogues, Little Leagues, school bands,

Grow delivers. Lechner considers direct mail and school sports teams and clubs are to be the best, most cost-effective, and traditionally inexpensive, and outside traceable way to reach prospective and groups can become part of your mar- existing customers—and says it should keting team. Strategies include coupon be the largest component of an LSM books with weekly or monthly offers campaign. Use saturation direct mail and special nights when a percentage campaigns for grand openings, new of sales benefits a specific group, team, product launches, and limited-time or charity. offers. Targeted and personalized mail • Social media. While the ROI from Sandy Lechner work for specific messages, such as social media marketing is still a moving “Happy Birthday,” “Welcome to the neighborhood,” “We target, Facebook, Foursquare, or Twitter, for example, can miss you,” and “Thank-you” programs. A database mail be an important part of the mix for promoting new loca- campaign also allows companies to select specific criteria tions, new products or menu items, day-part specials, and and focus dollars on the targeted prospects to communi- events. While social media is about engagement, it can cate specific messages at selected times. lack customer acquisition tools or the ability to distin- • Day and day-part promotions. Since most of Len- guish between prospective and existing customers. The ny’s customers dine before 4 p.m., Alvord is a big fan of deal-of-the-day discount website Groupon, for instance, specific day and day-part specials. These methods, used may attract new customers, but it also offers an unneces- frequently by retail and food service businesses, work to sary discount to those loyal to the brand. Lechner says the build loyalty and traffic for selected use of email and social media is smart, groups, individuals, organizations, and When Lenny’s but it should be used for “customer cultures. Parents will drive across town loyalty, retention, and brand aware- to dine or shop at a place that benefits converted ness—period.” their child’s team, group, or club. By • In-store, four-walls marketing singling out segments of a prospect or programs. Your best prospects for loy- customer base, your system creates an its loyalty alty and upsell opportunities are those emotional bond and sense of loyalty that already in your location. Walls, tables, cannot be replicated. Some examples: program from a counters, shelves, ceilings, floors, and Military Night, Kids Eat Free, Teachers’ sound systems all present opportuni- Night, Student Night, Senior Night, and stamped card ties to build customer loyalty and in- special nights for sports teams. crease sales. For instance, food brand • Loyalty programs. A strong loy- to an electronic customers should never leave without alty program is one of the easiest, most to-go, catering, or delivery information. productive ways to create long-lasting format, nearly Limited-time offers should be promoted relationships with customers and better on window clings, table tents, counter understand their habits. Programs can be 120,000 cards, ceiling dangles, , bounce- based on number of visits, dollars spent, back coupons, and employee uniforms. specific products, and selected days or Customer data should be gathered at day parts. When Lenny’s converted its customers the tables, registers, and POS terminals. loyalty program from a stamped card This information is invaluable and al- to an electronic format, nearly 120,000 opted to receive lows for targeted marketing messages customers opted to receive an email and spending. In-store programs should newsletter. This also provides an easy an email also include bounce-back coupons, fly- avenue for the company to send a free ers, and brochures aimed at increasing birthday sub coupon or an automated newsletter. loyalty and driving return business. n

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high level of service they receive from Franchise Partnership the franchisor. It’s a cyclical relationship: one misstep on any of three fronts (fran- Franchisee satisfaction is key at Auntie Anne’s chisor, franchise partner, customer) can Market cause an upset in the equilibrium of the service provided to the franchise partner efining and executing brand customers, which means greater success and to the customer. strategy for more than 1,150 and profitability for all parties.

Grow domestic and international What are you doing to create happy D Auntie Anne’s franchise lo- What factors most determine fran- customers? Fulfilling our founder’s cations is no small task. But that’s exactly chisee satisfaction at Auntie Anne’s? threefold philosophy of service, quality, what Heather Neary does as chief mar- At the root of franchisee satisfaction is and cleanliness. When we can serve our keting officer for Auntie Anne’s (acquired knowing our franchise partners are happy customers a great-tasting product with by Focus Brands in 2010). As a result, with the level of service we’re providing a smiling face and a clean store, we will Neary has learned that happy franchi- them, whether it’s in our responsiveness continue to create a lifetime of happy sees make satisfied franchisees, and that to a POS issue, our level of sophistication customers. makes everyone more successful. in our marketing efforts and reaching our Neary has been a part of Auntie Anne’s target audience, or the expertise provided How are you creating satisfied marketing department since 2005, and by our field operations/business consul- franchisees? By providing them with under her leadership, sales grew the same service we hope they from $275 million in 2006 to more provide to their customers. We than $370 million in 2010. We treat them as true partners, of- asked her to discuss franchisee fering them respect and time- satisfaction within Auntie Anne’s ly responses to their concerns. and the types of business consul- Since 2006 we have partnered tation and support services the with The Franchise Research brand provides for its franchisees. Institute and implemented its confidential FranSurvey evalu- What is your role as CMO? ation tool to gain feedback from As a chief marketing officer, it is our franchise partner community. important for my role to work Auntie Anne’s has received the collaboratively with all internal World-Class Franchise distinc- departments to ensure that ev- tion for its high marks in franchise ery decision we are making is in satisfaction for the last five years. the best interest of our franchise Key categories where we have partners’ long-term success. It consistently experienced high can be easy for organizations to marks include overall quality of fall into the trap of working in your franchisor; initial training silos and developing territorial and support supplied; quality of boundaries. A multidisciplinary products and/or services from approach is critical to having your franchisor; and “My fran- the best outcome of business chisor and I are committed to a strategies. positive, long-term relationship.” We closely evaluate this feedback What does “franchisee satisfac- tants. These components, and more, lead on an annual basis and determine the ar- tion” mean at Auntie Anne’s? Our to highly satisfied franchise partners. eas where we can continue to challenge franchise partners are truly our partners. ourselves to improve in delivering sup- For them to be satisfied, we need to go How do “happy customers” affect port and services. above and beyond on every facet of our franchisee satisfaction? Happy cus- business operations. When our franchise tomers—those at the store level—are How does having satisfied fran- partners are satisfied, they are able to happy, no doubt, because the franchise chisees affect your long-term suc- focus on their day-to-day operations in partner is satisfied and is able to focus on cess as a brand? The benefits are their store(s) and can better serve our service to the customers because of the immense. We are a far more effective

32 Franchiseupdate Issue I, 2012 system when we are proactive in our to customize elements of our POP to gives us a solid snapshot of how they relationships than when we are “fixing” meet their local needs. All these tools, are feeling in terms of satisfaction with issues. We listen to our franchise part- as well as the collaborative nature we us as the franchisor. ners and work very diligently to create demonstrate with our leadership fran- a relationship that allows us all to speak chise partner group on constructing Happy customers and satisfied frankly about what’s working and what’s multi-layered marketing campaigns, franchisees result from a healthy not working. This open dialogue allows help to drive franchisee satisfaction. and successful brand. What are you us to focus on the future and continuous doing to create and maintain this? improvement all around. What role does your franchise advi- We focus on continuous improvement. sory council play in franchisee sat- Our processes are by no means perfect How is your operational support isfaction? Auntie Anne’s has a unique and are constantly evolving to meet the strategy helping to create satis- approach to the role of our franchise needs of a growing and diverse franchise fied franchisees?Our field operations advisory council. We engage with our organization. By being open to evolution, team spends their time in the stores every council on every facet of our business. we are able to maintain satisfaction from day, allowing them to truly appreciate Weekly conference calls and email dia- our franchise partners, which leads to what’s happening at the store level. Our logues are supplemented by quarterly happy customers. We are accessible to operational support strategy focuses on in-person meetings where the two-day our franchise partners and they know giving our franchise partners the tools agenda is jam-packed to discuss every they can reach out to any individual on they need to be their best. Each is at a topic, from equipment and distribution the corporate team if they have concerns different place in their Auntie Anne’s concerns to cost of goods and marketing or a question. We pride ourselves on pro- journey. Our field team is trained to efforts. Our level of engagement with viding the same level of care that Auntie recognize this and appreciate that while our franchise partners, we believe, has Anne herself first demonstrated when she one might want some additional op- had a direct impact on their satisfaction. began the organization in 1988. erational training, another might want additional guidance on managing their How does having satisfied fran- What is your single biggest chal- cost of goods or labor rates, while still chisees affect your referral pro- lenge with respect to franchisee another might be seeking ways to better gram? Our formal referral program is satisfaction, and how are you deal- reach their target audience through lo- just getting started this year. In the past, ing with it? In general, we are burdened cal marketing. Our field team each has however, many have joined our system by factors that are outside of our control. a set of stores, and each store is visited as the result of a more informal referral The economy and the changing landscape about five times a year with additional from someone already involved with the of the malls (where we have our largest standard communications occurring brand. Across the system, many of our presence) have both presented challenges between visits. strongest franchise partners nurture and to our franchise partners and, in turn, to develop strong managers to eventually Auntie Anne’s as the franchisor. We are Do you require your franchisees become franchise partners. In addition, addressing the poor economy by con- to participate in local level mar- we have several families who have all tinuing to be innovative in our marketing keting? How does this help with become active franchise partners. and menu development efforts to make franchisee satisfaction? We provide sure we are the number-one option for several different tools to aid our fran- How do you measure, determine, our target market. On the leasing front, chise partners with their local marketing or monitor franchisee satisfaction we have continued to engage with our efforts. We do request that each spend over time? As I described earlier, we landlords and develop relationships with 1 percent of their annual sales on lo- have found it beneficial to partner with them so we can better understand where cal marketing efforts. To assist them in an independent franchise research firm they are coming from when they make this effort, we provide a team of local to conduct confidential surveys with leasing decisions. By nurturing these re- marketing specialists who are available our franchise community on an annual lationships, we are able to work with our to help them create tactics that meet basis. We are able to secure a report landlords and franchise partners to secure their defined strategies. We also have of the cumulative experiences of our successful locations. At the end of the day, an “Idea Generator” resource binder current franchisees. This information as a franchisor, we need to consistently each possesses and is encouraged to use helps determine the areas where we make sure we are placing ourselves in that offers a plethora of tactical ideas for need to focus our attention and/or our franchise partners’ shoes and fully ways to increase sales at the store level. have additional open dialogue with understanding the challenges they are We also offer an online local marketing our franchise partners on specific top- facing. We can then together work on toolbox that gives them the opportunity ics. Taking this approach consistently strategies to overcome the challenges. n

Franchiseupdate Issue I, 2012 33 CMO Lead roundtable: What role does franchisee satisfaction play in your overall marketing strategy? Market

John Dillon, Denny’s believe will work best in the field. the knowledgeable insight I get from my Vice President, Marketing Involving your franchisees in brand franchisees. However, in some situations Denny’s has nearly 1,700 decisions is critical for the success of a I need to be the guiding hand who in- Grow restaurants worldwide, brand. A company’s franchisees are in the sists on keeping it about the brand and nearly 90 percent owned field operating a brand’s restaurants on a the consumer. In doing so, finding the by our franchise partners. daily basis and see and hear firsthand how middle ground can be a bit difficult. Our franchisees, com- marketing initiatives are received by the Finding that sweet spot, where franchi- posed of a diverse group guests. Their voice is not only needed, sees are satisfied with the product and of men and women who work tirelessly but desired. For Denny’s, inviting our I am satisfied with how consumers will to satisfy our guests on a daily basis, rep- franchisees to provide input and advice interpret and respond, is something that resent the essence of the Denny’s brand. has played an important role in driving takes a lot of practice. The overall suc- They are on the front lines every day our marketing strategy. The satisfaction cess of the campaign is contingent upon speaking directly with our guests, and of the franchise community is crucial to both of us working together toward this their input is invaluable in the develop- the development of a cohesive brand and common goal. ment of our marketing strategy. We strive something that is front of mind at Denny’s When it comes to evaluating a cam- to work in a collaborative manner and in all brand decisions. We’d like to extend paign, we can finally see if the decisions have developed a brand committee com- a heartfelt thank-you to the franchisees we made actually paid off. Here, satisfac- posed of a mix of franchise partners and who sit on our brand council to repre- tion is directly affected by ROI. Was this corporate team members, who work sent the opinions of their peers, as well as campaign something that made money? together to determine the best market- to the franchise partners and field team At this point, the satisfaction of the fran- ing strategy for the brand. members who regularly provide input chisee and my own satisfaction are easily We solicit the input of our franchisees and advice on the brand’s direction. We one and the same. If the campaign was very early in the marketing process to look forward to a collaborative and re- successful, we are both happy. create a true partnership. For example, warding relationship for years to come. The best example I have of this would as we worked to develop our $2 $4 $6 be during the grand opening of a new $8 value menu, which we rolled out Reid Travis, Panchero’s Mexican store. We leverage a pretty heavy radio in 2010, we solicited the input of our Grill, Marketing Director flight during the first few weeks to -an brand council and franchisees early on The satisfaction of fran- nounce to the public “Hey, we’re here!” to determine the most appropriate way chisees in regards to a I often seek some input from the new to introduce the value menu to help marketing campaign or franchisees as to what key media they stimulate sales in a way that would be strategy is crucial to the think would be good to use. Sometimes manageable at the restaurant level. The success of that campaign I get recommendations for media they feedback we received was invaluable in or strategy. Satisfaction personally like. In those cases, I have to determining what products to offer and can come into play during a few differ- be the voice of reason to suggest that how best to market the value menu in ent points in a campaign. On one hand, 18- to 30-year-old males probably aren’t our restaurants. the success of the campaign in the eyes partaking in the same radio stations or In 2011, we introduced our new diner of the franchisees is based on whether programs they are. This is only the first positioning, which reminds consumers or not they agree with the campaign in step of many in getting franchisees to that “America’s Diner is Always Open.” general. This feedback and satisfaction think like a consumer, not like themselves. We have incorporated that messaging into come early on, in the strategy process. This training is vital to building expec- each of our product modules that rolled On the other hand, feedback and satis- tations for future marketing endeavors. out this past year, working collaboratively faction also come at the end of the pro- All in all, I would argue that franchisee with our franchisees through this process. cess, when it is ultimately decided wheth- satisfaction is key to marketing endeav- Our brand council also plays a key role er the campaign was a success. ors in a franchise system. All it takes is in providing input into our marketing In the early stages of a campaign, a little work with education, managing calendar for the following year, helping when the details are still malleable, satis- expectations, and being willing to take to prioritize what our key initiatives will faction and feedback can mesh together and respond to constructive feedback. be and providing insight on what they and alter the eventual outcome. I value When all of those points come together,

34 Franchiseupdate Issue I, 2012 CMO roundtable

a campaign has the ability to run more see is required to do. It does not excuse We got a ton of PR exposure from the effectively. them from honoring the rules, offers, promotion. However, the franchisees and program parameters that we set. and corporate team agreed that this Jodi Boyce, Camp Bow Wow They are part of the national promotion particular promotion relied too heavily Senior Director of Marketing even if they don’t have to do much other on franchisee participation. We know from experi- than know the details, and can reap the For 2012, we are launching a contest ence that if we don’t have benefits of the national campaign with called Bad to the Bone—the search for franchisee buy-in on a little or no effort on their part, apart America’s worst-behaved dog. Although marketing program or from their marketing ad fund contribu- all the same business strategies apply, promotion, the execution tion. However, for those who want to the major component taken into con- will fail and we won’t get participate further, we do provide all the sideration when planning this was for the results we want. Our marketing strat- local marketing materials, tools designed our franchisees not to have to actively egies are based on the business goals set to enhance the results in their market. contribute in order to participate. So by our corporate team, but for 2012 we But the national promotion and results far, their comments have been positive, looked only at marketing programs that will not rely on them. and those who want to promote more require little or even no active participa- In 2011, we ran a promotion called to their customers and local market are tion by the local franchisees for the pro- the Furry Fitness Challenge, where pets doing their part and we are providing motion to be a success. and their owners had to lose weight to- the tools. Although it’s difficult to satisfy every gether and the team with the greatest So although our business goals will franchisee, we feel that our new direction combined percentage of weight loss won. ultimately outweigh factoring in franchi- of optional participation marketing pro- It was very involved and required a lot see satisfaction, we are aware that it’s a grams will satisfy the majority. Optional of work on the franchisees’ part, includ- vital part of the planning process if we participation, however, refers only to the ing scale rentals, partnerships with local want the programs and promotions we amount of local promotion the franchi- vets, database management, and more. create to be successful. n

2012 AFDR NOW AVAILABLE! The 2012 Annual Franchise Development Report n How does your sales budget compare with those of (AFDR) delivers data from 110 franchisors with 109,936 units, other concepts in your market? with responses organized by industry, unit investment, system- n Social media: How are franchisors using it to recruit wide sales, and more. Each year, the AFDR provides franchisors candidates? with the ideal tool for digging deeper into their own The 2012 AFDR is packed with timely infor- development practices, benchmarking their sales mation and benchmarking data that can help and recruitment budgets against their own industry your franchise system grow faster and close categories, and setting goals and budgets for the more deals—while saving thousands in cost coming year. The report also includes research into per sale. Based on in-depth interviews with 110 online recruitment practices. franchise organizations actively expanding their The AFDR, the only sales and lead generation franchise systems, this thoroughly researched benchmark report available in franchising, identi- report reveals the franchise success drivers fies industry sales trends and top lead genera- that are sure to boost the output of your sales tion sources for meeting your sales goals. For department. example: Packed with the most comprehensive sales n Are your closing ratios in line with your and lead generation data in franchising, the industry and investment level? 2012 AFDR is a must-buy selling tool for franchisors, develop- n Is your online spending paying off? How do you know? ment consultants, and advertising and marketing suppliers. n Are your brokers delivering—and is their price per deal The AFDR is ideal for benchmarking and building budgets and too high? media plans. n What conversion rates should you expect from your The complete report, with analysis and benchmarks, is website? available for $399 ($299 before 12/31). For ordering informa- n Some franchisors are exceeding their sales goals. What tion, call Sharon Wilkinson at 800-289-4232 x202 or sales@ are they doing differently from those falling below their franchiseupdatemedia.com, or go to www.franchising.com/ goals? franchisors/afdr.html.

Franchiseupdate Issue I, 2012 35 Legal perspective lowing milestones in 2012: 1) January 12, application window opens; 2) March Lead q&A WITH 29, last day to register for access to the ATTORNEY TLD Application System; and 3) April KEITH KLEIN 13, application window closes. Before an applicant can complete and submit By Kerry Pipes their application they must complete a Market registration, which consists of several steps. ICANN advises applicants not to Dot-Complicated wait until the deadlines to register and submit applications; and that the appli-

Grow New domain names bring opportunities, concerns cation evaluation process can take from 9 to 20 months (or longer) to complete. n January ICANN began accept- keep the registry fully operational for at ing applications for new top-level least 3 years. How does a brand owner that does domain (TLD) names. We asked not buy their gTLD protect their I franchise attorney Keith Klein what What are the benefits of owning a brand? After the application process is this means for franchisors. Klein is a gTLD? There are many. The owner will complete, ICANN will publish portions partner at Bryan Cave LLP and is cer- be the domain registrar with the power of all applications, and there will be a pub- tified by the California Board of Legal to regulate both who can obtain second- lic comment period and formal objection Specialization as a specialist in franchise level domain registrations and the cost of process that ICANN advises will last for and distribution law. the registrations. Thus, franchisors who about 7 months. Formal objections may obtain a gTLD for their trademark can be filed on any of four specific grounds, New TLDs are now on sale. What limit second-level domain registrants to including legal infringement and confu- should franchisors know? Currently, authorized franchisees, employees, and sion with an existing or applied-for gTLD. Internet domains consist of 22 generic others they want to allow into the brand All franchisors are advised to monitor the top-level domains (gTLDs), such as .com, community. Using a .brand gTLD may application process, whether or not they .org, .net, etc.; and more than 250 country apply for a new gTLD. A legal rights ob- code top-level domains (ccTLDs), such Using a .brand jection may be made based on registered as .uk, .mx, .jp, etc. Starting this January, gTLD may be the and unregistered trademarks. ICANN, the nonprofit that governs In- next opportunity to Following the launch of the new gTLDs, ternet domain names, began accepting connect, socialize, franchisors and other rights owners must applications for new gTLDs. ICANN and create a social continue to monitor and enforce their expects to receive hundreds of applica- rights in the domain names registered tions for domains in four categories: community. under the new gTLDs. ICANN currently 1) generic word TLDs (.shop, .radio, be the next opportunity to connect, so- proposes to have a “trademark clearing- .franchise); 2) corporate or brand TLDs cialize, and create a social community house” to assist in the prelaunch sunrise (.franchiseupdate, .bryancave) owned by with a brand’s customers and followers. period for the new gTLDs. Trademark trademark owners; 3) community TLDs Ownership of a brand gTLD may also be owners will want to avail themselves of (.historicpreservation) where domains are a way to ensure security with customers the clearinghouse so they may take ad- limited to members of a community; and and contract counterparties. The franchi- vantage of the proposed Uniform Rapid 4) geographic TLDs (.omaha, .london) sor could advise all customers and coun- Suspension System to challenge domain owned by cities and geographic regions. terparties that they will receive electronic names identical or confusingly similar to The new TLDs will also allow the use of communications only from the .brand their trademark. certain non-Latin characters. gTLD and should communicate with persons associated with the brand only What’s next? Brand owners with the Can a franchisor buy the .brand TLD through the .brand gTLD or through an financial wherewithal and who see a busi- for their system? Yes, which means they email address using the .brand gTLD. It ness reason will have to go through the will own and control their new gTLD. also may simplify trademark enforcement application process. Initially, all trademark Franchisors not already in the domain as brand owners will be able to quickly owners will need to watch the proposed name business will be entering into a new identify unauthorized uses of the brand new gTLDs, and then expand their do- business line: domain registrar. Obtain- (e.g., anyone not using a domain under main name registration procedures to ing a gTLD is not inexpensive. Beyond the new .brand gTLD). include 1) registrations under the new the $185,000 evaluation fee and ongo- gTLDs and 2) their policing of domain ing registry operating costs, applicants Q: What about deadlines? The reg- registrations under the new gTLDs they must demonstrate the financial depth to istration application process has the fol- do not obtain. n

36 Franchiseupdate Issue I, 2012 ENGAGE CUSTOMERS, BUILD LOYALTY, GROW YOUR FRANCHISE Two full days of strategies, tools and insights!

Topics include the latest advances in: • Customer Experience Management • Social Media and Mobile Strategies • Marketing Analytics • Aligning Marketing and Sales

Share challenges, share real world solutions. Consumer data use of mobile technology. As a result of consumers being able to download Lead apps to their phones that allow them to price-check items in a store against both brick-and-mortar competitors and online merchants, consumers can now By Tom Epstein make better decisions about whether Market or not it is worth their time and effort to drive to another store or go online No Dips Behind and deal with the uncertainty of holi- day shipping or just buy in the store

Grow Retail sales, gift cards finished strong in 2011 they are in at the time. According to recent studies: etail sales are back! And From the numbers • 29% of smartphone users look up gift card sales are leading products while in the aisles; the way. we are seeing, • 45% of those compare prices with R As of this writing, I still it was not so those at other stores; and do not have all the holiday numbers— • only 8% end up purchasing those but what I have so far is looking very much that there same items elsewhere. good for franchising. For the brands were more sales Smart retailers are embracing mo- we work with, the overall sales increase bile commerce to attract customers was around 12 percent year over year. transactions—it into their stores and keep them there. We saw a good Thanksgiving week- was more that the end, with sales up around 9 percent. sales recorded Card use trends Usually we see a dip after Thanksgiv- Another interesting set of numbers I ing weekend until the week or so be- were for higher saw in a recent payment trade publi- fore Christmas. This year we did not dollar amounts. cation showed the overall percentage see any dip; sales just kept on going. of card transactions worldwide (see From the numbers we are seeing, it Gift Card Sales table below). was not so much that there were more Sector 2010 2011 These trends are expected to con- sales transactions—it was more that the Fine dining restaurant $54 $69 tinue, with Latin America and Asia sales recorded were for higher dollar $33 $41 gaining steam and reaching 10 and 20 amounts. Quick service restaurant $18 $21 percent of total worldwide card pur- Coffee shop $21 $24 Compare this to what Target an- Specialty retail $43 $52 chase volume, respectively, by 2015. nounced as a 1.6 percent increase in Department store $46 $57 This seems to support the strategy same-store sales over the holidays (driven Convenience store $33 $52 of many of our clients, who are look- more by grocery items than by electron- Entertainment $31 $37 ing for growth to continue to come ics). And First Data Corp. (the largest from opening new locations outside processor of payments in the U.S.), in count a gift card sale as a sale on your the U.S. n their SpendTrend indicator, reported an books until it is redeemed), and this increase of 7.3 percent in same-store should lead to a good spring as con- Tom Epstein is CEO and founder of consumer spending. Combining this sumers who received gift cards over the Franchise Payments Network, an electronic information, one could conclude that holidays begin to spend them. payments processing company dedicated ex- consumers preferred shopping at smaller clusively to helping franchisors and their businesses this year—which would seem Mobile on the move franchisees improve system performance, to help franchisees, as most consumers Another trend we are seeing that seems increase revenue, and reduce expenses. view individual franchise locations as to be helping traditional brick-and- Contact him at 866-420-4613 x1103 or smaller, local businesses. mortar merchants is the increased [email protected]. Card Transactions Worldwide Gift cards rock % of total % of total Change Region This trend was especially highlighted (2009) (2011) (%) in the gift card sector. Note the in- 48.8% 47.5% -1.3 Europe 21.9% 22.7% +0.8 crease in gift card dollar amounts this Asia/Pacific 15.5% 16.0% +0.5 year over last in all sectors (see table). Canada 5.7% 5.5% -0.2 Factor in the accounting principles Latin America 6.6% 6.9% +0.3 of gift card acceptance (that you do not Middle East/Africa 1.4% 1.5% +0.1

38 Franchiseupdate Issue I, 2012 Connecting with Culinary Institute of America and was named Amercia’s best new chef in 2010.

customers Lead Kogi’s first “big break” came when it got the idea to contact Los Angeles food bloggers about trying their wonder- ful . The bloggers loved Kogi and By Jack Mackey became powerful advocates. Through their voices, the Los Angeles commu- Market nity began to hear about, and want to Getting to First Base try, Kogi’s food. To enable customers to find them—

“Moneyball” provides insight on customer loyalty and isn’t that a delicious twist on the Grow traditional problem of finding custom- recommend you get your manage- higher the hitting percentage, the higher ers—Kogi used Twitter to announce ment team together and take them to salary a player commanded. That was which locations its food trucks were see the baseball movie “Moneyball,” the tradition in the business of baseball. visiting next. This led to considerable Iadapted from the book by Michael Everyone—except Oakland—was miss- buzz on many of the social networking Lewis. You buy the popcorn and I promise ing the truth: that hitting percentage did services and ultimately generated flash you that “Moneyball” will deliver some not correlate to winning games nearly as mobs showing up to meet the trucks. powerful lessons about winning, and much as on-base percentage. So Oakland Newsweek recently proclaimed Kogi sustaining, customer loyalty. did not just pay less for their players, they “America’s first viral eatery.” If you’re wondering what a movie also got more for their money! There is a definitely a parallel here about baseball has to do with customer about challenging the ROI on tradi- loyalty, I can give you the answer in one If you’re tional marketing versus unpaid market- word: insight. ing through social media. But it isn’t The movie tells the story of how the wondering that simple, because social media only Oakland Athletics first applied statisti- works positively for brands that delight cal analysis to winning major league what a movie customers. baseball games. They built a predictive about baseball If your franchise is still tracking and model where the key variable to winning reporting the combined total of Satis- was found to be getting on base. Lewis has to do with fied “4s” and Highly Satisfied “5s,” you explained it like this: “… if you ran the are missing out on the biggest insight in analysis, you could see that the number customer customer analytics in the past 25 years: of runs a team scored bore little relation loyalty, only Highly Satisfied (i.e., delighted) to that team’s batting average. [Runs customers are loyal. The winning strat- scored] correlated much more exactly I can give you egy for building customer loyalty is to with a team’s on-base percentage and increase the number of delighted cus- slugging percentage.” the answer tomers—that is the percentage of “5s” That “Aha” discovery—what those of in one word: on a 5-point scale. That metric, Top Box us in the customer analytics business call scores, is the one that matters. Think of insight—was a game-changer. insight. percentage of Top Box scores as on-base By having the guts to act on this in- percentage for franchise organizations sight, the A’s general manager, Billy Beane You can compete effectively with larger trying to create raving fans for the brand. (played by Brad Pitt in the movie), was and richer competitors by changing the For more information about how to able to win the same number of games way the game is played. In Los Angeles, shape your customer experience to cre- with a $39 million payroll as the New Kogi Korean BBQ-To-Go provides a great ate highly satisfied and loyal customers, York Yankees were able to win while example. (By the way, you will not find request the free white paper “Driving spending $141 million. Korean tacos in Korea. Kogi is credited Performance with Top Box Scores” at Oakland spent so much less on pay- with inventing them in the US.) www.smg.com/research. n roll than New York by changing the way Kogi is famous both for their Korean they selected players. From Oakland’s tacos and for their use of food trucks in- Jack Mackey is vice president of Service perspective, the patience to draw a walk stead of traditional restaurant buildings. Management Group (SMG), a leading (get on base) should be as highly valued One reason they draw crowds is because customer experience analytics agency that as the ability to hit a single. But that was they have a unique and wonderful prod- improves performance for franchise and “hidden” value because it doesn’t show uct. Their chef is a guy named Roy Choi multi-unit firms. You can reach him at up in hitting percentage. As a rule, the who was valedictorian of his class at the [email protected].

Franchiseupdate Issue I, 2012 39 Top Lead-Generation Sources for Achieving Growth in 2012

Franchise Update’s 2012 Annual Franchise Development Report is the only franchise sales and lead generation benchmark report available in franchising.

Order now! contact Sharon Wilkinson at (800) 289-4232 ext. 202, or email [email protected]

Right Market. Greater Results. Presented by: 42 Grow Franchise development intelligence Challenge the Pros 42. “How does franchisee satisfaction affect your referral program and relate to your overall development planning and process?”

Franchisee satisfaction is a“ pillar of our business. It is both a point of emphasis and a source of great pride for the our executive team and support staff. —Stephen Dixon, VP, Franchise Development, Children’s” Lighthouse Learning Centers AFDR Stats 44. Developing intelligence: Highlights from the new 2012 report Sales Smarts 46. Lessons from real-world mystery shopping responses Market Trends 47. Don’t let the FTC Rule get you down! It’s Closing Time 48. Take the test: What are you saying to candidates?

Franchiseupdate Issue I, 2012 41 Challenge the pros Shawn Caric Franchising Manager Lead How does franchisee satisfaction Dunkin’ Brands Franchisee satisfaction affect your referral program and leads to great validation. Additionally, satisfied fran- relate to your overall development chisees share their success Market and experiences with fam- planning and process? ily, friends, colleagues, and business part- ners. Traditionally, a greater percentage of referral leads become franchisees than Grow Stephen Dixon sure we are serving our franchisees well. any other lead source. VP, Franchise Development As part of the franchise awarding Your best franchisees provide the best Children’s Lighthouse Learning process, prospects make contact with referrals. It may seem obvious, but a refer- Centers as many of our franchise owners as de- ral candidate often shares the same core Franchisee satisfaction is sired. Franchise owners generally do values, competencies, and past business a pillar of our business. It not mind spending focused time with success as the franchisee who referred them. is both a point of empha- qualified candidates… they recall ask- Ironically, it doesn’t appear to me sis and a source of great ing similar questions when making the that monetary incentives are as impor- pride for our executive decision themselves. As a franchisor, the tant to existing franchisees as you would team and support staff. We’ve created a only thing we can do to ensure this goes expect. The basis for most referrals is a culture of compassion that encourages well is to provide strong support and a franchisee’s pride in their brand and joy empathizing with franchisee concerns business model that delivers results for in sharing their story of success. and providing solutions to challenges. the franchisees. And we like to obtain Also, don’t assume that your franchi- Plus, we have proactive training and open the franchise owner’s thoughts about see base can’t help launch new, faraway dialogue to ensure our franchisees are the candidate. Their opinions are very markets. It’s a small world, so don’t be satisfied. In sum, this effort has resulted important in our process. surprised when a Philadelphia franchisee in a zero percent failure rate and consis- Our franchise owners are active and refers a lead for Houston. tently positive feedback from our fran- well-networked in their communities. Finally, in franchise development, it’s chisees with regard to our support and Should they recommend a prospective all about the validation. Nothing can shut marketing programs. franchisee to us who eventually signs a down development like poor validation Since the brand owns and operates franchise agreement we will grant the from existing franchisees. Therefore, eight company units, we also have excel- referring franchise owner a substantial don’t spend a dime marketing your plan lent business model credibility. Beyond referral fee. We truly appreciate the part- for growth and franchise opportunities that, franchisee satisfaction results from nership with our franchisees in this area if the validation isn’t there to support it. franchisor execution of three basic funda- as they usually pre-screen the candidate mentals: (1) comprehensive pre-opening before submitting them to us. The re- Mike Mettler training and support, (2) unencumbered ferral program is a substantial contribu- Director, National Franchise Sales two-way communication, and (3) effec- tor to our growth. In any given year we American Dairy Queen tive business consulting for the life of can expect 10 to 20 percent of our new Franchisee satisfaction is the franchise partnership. In addition to franchisees to emerge from this source. critical to the franchise the programs we have in place to guide When a franchisor develops a business development process be- and reinforce franchisee efforts locally, model through operating experience and cause it is directly related we continue to focus on our business then executes well on training, support, to new franchisee valida- model and its track record of success. If and communication, it will receive high tion and the ability for the brand to con- the model works and both parties execute marks in franchisee satisfaction. Con- tinue to develop new stores. One great the fundamentals, then high franchisee tinuous improvement through annual, new store opening will lead to more new satisfaction will follow. independent survey analysis is important. store openings. It is that simple. At Dairy We annually survey our franchisees Asking for franchisee assistance and input Queen, we focus on making the new store anonymously through an independent during the candidate learning process opening experience a positive one for the company. Our franchisees have given helps everyone build a better franchise franchisee and the brand. us high marks in key areas such as initial system. Finally, a referral program that Our impact on franchisee satisfaction training, helpfulness of the field repre- rewards franchisees for their assistance if through the development process begins sentative, and commitment to a positive, one of their contacts becomes a franchi- with a thorough and rigorous evaluation long-term relationship. The survey is an see should be an important part of any of every new store development “franchise important benchmark that helps us en- development plan for growth. application.” We ask three basic questions.

42 Franchiseupdate Issue I, 2012 1) Is it a great site and trade area? DQ has a proprietary demographic model- Is lack of credit slowing ing system that evaluates both the trade area and the site by comparing the new your franchise growth? location with our portfolio of similar op- erating restaurants. This sounds simple but it is not, and the brand has invested Personal Guarantee in leading-edge technology so we can open the right store in the right place. 2) Is it a strong franchise candidate? DQ Insurance can help. looks for strong business experience and very relevant restaurant experience. The ideal franchise candidate is a multi-unit restaurant operator, but we also have had success recruiting local business leaders Personal Guarantee Insurance who are connected in their communities A unique way to help your franchise grow—and protect your and who hire or partner with experienced franchisees. To learn how visit pgifran.com/IFA2012 restaurant operators. 3) Are there enough financial resources? DQ, like many brands, reviews the fi- nancial details of the franchisee and the transaction. If DQ does not think the franchise application is strong in any one of these areas we turn it down and do not de- The Creators of Personal Guarantee Insurance™ velop the store. www.personalguarantee.com 1.888.643.8744 [email protected] We provide a lot of resources to help franchisees open their new stores suc- Asterisk_FUM_1_3_SQUARE_vDR1.indd 1 1/15/12 12:36:48 PM cessfully, on time, and on budget. Re- gional development professionals who are real estate and development experts DISCOVER HOW help franchisees evaluate and execute Franchise Development new store development opportunities. Pros Are Building Successful We also support new store openings Franchise Systems with many other resources including architects, construction management, The must read, breakthrough guide project management, marketing, and a to building a world-class franchise new-store opening team that remains system faster! closely involved and monitors the op- • Five time-tested success drivers erational goals of the restaurant for the for greater franchise growth first 6 months, and that supports every #1 AMAZON • 4100+ franchise case examples opening very closely until the store is BEST reveal how to do it right SELLER ready to transition to our field busi- • Marketing and ness consultants (about 1 to every 50 Get your copy of ad strategies to this ground-breaking generate more stores), which allows us to work very book today! For only $29.95 qualified buyers closely with the franchisees on an on- (plus $7.50 shipping & handling). going basis. To order online, go to • Sales-producing www.franchiseupdate.com/gtg techniques for new The best measure of franchisee satis- and experienced To order by phone, call Sharon faction as it relates to the development Wilkinson at (800) 289-4232 ext. 202. development process is the number and type of new executives store openings. We continue to grow the number of new stores we are open- ing each year. We also are increasing the ratio of Dairy Queen Grill & Chill Steve Olson is President of Franchise Update Media Group. He has been a franchisee, franchisor and consultant, locations that offer both food and treat *During 2011 April & May dates for franchise and retail business books products. n

Franchiseupdate Issue I, 2012 43 By KERRY PIPES Lead Market

Grow Developing Intelligence Highlights from the 2012 AFDR

he 2012 An- Top Sales Producers rals (31 percent) took the nual Franchise Source 2011 2010 2009 2008 2007 2006 lead in 2011 as the top sales Internet 30% 36% 34% 35% 41% 45% Develop- Referrals 31% 25% 28% 28% 37% 21% producer, dethroning the ment Report Brokers 17% 17% 17% 16% 14% 21% Internet as number-one. T Print 2% 5% 8% 6% 4% 2% (AFDR) is a comprehen- More franchisors are offer- Other 20% 17% 13% 15% 4% 11% sive research guide to sales ing referral fees, promoting and lead generation per- referrals more aggressively formance in franchise re- Where the Leads Come From to franchisees, and increas- Source 2011 2010 2009 2008 2007 2006 cruitment. The report drills Internet 51% 61% 60% 66% 77% 70% ing fees (or other rewards) down into industry cat- Referrals 18% 10% 10% 16% 14% 16% when a referral signs on. egories, investment levels, Print 1% 3% 5% 3% 3% 2% Last year, 67 percent of Other 30% 26% 25% 15% 6% 12% and recruitment budgets; the 110 respondents provid- provides marketing cost ed incentives to franchisees data; reports the top-producing sales and Do you provide incentives to who referred prospects that bought, up 5 lead sources; reveals performance evalua- franchisees who refer prospects percent from the year before. The median tions of franchise websites and follow-up that buy your franchise? referral fee of $3,500 remained level from to prospect inquiries; and analyzes current No incentive 34% 2010. While referrals still haven’t regained and historical trends. Cash 54% their 37 percent share of sales producers The data on current franchise sales and Other 13% (2007), the trend is clearly upward. recruitment practices were collected in late At Franchise Update Media Group we If yes, how much per signed August and September 2011, based on detailed continually seek ways to further raise fran- agreement? responses from 110 franchisors represent- chisor awareness of development standards, Referral Fee ing 109,936 total units (79,254 franchised Less than $999 3% and to create benchmarks to help accelerate and 30,682 company-owned). The results $1,000–1,999 25% the evolution and adoption of best practices and analysis contained in this nearly 200- $2,000–2,999 22% in franchise recruitment. We welcome your $3,000–3,999 8% page report can help you accelerate system $4,000–4,999 3% comments—and participation—to help us growth, increase sales performance, and make $5,000–5,999 20% shape the 2013 AFDR. Data-gathering has smarter, more cost-effective advertising and $6,000–6,999 2% just begun. To participate in next year’s re- marketing decisions. $7,000–7,999 0% port, contact Therese Thilgen at thereset@ $8,000–8,999 2% In this issue we shine the spotlight on $9,000–9,999 0% franchiseupdatemedia.com. All data is ag- franchisee referrals. As the data show, refer- $10,000 or more 17% gregated and kept completely confidential.n

44 Franchiseupdate Issue I, 2012 Thinking about FRANCHISING? Think Franchise.org

Franchise.org— the most comprehensive Web site on franchising.

Visit www.franchise.org today.

Whether you are considering buying a franchise or franchising your existing business, Franchise.org is your one-stop information source. You’ll find:

• Detailed information for over 1,100 franchises – all members of the International Franchise Association (IFA), representing most of the world’s best-known brands.

• A complete list of advisors, including financial services experts, attorneys and consultants.

• The most comprehensive library of franchising information available, ranging from basic “how-to’s” to advanced regulatory and legal aspects.

IFA: We know franchising.

EntrDotOrgScreenShot.indd 1 12/7/11 12:40 PM Sales smarts to want to learn more. Lead 3. First personal contact • Only about a third of the franchise companies we contacted chose to actually make a phone call after the initial letter. By Marc Kiekenapp • Another third used an automated Market CRM system with either an email string or private portals with educational infor- Mystery Shopping mation driving prospects to call back or complete a form.

Grow A key to increasing sales • The other third did nothing. Yes, nothing! ver the past four years we’ve phone systems were marginal at best been honored to conduct the • Have you called your own numbers 4. Actual conversation on first contact mystery shopping research lately? During business hours? After busi- • The majority of sales consultants O for Franchise Update’s annual ness hours? rushed through the call. Take your time, Leadership & Development Conference. • How many hoops do you have to this is an opportunity to make a good The results are used to determine the jump through to leave a message? impression. annual winners of the company’s STAR Phones should be answered live during • Others wouldn’t shut up! Awards for best performance in respond- business hours. Record a concise, profes- • Most didn’t ask for enough informa- ing to inquiries from qualified prospects. tion to know if they really had a buyer; While invaluable statistical data, in- If you could nor did they take the time to build a rap- formation, and analysis of franchise sales port to do so. performance can be found in Franchise only train and • Make sure you have a written script Update’s Annual Franchise Development monitor these or checklist to complete so you can ac- Report, real-life responses to our inquiries complish a qualifying call. Don’t read it, shed another kind of light on what con- four key steps, follow it! stitutes best practices by some—and on • Take the time to talk about the candi- what, if not worst practices, are areas with I believe you date, why they want a business of any kind, plenty of room for improvement. will award more what kind of support they have at home. With the start of the new year, I want • After that, the number-one question to share some of our more general, anec- franchises to ask is why they feel that now is the time dotal findings—what we actually heard on in 2012 and also financially to invest in a business for them the calls—in the hope it may help all of us and their family. do a better job at franchise sales. be in the running We found a wide separation in the Conclusion manner in which sales people handle can- for the STAR I hope this is helpful to your franchise de- didates. Many sounded like robots mak- Awards later in velopment department. If you could only ing the 32nd call of the day (we’ve all been train and monitor these four key steps, I there), while others conveyed enthusiasm the year. believe you will award more franchises in and professionalism in their messages and 2012 and also be in the running for the conversations. Year after year, the “pros” sional, and exciting message! At least 50 STAR Awards later in the year. follow a written system with prompt and percent of the systems we called would Mystery shopping is a fabulous tool to courteous follow-up. turn away an interested candidate. keep everyone on track and to keep your Mystery shopping your sales team is an skills—and those of your sales team—up enlightening experience—and a valuable 2. Most franchisors had an auto re- to par. I would encourage you to mystery training tool for achieving better results. sponse/initial email letter shop your team with their knowledge more The personality of the sales person and • The quality and message varied from than just once a year before the confer- their belief in the franchise system are exciting to boring and run-of-the-mill, ence so you can make adjustments and still the most powerful marketing tools standard responses. “Boring” would be grant more franchises. Role-playing has to possess. short, with no graphics, no industry statis- been overlooked for years. Working with What follows are some of the highlights tics, and very little investment information. your team and practicing your profession from our mystery shopping phone survey: “Exciting” had nice graphics, a picture of can reap big benefits for all. the retail store or van, and a testimonial Happy Selling, 1. Incoming toll-free development or short video that prompted prospects Marc

46 Franchiseupdate Issue I, 2012 Market trends risk information from FDDs, in reality FDDs give banks very little useful and Lead actionable credit risk information. And By Darrell Johnson forget about asking a bank to validate anything by calling your franchisees un- less you want to give them a good laugh. Banks need a type and quality of

Need To Know Market information that addresses their credit Quality of information trumps medium risk decision-making questions. We’re seeing the power of this today with Bank Credit Reports (BCRs), a specialized form

of benchmarking designed specifically Grow ong gone are the good old of your franchisees are still around after for banks. While BCRs compare brands days of 2002–2007, when a few years, I can probably infer from within franchising, their real power is development jokes about fog- that simple fact that your system is do- that they provide a level of credit risk L the-mirror tests abounded. ing okay. Therefore, I am likely to do information for banks that allows them As we all have learned over the years, okay. I can’t deduce that from an Item to determine the likelihood they will get good jokes have a foundation in reality. 19 or Item 20. I can’t judge this fully repaid; make portfolio commitments to Development was too easy then, and for by talking to a few of your franchisees. specific borrowers, brands, and sectors; the last couple of years it’s been too hard. Rather than being constrained by the and develop term sheets appropriate for We’re gradually seeing an improvement FTC Rule, why don’t you use common the risk profile that such information in development activities. We won’t have sense and develop a means of commu- suggests. The result will be more capital 2011 unit totals for a few months, but nicating what prospective franchisees for franchising. In the process, banks are what we are seeing is more unit growth. need, regardless of what they are ask- disproportionately shifting the amount Where are the opportunities coming ing for? Wouldn’t continuity rates de- of capital away from independent busi- from, and how are they getting financed? fined around unit longevity be a really nesses (where they struggle to have any According to Franchise Update’s An- strong indicator of success over time? predictive credit risk ability) and toward nual Franchise Development Report How about renewal rates? The num- franchising (which has a lot of credit risk (AFDR), some of the traditional devel- ber of units existing franchisees add to predictability). opment sources, including lead genera- their current operations? I could go on. Doesn’t the same kind of common tion websites and expos, are declining You get the message. This is less about sense hold true for prospective fran- in importance to franchisors. thinking outside the box than it is about chisees? It certainly does for multi-unit The AFDR showed modestly better simply thinking using common sense. operators, who have the knowledge and outcomes from search engines through I think the reason there are changes in sophistication to understand the impli- purchased words and optimization, and the mix of lead generation sources with cations of such information. So why do organically through referrals and a fran- no clear-cut trend is that it isn’t about we stay mired in old thinking? chisor’s own website. While these devel- the delivery vehicle any more. The infor- That brings me back to what I think opments clearly qualify as trends, they mation age has leveled that playing field really is going on with lead sources to- are rather subtle so far. I think the bigger to a large extent. It’s about where I can day. Brands that have good performance implication of the direction suggested get reliable and compelling information. are finding ways of communicating that by these changes is around the quality Want an example? Look how banks are performance to prospective franchisees, of information being provided, not the changing the way franchise information regardless of the lead generation vehicle. way it is being delivered. is being developed and used. Banks are There are only three requirements: (1) Development has been so defined forcing change on the type and qual- have good performance; (2) find com- by the FTC Rule that I believe we have ity of information that you produce, so mon sense ways to communicate that allowed the Rule to override common you might as well get used to thinking performance; and (3) when doing so, sense. As a prospective franchisee, I may differently about franchise information. stay within the good graces of your want to know how much can I make. The limitations of FDDs for credit franchise counsel and the intent of the What I need to know is whether I will risk assessments have been clearly exposed FTC Rule. n be “successful” over time. If your system through this financial crisis. Banks need has a high percentage of units continu- information that isn’t in FDDs; and the Darrell Johnson is president and CEO of ing to operate over time, isn’t that the information that is in FDDs is, for the FRANdata, an independent research com- best proxy for success that I could judge most part, misleading (if not irrelevant) pany supplying information and analysis for from the outside looking in? Every pro- for such purposes. Credit risk analysis the franchising sector since 1989. He can be spective franchisee knows there’s no wasn’t the purpose of FDDs. While for reached at 703-740-4700 or djohnson@ guarantee of success. However, if most years banks have tried to extract credit frandata.com.

Franchiseupdate Issue I, 2012 47 It’s closing time placed on lifestyle, with little focus on the business model. The executives sim- Lead ply didn’t do their homework in advance and needed to reposition their message to get back on track. This was an expen- sive lesson, costing thousands of dollars BY STEVE OLSON in recruitment advertising and turning Market off qualified buyers who could have been What Are You Saying? royalty-producing franchisees. How high is your score? Grow Test yourself right now! 1. Does your initial message promote your franchise opportunity rather than ow do you promote your ered a key selling benefitnot promoted focus on details about what your busi- franchise to prospective buy- in their marketing. Owners enjoyed ness does? Yes n No n ers? Is it something like, a strong sense of personal fulfillment, H “We offer an outstanding receiving heartfelt “thank-yous” from 2. Do you use the self-serving nouns program, employ highly qualified staff, appreciative customers who couldn’t “we” and “our” in your copy more than use state-of-the-art equipment, deliver otherwise afford the service. the buyer-attracting language of “you” excellent training, and help you grow If you haven’t, ask your franchisees and “your”? Yes n No n your business every step of the way?” what they like about their business, what Don’t feel bad if you are guilty of this! attracted them to your franchise, and how 3. Does your message define your spe- Many of your competitors also bom- it has benefited them and their family. cific business advantages and how your bard prospects with boring, meaningless Include these buying motivators in your franchisees can profit from your prod- content that lacks points of differentia- ucts, services, and brand? Yes n No n tion and noteworthy advantages that stir, Obsessively attract, and excite buyers. Consequently, focus on crafting 4. Does your message feature lifestyle, fam- today’s serious prospects are forced to engaging content— ily, and personal benefits your franchisees wade through an ocean of similar op- enjoy as business owners in your system? portunities to catch the few that truly real prospects Yes n No n speak to their interests. will appreciate and embrace 5. When highlighting your company Don’t chase the masses the ownership awards and achievements, do you trans- Most buyers won’t find what they want late how these have benefited your fran- in your franchise concept, so don’t try opportunities your chisees? Yes n No n to entice them with your messaging. business offers. Your challenge is to avoid these millions 6. Do you attract candidates using com- of opportunity-seekers who aren’t the sales materials and you’ll deliver a more pelling images, videos, and testimonials right match for you. Obsessively focus convincing message to the right prospects. of franchisees, employees, or customers? on crafting engaging content to attract Yes n No n candidates who can achieve success in You’ll pay for the wrong your franchise—real prospects who will message 7. Do you turn off candidates with pro- appreciate and embrace the ownership Years back, executives from a young motional photos of empty stores, equip- opportunities your business offers. franchise approached me in a state of ment, and service vans? Yes n No n total frustration, complaining about the Ask your pros for help poor quality of candidates they were at- 8. Does your messaging reinforce what Survey your top producers to find out tracting and the few qualified ones who your franchise sales execs share with “what is it” about your business that at- weren’t buying. Their entertainment prospects, or are there serious “discon- tracted them. Often you’ll discover key rental concept “had legs,” but it just nects” between the two? Yes n No n motivators you didn’t realize are impor- wasn’t promoted properly. Their mar- tant to your franchisees. keting program featured semi-absentee This article is an excerpt from Amazon. I previously consulted for a retail ownership, promoting owners in t-shirts, com best-seller Grow to Greatness: How franchise that prepares standardized le- sandals, and taking vacations. to Build a World-Class Franchise Sys- gal documents for much less cost than This hobby-type approach turned tem Faster by Steve Olson. For ordering an attorney would charge. Interviewing off serious business buyers and attract- information, go to www.franchising.com/ their successful franchisees, we discov- ed dreamers. Too much emphasis was franchisors/growtogreatness.html

48 Franchiseupdate Issue I, 2012 877.861.BLUE (2583) [email protected]

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