Franchising and Licensing Two Powerful Ways to Grow Your Business in Any Economy_8 ppt

Because this section also involves dealing with sales and profitabilityprojections, the franchisor’s marketing staff must work closely with the fi-nance department to ensure accuracy and

weaknesses, opportunities, and threats have been identified, the last section, ‘‘issues and concerns,’’ should discuss strategies and tactics forexploiting the franchisor’s marketing strengths and compensating for itsmarketing weaknesses.

sub-❒ Marketing Objectives and Strategies This section should define the goals

and objectives identified by the managers of the marketing departmentwith respect to market share, advertising/promotion expenditures, fran-chise sales, and promotional methods Strategies should then be dis-cussed, outlining the specific steps and timetables involved to achievemarketing goals and objectives Marketing strategy is essentially the gameplan that must be adopted to achieve with respect to targeted markets,positioning of products and services, budgets for advertising, sales andpublic relations, and delegation of responsibility within the organizationfor specific projects

Because this section also involves dealing with sales and profitabilityprojections, the franchisor’s marketing staff must work closely with the fi-nance department to ensure accuracy and consistency As is true for all forms

of planning, the statement of marketing objectives and strategies should beclear and succinct and not leave the reader (or user) hanging as to methodol-ogy For example, a marketing objective of increasing franchise sales revenue

by 10 percent could be achieved by increasing the franchise fee, increasingthe total number of franchise units with the franchise fee structure remaining

at current levels, or increasing fees and unit sales volume Marketing ers must identify which course of action will be taken, based upon informa-tion ascertained from the market research as well as data and input receivedfrom other departments within the organization

manag-❒ Execution of Marketing Program This section of the plan should set forth

timetables for achieving specific goals and objectives, identify the personswho will be responsible for implementation, and project the anticipatedresources that will be required to meet the goals developed

❒ Monitoring of Marketing Plans and Strategies This section should discuss

the establishment and operation of management systems and controls signed to monitor the franchise marketing plans and strategies imple-mented by the company The relative success or failure of these programsshould be measurable, so that performance can be properly assessed Peri-odic reports should be prepared by the marketing department for distribu-tion to other key members of the franchisor’s management team

de-❒ Alternative Marketing Strategies and Contingency Plans This final

sec-tion should address the alternative strategies available to the franchisor inthe event of changes in the marketplace that have been identified in theplan The ability to predict these positive or negative changes that mayoccur in the marketing plan and adopt alternative strategies in the eventthat they occur is at the heart of effective strategic marketing planning.Remember that the marketing plan will continue to evolve and may bechanged as often as monthly or be revised for specific targeted markets The

ability to quickly respond to consumer demands and prospective franchiseeinvestment preferences is critical.

Stage 2: Implementation of the Marketing Program

Once market research has been conducted and a marketing plan prepared,the next step in the development of a marketing program is the actual im-plementation of the franchisor’s objectives and strategies At most growingfranchisors, a separate marketing department is responsible for the imple-mentation of the marketing plan The franchise marketing director and hisstaff must constantly interact with other departments, such as operations,finance, and administration, as well as outside legal counsel, in order to coor-dinate marketing efforts and to keep the marketing program consistent withthe overall strategic plans and objectives of the franchisor This will requirethat the marketing department establish certain procedures and controls tomonitor marketing performance and take corrective action where necessary

to keep the franchisor on its course of growth and development These odic performance audits should also aim to make the franchisor more effi-cient by reducing unnecessary promotional expenditures and managingadvertising costs

peri-Early-stage and growing franchisors typically experience four distinctstages in the evolution of the department responsible for development andimplementation of sales and marketing functions within the organization

At the inception of the company, all founders are responsible for sales andmarketing efforts During this initial stage, marketing plans are virtually non-existent, marketing strategies are developed with a ‘‘whatever works’’ ap-proach, and sales are to ‘‘anybody who will buy’’ the franchise offered.Eventually, the founders of the company are too busy with other demands tocontinue the sales function, and as a result a professional franchise sales staff

is developed As the franchisor reaches the third stage of its growth, all salesand marketing efforts must be centralized into a formal department It is typi-cally at this phase that formal marketing plans start being prepared by topmarketing executives with guidance and input from managers of other de-partments As the franchisor experiences changes in its external and internaloperating environment, the marketing department experiences the fourthand final phase of reorganization, during which modifications in organiza-tional structure are made in order to adapt and respond to these environmen-tal changes

Developing the Franchise Sales Plan

The responsibility for managing the franchise sales program is typicallyvested with the vice-president of sales or the director of franchise develop-ment This individual is responsible for development of the franchise salesplan, which is a critical step in the implementation of the overall marketingplan The sales plan identifies the specific steps and resources required toattract prospective franchisees Different sales plans will need to be devel-

oped for each type of franchise offered by the company For example, ing a program to attract a qualified prospect to serve as a subfranchisor forthe state of New York is quite different from attracting a candidate for a sin-gle-unit franchise for the suburbs of Des Moines.

design-The key to developing a successful franchise sales plan is to ascertain agenuine understanding of the targeted franchisee This requires the develop-ment of a detailed profile of the prospect, which includes an analysis of tar-geted age, gender, education, business sophistication, income levels, networth, family size, health, communication skills, personality traits, hobbies,habits, and career objectives Much of this information will be obtainedthrough the use of a confidential franchise application and personal inter-views See Figure 10-1 for a sample franchise application

Many sophisticated franchisors have turned to detailed psychologicaltesting methods as part of the qualification process for prospective fran-chisees If the tests reflect a personality that resists following rules and proce-dures or lacks a certain attention to detail, then many franchisors will rejectthe candidate regardless of business acumen or financial net worth Thereare a wide range of qualities and characteristics that franchisors look for indeveloping criteria for the appropriate type of franchisee Naturally, the crite-ria vary from franchisor to franchisor and from industry to industry Neitherthe know-it-all nor the naive are likely to make very good franchisees Thosewho understand the importance of rules and procedures and display a will-ingness to follow them are likely to make the best franchisees The franchisor

is looking to attract those individuals whose personalities and experienceare more suited to serve as sergeants, and not generals

Using the Internet for Franchise Sales

The federal and state laws that regulate the offer and sale of franchisesclearly anticipated a paper-driven society and could not have foreseenthe tremendous impact that the Internet would one day have on fran-chise recruitment Franchisors today use the Web to inform prospectivefranchisees on the key elements of their program, gather data on pro-spective candidates, communicate via email regarding questions orclarifications, and some even now make their UFOC available online

To catch up with the times, NASAA developed a Statement of Policy onInternet Offers that provided exemptions from traditional registrationrequirements, which are then recommended to the registration states.Among the conditions for the exemption to apply include that the Website must clarify that the franchise is not being offered directly to theresidents of any registered state (unless that state has also adopted anexemption), and that the offer remains general in nature and not tar-geted to a particular individual group

Once an accurate and objective set of criteria is developed for identifying the

‘‘model’’ franchisee, a sales plan must be drawn up to attract this prospect

(text continues on page 206)

Figure 10-1 Sample franchise application.

CONFIDENTIAL APPLICANT QUESTIONNAIRE

FOR PROSPECTIVE FRANCHISEES Thank you for your initial inquiry about The information you provide will help us consider your application to become a member of our franchise network This application will

be carefully reviewed by our Franchise Selection Committee and your responses will be kept confidential The completion of this questionnaire in no way obligates either party in any manner.

PERSONAL DATA

Applicant Name

Home Address

Is Co-Applicant your spouse? [ ] Yes [ ] No

Co-Applicant’s Name

Home Address

May we contact your business number? [ ] Yes [ ] No

Best time to contact:

THIS APPLICATION WHEN COMPLETED DOES NOT OBLIGATE EITHER PARTY IN ANY MANNER

Why do you feel you are suited for the retail food and beverage business?

(continues)

Figure 10-1 (Continued).

What is your philosophy regarding retail food and beverage sales?

What experience do you have with the retail food and beverage industry?

Do you feel that you possess the qualities necessary to:

1 Train and supervise staff members? [ ] Yes [ ] No

2 Handle the everyday ongoing problems that arise when dealing with customers and staff?

[ ] Yes [ ] No

3 Handle staff scheduling in both regular and flex-time modes? [ ] Yes [ ] No

Briefly explain why:

Who will operate the franchise? [ ] Self [ ] Spouse [ ] Other

Will one of you continue to work at your current place of employment after the franchise is

awarded? [ ] Yes [ ] No

If yes, who? [ ] Self [ ] Spouse [ ] Co-Applicant [ ] Other

In what city, county, and state would you like to own a franchise?

City

County

State

Do you have a specific mall or shopping center in mind?

How soon would you be available to operate the Center?

[ ] Immediately [ ] Within months

Do you now own any other franchises or business? [ ] Yes [ ] No

If yes, please describe:

APPLICANT’S EDUCATION HISTORY

CO-APPLICANT’S EDUCATION HISTORY

APPLICANT’S EMPLOYMENT HISTORY

Dates

CO-APPLICANT’S EMPLOYMENT HISTORY

Dates

Other business affiliations (officer, director, owner, partner, etc.)

Have you ever failed in business or filed voluntary or involuntary bankruptcy? [ ] Yes [ ] No (If yes, please list when, where, circumstances, including any remaining liabilities.)

Are there any lawsuits pending against you? [ ] Yes [ ] No

If yes, please describe:

Have you ever been charged with or convicted of a crime or act of moral turpitude? [ ] Yes [ ] No

If yes, please describe:

(continues)

Figure 10-1 (Continued).

Are you a U.S Citizen? [ ] Yes [ ] No

If no, in which country do you hold a citizenship?

Where will the funds come from to meet the requirements of the estimated start-up costs? Enter source and dollar amounts:

Do you plan to have a partner (other than your spouse or co-applicant)? [ ] Yes [ ] No

If you own your own home, do you plan to borrow against it? [ ] Yes [ ] No

Amount of equity $

Amount of loan $

Do you anticipate obtaining a loan to assist you in funding this franchise opportunity? [ ] Yes [ ] No

If applicant is other than your spouse, please copy the remainder of the form and have each applicant fill out the appropriate information.

co-DEPOSIT ACCOUNT INFORMATION

Personal bank accounts and savings and loan deposits carried at:

ASSETS

Cash in Banks

Savings and Loan Deposits

Investments: Bonds and Stocks

Accounts and Notes Receivable

Real Estate Owned (see schedule)

Personal Property and Furniture

Life Insurance Cash Surrender Value

Other Assets–itemize

Profit Sharing

Retirement Funds

True Business NET Worth

Attach Current Financial Statement

TOTAL ASSETS

SCHEDULE OF STOCKS AND BONDS

Non-Market

SCHEDULE OF REAL ESTATE

Other (attach separately)

Other Accounts Payable

Mortgage Payable on Real Estate

(continues)

Figure 10-1 (Continued).

Unpaid Real Estate Taxes

Unpaid Income Taxes

& NET WORTH

SCHEDULE OF NOTES AND ACCOUNTS PAYABLE

Includes installment debts, revolving charge accounts, bank notes, etc Specify any assets pledged as collateral indicating the liabilities that they secure:

I certify that the information I have provided on this application is complete and correct I hereby

above information and I authorize the release of such information to or its authorized agent.

Shots should always be fired with a rifle, not a cannon For example, if rience has demonstrated that a model franchisee for your franchise system is

expe-a college-educexpe-ated executive femexpe-ale between the expe-ages of 34 expe-and 45, then expe-an

advertisement in Working Woman may be a better allocation of resources than an advertisement in Inc magazine.

The key elements of a franchise sales plan are as follows:

A Description of the targeted franchisee

B Overview of the techniques and procedures to be implemented to

generate the maximum number of leads and prospects whose teristics match those of the model franchisee

charac-C Procedures for meeting, disclosing, and closing the sale

D Postclosing procedures

II State of the Nation

A Why people buy franchises

Explanation: Corporate restructuring and downsizing in corporateAmerica and abroad has led to job security reaching an all-time low

A wide variety of well-educated and financially secure executivesand professionals lack the dreams and excitement they so sorely need

to continue the daily grind or the loyalty or sense of security fromthe current employer Franchising offers these individuals an oppor-tunity to be in business for themselves, but not by themselves It is anopportunity to be an entrepreneur, but without the risk and difficultyinherent in starting a nonfranchised business It is an opportunity

to avoid the job-loss risks of downsizing and restructuring by largecorporate employers For many of these individuals, franchising of-fers a happy compromise between being a middle-level executivepaper pusher and a total maverick In short, it is an opportunity tocontrol their own destinies

Once you understand why people buy franchises, you need tofigure out why they will buy your franchise A common misconcep-tion is that people currently operating within their industry are thebest candidates for their franchise offering Remember that consider-ably more frustrated accountants have purchased quick-lube andtune-up centers than have trained mechanics With the notable ex-ception of conversion franchising (e.g., Century 21), those with years

of training and experience in a given industry are not likely to ceive the benefits of franchising in the same light as does a novice

per-B Why people buy your franchise

Explanation: As a general rule, people will want to buy your chise because of one or more of the following reasons:

fran-1 They have an interest in your industry but lack the training skills

to pursue this interest without assistance

2 They have a friend, relative, or business associate who is already

a franchisee within your system (Happy franchisees tend to lead

to more happy franchisees.)

3 They have been consumers or employees of a franchise (or pany-owned store) within your system and were impressed by thequality and consistency of your products and services

com-4 They recognize your underlying product or service as being at theleading edge and want to take advantage of a ground-floor oppor-tunity

5 They were impressed by the quality and professionalism of youradvertising materials, the integrity of your sales staff, and the en-thusiasm and passion of your management team

III Lead generation and qualification

A Selection of effective media and methods

1 National/regional/local newspapers and magazines Direct tising in specific publications with focuses such as business, in-come opportunity, general interest, topic-specific Which are themost likely to attract the model franchisee? Which publicationshave rates within our budgets? How do we get the ‘‘biggest’’ bangfor the buck? What should our advertisements say about the com-pany? What image do we want to project?

adver-2 Direct mail Which mailing lists are readily available and mostlikely to contain a large number of our ‘‘model franchisees’’? Atwhat cost? Design of the marketing piece: What should the textsay? What should the prospect’s next step be? How often do wemail? What are the procedures for follow-up?

3 Trade shows What is the quality of the trade show organizer andpromoter? (I would strongly recommend the trade shows spon-sored by the International Franchise Association.) What is thequality of the facility? Of the average attendee? How elaborateshould we make our booth? What type of promotional displaysshould be developed? How many people should we send? Whatliterature should be available? How often should we participate?

In what regions?

4 Public relations What story do we tell to the media? What makesour franchise system and company different from the competi-tion? How often do we send press releases? To whom? Sayingwhat? When should we hold press conferences? For what events?

5 Internet Web site In today’s technology-driven information age, asteadily increasing number of prospective franchisees are usingthe Internet to gather data about franchising as well as narrow thefield of potential franchisors to consider The development of aninformative and interactive Web site where you can exchange datawith prospective candidates is a critical marketing tool that must

be carefully considered One strategic issue is whether you willdevelop a Web site address on a ‘‘standalone’’ basis or whetheryou will appear as part of an ‘‘umbrella’’ site that features a wealth

of information about franchising opportunities overall and willhave a section on your specific offering alongside of other fran-

chisors, such as www.centercourt.com, which is produced and

maintained by IFX International

As you may already know, merely having an address inCyberspace is of no value if nobody comes to visit you One ad-vantage of these umbrella sites is that the host company will in-vest advertising dollars to promote the site overall, therebyincreasing your visibility and the chances of attracting qualifiedleads on the Internet

6 Internal marketing This involves developing lead generation andincentive programs from the existing network of franchisees; signsand brochures within the franchisee’s facilities; rewards to fran-chises and employees for generating qualified leads and actualfranchise sales

7 Miscellaneous sources of lead generation Leads for prospectivefranchisees can come from a variety of nontraditional sourcessuch as military bases, college placement offices, local businessorganizations, outplacement offices of large corporations thathave been downsized, charitable organizations, personnel agen-cies, and investment clubs.

B Procedures for qualifying a lead and making a presentation

1 Where and how should franchises be awarded? Avoid the hotelbar; get the prospect to the franchisor’s headquarters, if at all pos-sible Make prospects feel special once they arrive Give them thered-carpet treatment and full-blown tour Doors should be open,not closed People should be smiling, not frowning

2 Qualities of an effective franchise salesperson and presentation.The sales staff should be there to assist, not pressure, the prospect.Remember that many prospects will base their decision more onpersonality traits of the salesperson than on the cold hard factscontained in the offering circular The sales staff should listen tothe needs and questions of the prospect; let the prospect make thedecision to buy the franchise The sales staff should be confident,not pushy Franchises are awarded, not sold

3 Data gathering on the prospect All relevant historical and cial data must be collected and verified No detail should be over-looked Employment and credit references should be checkedcarefully Aptitude and psychological tests are commonplace andrecommended Carefully study the prospect, looking for any earlywarning signs of subsequent failure A premium should be placed

finan-on the sales representative’s gut-feel assessment of the candidate’slikelihood of success

4 Materials and tools for the sales team Beyond the personal sentation, brochures, flip charts, and inspection of the franchisor’sfacilities, audiovisual materials are strongly recommended Manyfranchisors have produced 15-minute videotapes designed to edu-cate the prospect and help close the sale Legal compliance (tim-ing of disclosures, avoidance of unauthorized or improperearnings claims and misrepresentations concerning support andassistance, etc.) is critical See Chapters 5 and 6

pre-IV Closing the Sale

A Stay in touch during the ten-day waiting period in order to offset theinevitable negative input, sweaty palms, and cold feet that the aver-age prospect will be experiencing

B Get all mystery and confusion regarding the rights and obligations ofeach party resolved before signing the franchise agreement

C Consider the franchise closing an event, not a mere procedure This

is likely to be the biggest financial transaction of the prospect’s life.Make it special

D Stay in touch with the franchisee after execution of the franchise uments until formal training begins

doc-V Managing the Sales Team

A Establishment of group and individual sales goals and objectives

B Timing and timetable for franchise sales

C Travel and promotional budgets to support sales efforts

D Personal, ethical, and professional expectations from your sales team(no leisure suits, no gold chains, no lies, and no unauthorized earn-ings claims)

E Reporting and record-keeping requirements (communications withprospects should be carefully documented; see Chapter 6)

F Respect for prospect review and qualification procedures (data ering and verification, committee approval, profile testing, etc.)

gath-G Ongoing sales and compliance training for the team (sales and ing methods and techniques, legal documents, etc.)

clos-H Coordination of efforts with other departments (operations, training,finance, legal, etc.)

Stage 3: Marketing Program Monitoring and Feedback

Once marketing and sales plans are developed in accordance with the flowchart in Figure 10-2, and implemented, systems must be put into place thatmonitor the performance of the efforts of the sales and marketing depart-ment, as well as gather market and competitor intelligence The market re-search division is usually responsible for acquiring data and intelligence,which are sometimes used as the first step in the development of the market-ing plan and other times used in tracking the performance of marketing ef-forts in order to modify and refine marketing plans Either way, systems must

be developed to gather and analyze the effectiveness of franchise sales andmarketing efforts as well as to study relevant market characteristics andtrends affecting the franchisor’s industry-competitive analysis and to moni-tor general business and economic, legal, political, and technological condi-tions These intelligence-gathering systems are indispensable tools of a well-managed franchise marketing department and overall franchise organization.For example, very few franchisors actively follow up with qualified leadsthat arrived at the decision not to become a franchisee of their particularsystem in order to find out why and learn from it Conversely, not enoughtime is spent in focus groups with franchisees that did select their system toalso make their favorable decision a learning experience

A comprehensive monitoring and review system helps the franchisesales department to identify strengths and weaknesses of the plans and strat-egies initially adopted and implemented to attract prospective franchisees,measure the performance of those efforts, refine plans to adapt to changes inthe marketing macroenvironment, and totally eliminate marketing strategiesand sales techniques that have been a complete failure

The key components of an effective monitoring and gathering system include (1) acquiring and maintaining sufficient computerequipment capability to manage and organize market data; (2) tracking the

intelligence-Figure 10-2 The sales and marketing decision-making flow chart.

Franchise Qualification SpecializesNarrow the Field

Lead Referal Programs

Franchisee Referral Programs

Third-Party Referral Programs

Area Representatives

Testing and Profiling

Sales and Marketing Decision-Making Chart

• Co-Branding Programs

Cross-Referral Programs

Signing the Agreement

development and problems of competitors; (3) remaining active in industrygroups and trade associations; (4) regularly reading trade journals and indus-try publications; (5) meeting with key suppliers and customers to understandindustry trends and preferences; (6) buying the products of competitors toobserve pricing, packaging, labeling, and features; (7) keeping track of theinformation that may be readily available from federal, state, and local gov-ernments; and (8) staying abreast of political, economic, social, and legaltrends and developments affecting marketing plans and strategies.

Franchisors should continue to monitor their sales and marketing forts by interviewing those prospects who chose not to acquire the franchise(to find out why they did not buy) as well as collect data from recent fran-chisees (to find out why they did) If the lost prospect bought a franchise fromanother franchisor, then it is critical to find out why Ask the lost prospect aswell as the recent franchisee what they like and didn’t like about the salespresentation and offering process The franchise director should hold weeklymeetings with his or her staff to analyze and deal with the common concernsand objections raised by the typical prospect Tools and data should then bedeveloped to overcome these concerns, and to learn from the mistakes thathave been made The more common franchise recruitment mistakes appear

ef-in Figure 10-3

Finally, franchisors of all sizes and stages of development should stand that effective sales and marketing is, at the end of the day, all aboutleadership It is critical that the franchisor have a strong leader who is trustedand respected by both employees and current franchisers The business ofawarding franchises is at its heart the process of commencing new relation-ships Prospective franchisees will want to have a confidence level in thefranchisor’s leadership team and believe that this team is absolutely dedi-cated to their success and to the overall health of the franchise system With-out this feeling of trust and perception of commitment, it is virtuallyimpossible to award a franchise

under-Figure 10-3 Common marketing mistakes made by franchisors of all shapes and sizes.

1 Overlooking the Warts The importance of the candidate’s character and attitude are often overlooked

by the overanxious franchisor who overfocuses on the candidate’s personal net worth or is feeling the pressure to meet payroll costs The acceptance of this franchisee into the system just to solve a short- term cash flow problem is in turn creating a long-term systematic or legal problem A franchisee with a bad attitude is destined to fail and likely to bring litigation.

2 Looking for Love in all the Wrong Places The failure to really understand how and where your

targeted candidate will be evaluating opportunities will result in slow growth and probable failure of the

franchisor The franchisor must be focused in its marketing efforts and allocate resources to those

marketing activities that will yield the best results.

3 Passion and a Sense of Teamwork To be successful a franchisee must have a passion and

excite-ment level for the underlying business and enter the relationship with a proper understanding of the roles

of each party The franchisor must screen candidates carefully to ensure this level of passion and commitment as well as educate the candidate on the respective roles of each party in order to avoid any

confusion (or potential litigation) down the road.