Franchise Mastermind

How Franchisors Got Deals Funded In 2009 . . . How To Boost Your Funding In 2010

John Hayes — Mon, 25 Jan 2010 19:46:06 +0000

While many franchisors claim that 2009 was an impossible year for franchisees to get funded, and thus their development numbers were lower than anticipated last year, the truth is good franchise deals were (and are) still being funded, according to Robert Coleman, publisher of the Coleman Report, a newsletter that focuses on SBA lending and features the “best” and “worst” franchise brands.

Deals are being funded for franchise companies that understand what’s different about today’s lending market. “It’s not 2007 anymore,” says Coleman. “Franchisors need to come to terms with today’s lending environment and adapt to it.” Clearly, most have not, or they can’t!

Busy year for FranFund

Geoff Seiber, president and CEO of FranFund, a loan broker for franchises and small businesses, agrees with Coleman. If FranFund’s business in 2009 was any indication of franchise lending activity, it was a good year for franchising!

Indeed, it was a good year for franchise companies that embraced these principles:

Previously, a lender’s due diligence focused on the franchisee, not the franchisor. Prior to the recession, lenders looked at franchising as an industry and not necessarily as 3,000 (plus or minus) brands within an industry. Now, there’s much more focus on specific brands. How are they performing? How are they helping to develop franchisees who can pay back their notes? “Many franchisors are unaware of this shift in due diligence,” explains Seiber. Or, are they just not capable of demonstrating to a bank that they can comply with today’s standards?

There’s less money to lend. The stimulus packages haven’t done what they were supposed to do for small business lending. The situation will undoubtedly improve in time, but even in 2010 it at least appears there’s less money to lend. “Consequently, only the better deals are getting done,” says Seiber. Still, he’s staying plenty busy getting those deals done.

Banks have changed their model from gaining market share, the old paradigm, to minimizing risk! Lenders now have regulators breathing down their backs and they’re not going to make a loan that they can’t fully understand and support. Franchisors that are reluctant to communicate with lenders, or who can’t help a prospective borrower deliver a transparent loan package, will find that their deals are being rejected.

There’s more demand for loans than there is supply. Well, maybe not. Research by the International Franchise Association found that at one time in 2009 banks had 20% more cash on hand than in 2008. They just didn’t lend it. The government can kick and scream about lending into a recession, but banks need to be profitable. They want their loans repaid. Franchisees have to demonstrate how they’ll repay their debt before they can get a loan. Once again, the franchisor has work to do. “Today,” says Seiber, “franchisors must help their existing and prospective franchisees demonstrate to lenders why they are creditworthy.” Talking to the bank in behalf of a franchisee can go a long way toward securing funding. Yet, many franchisors won’t talk to lenders! Or don’t know that they should.

Franchisors have new role to play

“In the past,” says Seiber, “franchisors didn’t have to work so hard to help franchisees (and candidates) get funded. They could tell a prospective franchisee, ‘Go get your money lined up, then come back and talk to us about a franchise.’ But it doesn’t work that way anymore.”

Not if you want to boost your development numbers!

Want More From Bob Coleman?

If you’re a Texas franchisor or franchisee, you can hear Coleman speak on Feb. 24 in Dallas and Feb. 25 in Houston. He will make a luncheon presentation to the Franchise Leadership Forum. Registration is free! Also, Coleman will introduce you to 15 lenders at his Franchise Matchmaking event.

Want More From Geoff Seiber?

Order his eBook, Help Your Banker Say Yes! It contains advice for prospective franchisees . . . and it also tells franchisors what they need to do today to help their franchise candidates get loans!

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A Brutal Message, But It May Be Just What Some Of Your Franchisees Need To Hear!

John Hayes — Mon, 28 Dec 2009 23:14:57 +0000

Perhaps you’ve heard about the phone message that a high school in Queensland, Australia recorded for parents to hear when they called to complain about failing grades for their children? Apparently a group of parents is suing the school to demand that failing grades be changed to passing grades for students who were absent 15 to 30 times during a semester and who did not complete enough school work to pass their classes.

Message hits home

I don’t vouch for the authenticity of the message, but it doesn’t matter if it’s true or not. The message hits home in other countries, and especially in America where we’ve cultivated the entitlement society. As I listened to the message (and enjoyed a good laugh) it occurred to me that a modified message could serve numerous franchisors who get unwarranted complaints from franchisees (and each franchisor would know the identity of said franchisees.)

After listening to the message you might enjoy my pithy rewrites (feel free to use them in your recording!). . . and if you’re brave enough, please share any rewrites that come to your mind (though I doubt it’s as wicked as mine.)

Message for complaining franchisees

The message would go like this . . .

In order to assist you in connecting to the right staff member please listen to all the options before making a selection.

To lie about why you didn’t pay your royalty, press 1.

To make excuses for why you did not attend convention, press 2.

To swear at a staff member, press 3.

To ask why you didn’t get information that was already included in your franchise newsletter (several times) press 4.

If you want us to operate your franchise for you, press 5.

If you want to reach out and punch someone, press 6.

This is the real world

And that’s not all . . . the franchisor who’s as bold as the high school leaders in Australia might add, as they did, this advice:

If you realize this is the real world and you must be accountable and responsible for your behavior, and the performance of your franchise, and it’s not the franchisor’s fault for your lack of effort, please hang up and have a nice day.

Somewhere in there I bet you can find some New Year’s resolutions!

Meanwhile, I’m working on a pithy rewrite for franchisees who’d like to give their franchisor a dose of the real world! Fair is fair. And it may be just what some franchisors need to hear!

Photo image by: he(art)geek

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Future Of Franchise Sales: How Franchisors Will Increase Lead Flow And Sell More Franchises

John Hayes — Tue, 22 Dec 2009 19:36:04 +0000

One of the nation’s premier franchise companies has decided not to wait for the economy to recover to begin selling more franchises. Money Mailer is taking matters into its own hands with a revolutionary finance program that will allow qualified candidates to join the franchise network for a mere four-figure investment!

How many more franchisors will take this same approach? Dozens! Particularly if they want to start selling franchises again in record numbers.

Franchise financing isn’t anything new — The Dwyer Group has provided it for several decades, which is part of the reason that company will sell more than 300 franchises in 2009. But now more franchisors are expected to provide financing because they’re tired of slow-growth and dependence upon the U.S. Government to kick the economy back into gear.

Jaws fell open

Jenkins, a ten-year sales veteran at Money Mailer, championed the finance program and said he was thrilled when the company unveiled it at a franchisee convention earlier this month. “When our franchisees heard about (the finance program), I’d say there were about 300 jaws that fell open. We’re all very excited about it.”

Excited because the company anticipates franchise lead flow to multiply times four! Sales could likely quadruple, too. In less than a week after the finance package was announced, Jenkins said he had received more referrals from existing franchisees than he normally gets in a year! Once the public learns about the program, inquiries will skyrocket.

Takes only $7,500

While a Money Mailer license costs $37,500, qualified candidates will now be able to join the fanchise company with a $7,500 down payment. Money Mailer will finance the balance and not require payments from the franchisee for two full years. The company will also provide a “launch package” that includes $20,000 in production credits paid to the new franchisee in the first year.

Until the economic downturn, franchise candidates frequently used a home equity line of credit to finance a Money Mailer franchise, but that option ended many months ago. “We had to control this situation (the lack of financing) to ensure our growth,” Jenkins explains, “and our management team decided to put this finance program in place. It will make a dramatic difference in 2010.”

Indeed it will, just as similar packages will make huge differences for other franchise companies that are bold enough, and financially stable enough, to provide financing to their qualified candidates.

Who’s next to fund franchisees?

Learn how Dennis Jenkins manages lead flow almost single handedly at Money Mailer . . . he’s featured in the Franchise Central Blog.

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Money For Franchise Start-Up, Expansion: Meet 15 Lenders That Will Lend To Franchisees

John Hayes — Mon, 07 Dec 2009 22:31:04 +0000

If you’re a franchisor, reading this can save you $500! Franchise Matchmaking event will open the door for franchisors and franchisees seeking money.

Once upon a time, several large national lenders were eager — and quick — to lend money to franchisees for start-ups and expansion of their businesses. But no longer.

No national lending

“Today, there’s not one national lender that will take care of a franchisor’s business across the country,” explains Bob Coleman, founder of Coleman Publishing, an online media company that covers the small business banking industry, with an emphasis on franchising.

But there is money to lend

But that doesn’t mean lenders aren’t willing to lend to franchisors and franchisees anymore! “Small business lending is down by 35% in 2009,” continues Coleman, publisher of the Coleman Report, a newsletter that covers SBA’s lending programs. “However, lenders are gearing up for 2010 and beyond. The economy is improving and lenders are now looking for appropriate opportunities.”

In fact, there are new lenders who know little about franchising, but need to. If they want to lend to franchisors and franchisees they’re forced by new banking regulations to learn about franchising.

Restrictions on lending

“The main reason there are no national franchise lenders today is because the regulators have put restrictions on lending,” explains Coleman. “Lenders now must have a presence in the market where they plan to lend. They can’t be based in New York and lend to a franchisee in Wichita, for example. The bank must have a branch office in the market.

“Plus, there are other restrictions which make national lending impossible today. The regulators want lenders to become risk adverse and concentrate on building capital and net assets, which is code for ‘If you’re going to make a loan you better be sure it’s with a strong concept. If it’s a disconnect, we’ll have issues with Treasury and the Obama Administration.’ A lender is much more cautious today, but the lenders still need to be in business and they’re seeking good opportunities.”

Matching franchisors to lenders

As a result, Coleman has organized a Franchise Matchmaking event for March 3, 2010 in Los Angeles. “I’ve invited 15 lenders who want to lend money to franchise systems to come and meet with franchisors,” says Coleman. “I’m going to allow 15 franchisors to each get 15 minutes to pitch their system and their business to each lender.”

Lenders are coming from:

U.S. Bank
Wells Fargo
PNC
Preferred Capital
United Western Bank
Diamond Financial
USC Credit Union
Excel National Bank
Mercantile Capital
BankFirst
HomeBanc
And more to come!

Franchisor: You need more than one

Going forward, franchisors will need to establish relationships with multiple lenders that represent different markets of the country. “Now, instead of one or two lenders who take care of everything for a franchisor, the franchisor may need a half dozen or more lenders, depending on where they’re developing franchises,” explains Coleman. “This is more work for the franchisor.” But if it gets the job done, who’s going to complain? Franchisors are interested in opening new outlets and new franchisees, as well as existing, expanding franchisees need the franchisor’s assistance to find new money.

One word of caution: Coleman says that lenders will be interested in the franchisor’s network. “They are going to google your brand and if you’ve got issues with franchisees that will concern the lenders. You (franchisor) need to clean up those issues. If you have a problem child in your network, resolve the issue. Turn it around. The lenders will be looking at these issues and asking if you’re in business to collect fees, or if you’re really building a system.”

How you can register

Only 15 franchisors can participate in the LA Franchise Matchmaking event. The fee is $1,895. However, you can save $500 if you call Coleman and mention FranchiseMastermind.com when you register. Hurry, because the space won’t last.

Contact Bob Coleman: 818-974-8934.

Photo image by: AMagill

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Free Car Wash Cost This Guy A Day’s Labor…What It Cost The Car Wash Isn’t Really Funny!

John Hayes — Sat, 14 Nov 2009 19:00:37 +0000

It may be a comedy of errors, but many businesses provide just about all the humor I need on any given day!

This morning I was at my local (you’ll notice I didn’t say favorite, but that’s a different story) Starbucks (no, it’s not a franchise) to enjoy coffee, biscotti the Dallas Morning News (the paper version), and the local buzz. After mass at St. Francis in Frisco, I start most mornings at Starbucks, and between the buzz and the newspaper, I leave the shop with several business lessons that I can use in blogs, training classes, and on coaching calls.

A concerning change of apparel

To wit, this morning a young man surprised many regulars in the shop when he walked in wearing the apparel of a local car wash — one of those monster units where you can get everything your vehicle needs, from an oil change to detailing. Usually this young man is dressed in Starbucks apparel and he works behind the counter.

From a crowded corner, where several locals were sharing a Bible lesson, a woman asked, “What are you doing? You’re not brewing coffee for us anymore?”

“Yea, I am,” said the young man with a tinge of disappointment. “I’m also working at the (name withheld) car wash. They just sent me home early because I made a mistake.”

“Wha’d you do?” asked a woman.

Free car wash isn’t good logic?

“I gave a guy a free car wash when he bought a $70 buffing.”

“Sounds reasonable,” chimed in another local.

“I thought so, too,” said the young man, now talking louder since he had captured an audience of maybe twenty sympathetic listeners. “But the manager asked me what kind of logic I was using. He said, ‘Is that the kind of logic you use over at Starbucks?’”

To which the young man said he responded, “No, at Starbucks I got properly trained. I don’t have to use logic.”

Zing!

Got my first laugh!

Not the kind of publicity a business seeks

Several more regulars now entered the conversation. One asked for the name of the manager who sent him home — “Is he the guy that just stands around and directs the traffic into the drying stalls? . . . That guy’s useless.” (It wasn’t that guy, but many of us knew who she meant). . . . “That place is waaay over priced,” said another woman. “They should give you a free car wash if you buy anything over there!”

More laughs for me, even though I pretended to be reading the newspaper.

Making logic out of the story

I’m thinking: What a comedy of errors. First, the car wash (which, by the way, is not a franchise) screws up by not properly training the employee. Then they make a second mistake when they send the kid home, not realizing that “home” was his favorite Starbucks where he would find a sympathetic audience. All of us locals have patronized that car wash. But maybe not anymore!

So here’s this business thinking they’re going to teach an employee a good lesson by zapping a day’s wages, and instead they may have lost a dozen or more customers!

What kind of logic is that?

Not really funny, is it?

Wouldn’t training the employee — even after he made this mistake — have been a better investment than sending him home? Let’s look at that logic.

What would it cost to train the employee? Maybe an hour of training costs . . . let’s purposely put a big price on it: $1,000!

Now let’s look at the cost of losing a customer. As a patron of that car wash, I never get out of there for less than $25 by the time I get a wash, a dry, the interior cleaned, etc. And several times a year I pay much more because that’s where we get our vehicles inspected, as well as change the oil, rotate the tires, replace filters, and so on.

Average ticket now lost: $50

So let’s say the average ticket per customer is $50 — but that’s ten times a year. There’s $500. Except the average customer has two vehicles, so it’s $1,000!

After what happened at Starbucks this morning, that car wash easily loses three to six customers, or $3,000 to $6,000 in the next year alone! Consider that the average car wash customer returns for seven years and today’s future losses are significant! All because the car wash wouldn’t spend money to train the employee!

And keep in mind this isn’t the end of the guy’s storytelling. Now that he knows he can get an audience, he’ll tell this story all weekend — each time it will get better, too! Who knows how many more sympathetic audiences he’ll find. Remember: Each audience member is likely to tell a dozen more people — I’m telling several thousand people right now!

That’s funny.

The real cost of training

Reminds me of the entrepreneur who told Zig Ziglar that he didn’t spend money on training because he didn’t see the sense of training employees who would ultimately leave him for a different job. Zig shared a little of his twisted logic with the entrepreneur: “It’s better to train an employee you’re not going to keep than to keep an employee you’re not going to train!”

And here’s my last laugh: I happen to know that in the not-too-distant future, a Mr. Clean Car Wash — a new franchise backed by Protcer & Gamble — will open just down the road from the non-franchised car wash. That’s when the car wash business will really get interesting in my part of Frisco! We’ll see how much logic the Mr. Clean people use. How much do you think they’re willing to spend on training employees . . . and keeping customers?

Starbucks photo image: Shazari

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Smashing Franchise Sales Records! Hooray, The Right People Are Buying The Right Franchises

John Hayes — Tue, 29 Sep 2009 16:01:32 +0000

Have you heard what I’ve heard about franchise sales in 2009?

As the story goes: They’re dead in the water!

“We haven’t sold a franchise for all of 2009,” is the oft-stated comment that I hear from franchisors.

Franchising’s worst year ever?

Some experts predict franchise sales will be off by more than 50 percent this year, and when it’s all said and done, franchising will turn in its worst year in decades!

You’ve heard it, too?

No money, no franchise sales

Without financing, no one can buy franchises. It seems no one’s got any money, or they don’t want to spend what money they’ve got, or they can’t borrow money! Consequently, in spite of plenty of leads, no one is selling franchises. Pity the poor franchise sales people.

I frequently hear the following explanation: “No one can borrow money right now. Consequently, no one can sell franchises.”

What’s really going on?

One of the crazy things about franchising — for all of my 30 years in the business — is that you can’t depend on popular opinions. Another crazy thing: Some employees of franchise companies consistently depend on popular opinions to justify whatever their situation may be at the time! Boss: No one is selling franchises!

If you listen to popular opinions, you could easily conclude that franchise sales got passed by in 2009.

And yet, it’s anything but true.

A thousand franchise sales?

To wit: It took me only minutes — just enough time to write a brief email — to discover that a handful of companies have sold more than a thousand franchises in 2009, or in the last 12 months.

From small investments to big investments, from service franchises to food franchises, franchise companies are selling franchises and don’t let anyone tell you otherwise! (Unless, of course, that’s what you want to believe).

Smashing sales records

Some companies, in fact, are selling franchises in record numbers!

Perhaps you heard that The Dwyer Group broke sales records twice in 2009.

Twice!

The company that Don Dwyer founded sold 44 franchises in June alone! And the company’s leadership projects selling more than 300 franchises in the worst economic downturn since the Depression.

“Yea, but those are inexpensive, service businesses that Dwyer sells and finances,” the critics will justify.

Hundreds sold this year

Then explain this: Smashburger — heard of them? — has sold 300 units already in 2009! You can’t qualify to buy one unless you’ve got minimum financial net worth of $2-million and liquidity of $500,000. No small potatoes. Competitor Five Guys — where you only need “about $1.3 million net worth,” per the Web site – is also enjoying record sales: more than 1,500 units sold nationally. I’m talkin’ hamburgers and fries, for cryin’ out loud!

And recession be damned — a downturned economy isn’t keeping buyers away from frozen dessert franchises. Red Mango, with the initial investment ranging from $261,000 to $437,600 (and you only need $350,000 net worth) has signed agreements for nearly 200 units this year. Other competitive dessert concepts, i.e. Tasti D’Lite, are selling franchises, too!

Want more?

Puroclean, a Dwyer competitor, projects 100 franchise sales this year.
Senior Helpers has sold 80 units in the last 12 months. Competitors ComForcare Senior Services has sold 40 new territories to 32 new franchisees, and Comfort Keepers has sold 30 new units.
Sales are percolating outside the USA, too: Sign-A-Rama has sold six master licenses so far this year and expects several more before year’s end.

Why they’re selling

Franchise sales veteran Jason Killough, who sells for newcomer College Hunks Hauling Junk (eight sold so far this year), notes that service businesses are selling because “they are relatively low investment franchises” and “financing is easier to get for these concepts.”

“Home-based, service-based, truck- and mobile-based concepts are selling,” he reports.

Depending on the industry, however, office-based and retail franchises are selling, too. Look at senior care. Jeff Johnson, founder of Franchise Research Institute, says he attributes the success in the senior care sector “to the downsizing of many corporate executives looking for self-employment, the growth in the over 65 population, the fact that the over-65 demographic is going to more than double in the next 20 to 30 years, and the fact that the investment level for this franchise category is very reasonable.”

Sales of “healthy treats” franchises, according to Monica Feid at BizCom Associates, which represents Red Mango, are occurring because “Health is in and tart yogurt is on trend.” It also helped that her client offered “Red’s Real Deal” as a sales incentive earlier this year — that program offered a $10,000 discount off the franchise fee and promised to buy back any first store if the franchisee was not completely satisfied six months after opening. “Our client had some skin in the game,” says Feid, “but that program has ended. Red Mango is now getting so many leads, and they’re concept is so good, they don’t need to provide the incentive.”

Even more reasons for sales

But how can anyone possibly explain selling hamburger franchises?

Here’s how:

They sell only development agreements. At both Five Guys and Smashburger a franchisee must be able to open at least five units.
They sell exclusively to experienced, multi-unit, typically multi-concept operators who are looking for growth opportunities. Bankers love those folks and will finance them!
They tout compelling, extraordinary unit level economics. Another bingo for the bankers!
They have sizzling franchisee validation. Perhaps more important than anything else these days!
They can take advantage of great retail space with historical lower rents (true for other food and non-food concepts, too).

It’s really franchising as usual

Truth is, nothing much has changed in franchise sales . . . except perhaps the attitudes, expectations and beliefs of the people selling — uh, trying to sell – franchises. For example, if anyone at The Dwyer Group (a company I’ve known intimately since the late 1980s) ever even thought they couldn’t sell a franchise for any reason — doesn’t matter what it is — the ghost of Don Dwyer would run them out of Waco, Texas, and possibly out of franchising. As well it should!

No one is going to convince the folks who are selling franchises that no one is buying franchises, or that no one can borrow money (FranFund CEO Geoff Seiber reports he’s as busy as ever finding money for clients), or that their franchise sales will miss a beat in 2009.

Why you’re not selling franchises

There are franchisors that are not selling franchises, but if you listen to the leadership of those companies, or you speak to the franchisees, or you dig into their Franchise Disclosure Document, you quickly realize why.

If you’re not selling franchises:

It’s not the economy! (If you think it is, re-read this blog).

It’s probably your sales team. (Now’s the time to upgrade . . . there are good people looking for opportunities).

Or it’s your deal. (Could be it doesn’t work economically, it’s lost its appeal, or it’s tired. Now’s the time to fix it).

Or both. (In that case, fix both, or do franchising a favor and move on to something else).

Franchise misfits aren’t buying!

Franchise sales are not dead in the water in 2009. However, there are some “dead” and “dying” franchise concepts that got exposed in the economic downturn and they can no longer enhance the franchise sector’s overall sales numbers. Those concepts offer no compelling value proposition for customers, no enticing unit level economics for savvy franchisees, and consequently they’ve lost their validation among franchisees.

Now here’s what’s different: The folks who used to buy franchises because they didn’t know any better, or didn’t do their homework — the franchise misfits who typically get burned then realize they’re losing their retirement and run to the media to cry about the horrors of franchising — those folks can’t get financed now, and they’re not buying franchises.

And to that I say: Hooray for franchising!

Coming Soon

How To Capture & Keep The Right Franchisees! A webinar for franchisors and franchise developers. It’s more important than ever to cultivate your franchise network, but many franchisors are struggling, and will continue to struggle, because they captured the wrong franchisees. The sooner you know what makes a right franchisee, and then capture only those kinds of franchisees, the sooner you can put your franchise company on the road to recovery and into the franchise limelight. Want to know how you can register for this webinar? Click here and ask via email!

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Franchisees Prosper When Their Franchisor Provides A “Marketing Machine.” Got One?

John Hayes — Fri, 25 Sep 2009 19:28:33 +0000

If your goal is to promote successful franchising and sell more franchises, focus on creating a marketing machine for your franchisees. That will set you apart from most of the franchise companies that are trying to sell franchises today. Marketing is one of the components that differentiates the successful franchise companies from those that are struggling. Successful marketing separates the prosperous franchisees from those that are failing.

It’s easy to overlook the importance of marketing in franchising because there are so many other components that compete for a franchisor’s time. Selling franchises, for example. Training and support. Site construction. Managing the corporate team. Funding the business. Dealing with vendors. When franchisors forget (or just don’t know) that marketing propels franchising — that nothing is more important than marketing, especially to a franchisee — they fail to live up to their responsibilities as franchisors.

Worse: they disappoint their franchisees, which usually brings franchise development to a standstill.

Too few franchisors invest in marketing

Franchising is in a mess right now because too few franchisors are marketers, and too few franchise companies are providing marketing machines for their franchisees. Things aren’t going to get better until franchisors begin to invest again in marketing.

Early in my career, when I was fortunate to consult with the late franchisor Don Dwyer, I learned about the significance of marketing in franchising. (I’ve blogged previously about Dwyer. Search for “Dwyer” at FranchiseMastermind.com for the articles I’ve written about him). He was the first to demonstrate to me that franchising is all about marketing.

Solve the marketing equation for franchisees and you’ve got a successful franchise — or at least you’ve mastered one of the the critical components of a successful franchise. Granted, you’ve got to have something to sell — something that people want to buy. Selling, however, is always much easier for franchisees to learn and master than is marketing. And that’s not because marketing is so complex, or because franchisees can’t master marketing — it’s because selling is a skill that can be taught and transferred, while marketing, also a skill, involves multiple other components including a branded message and (especially) the money to brand and promote that message. How many franchisees could afford to develop ads like those of the major franchise companies and then have the funds to air them on radio or television?

Dwyer’s marketing machine

Dwyer launched his conglomeration of franchised businesses with a carpet cleaning company — nothing too sexy about that — and part of his promise to franchisees was lead generation. He figured out how to generate customers for franchisees, and that promise attracted people who wanted to buy his franchises. Of course, people with carpets needed cleaning services, but they had many choices — all they had to do was open the Yellow Pages (you remember them, don’t you?). Dwyer developed a telemarketing campaign that consistently produced customers for his franchisees, who were skilled at selling, and skilled at cleaning carpets, but not so good at finding customers on their own. The challenge for franchisees is almost always finding the customers! A Rainbow International franchise, sold by Dwyer, solved that problem!

As Dwyer went on to create or buy another half dozen franchise concepts, in each instance he made certain the concept included a marketing machine. Consequently, he sold franchises at a rate that dazzled his competitors and other franchisors (watch for my upcoming blog article: Who’s Selling Franchises – you’ll be surprised by The Dwyer Group’s success. Or, maybe not. We’ve come to expect it of them!)

Franchise marketing geniuses

Through the years, many of my clients proved their value as marketers — Jim Cavanaugh, founder of Jani-King, single-handedly created the marketing machine in commercial cleaning while he was a college student; AAMCO created the buzz for transmission repair — who doesn’t remember uh oh? But perhaps the most successful of all (at least in terms of getting the greatest brand recognition for the least money invested) was the late Ken D’Angelo who concepualized We Buy Ugly Houses®. Now there was a franchise marketing genius!

I met D’Angelo in 2001 (and succeeded him for more than four years as President of HomeVestors beginning in 2004) and was dazzled by his marketing prowess. While his start-up franchise consisted of the basic components (he had 80 franchisees when I met him and we built the business to 265), all of the components needed to be tweaked, except for his marketing machine! For many years, that was HomeVestors’ differentiating advantage. When D’Angelo conceptualized We Buy Ugly Houses® and branded it using billboards, the phones started ringing in his franchised offices and his franchisees loved him for it.

The franchisor’s primary job

D’Angelo knew that his principle job as a franchisor was generating business for his franchisees, who bought houses at a discount, typically 60% of the after-repair value of a property. Finding properties to buy was a challenge for franchisees — at least it was back in the seller’s market when D’Angelo created his slogan. (Today, those houses are easy to find — just call the bank!) When D’Angelo coupled lead generation with interim money — in its heyday, HomeVestors loaned money to franchisees to acquire properties — he created a flow of prospects that lined up to buy his franchises. Of course, it also helped that at the time, everyone (or so it seemed) wanted to invest in real estate! Not so much today — but then again, leads are plentiful and the economic crisis forced HomeVestors out of the money-lending business. But with $20-million in advertising dollars behind it, HomeVestors’ marketing machine was once among the most effective in franchising!

The concern about marketing

I frequently speak to franchisees who represent many different businesses, and the overriding concern today among those who are failing, or struggling, is marketing.

Where are the leads?
Where are the customers?
How do I get more customers?
How do I keep my customers?
How do I get customers to spend more money in my business?

Those are the questions and issues facing far too many franchisees today, which is why marketing is the most important component for franchisors to address these days.

Unfortunately, many franchisors either don’t know the importance of producing a marketing machine or they can’t afford to. Sometimes, in fact, the franchisor hasn’t figured out a marketing scheme, and in those cases the franchisees are in the worst situation. The saving grace may be that all these franchisors aren’t selling many franchises these days! Not all bad when you consider that they’re likely only to produce more unhappy franchisees.

Marketing machines produce happy franchisees

Want happy franchisees? As Dwyer, Cavanaugh, D’Angelo and so many other savvy franchisors have demonstrated, create marketing machines that generate quality leads and attract customers and your franchisees will prosper.

Even better, they’ll sell franchises for you! Unfortunately, too many franchisors are most concerned now about their ability to sell franchises and they are not investing in what really matters — producing marketing programs that get results for franchisees.

Just Released: FranchiseMastermind Interview Series

Curious to know how they did it? What did Don Dwyer know that other franchisors need to know? And William Rosenberg, founder of Dunkin’ Donuts? What can you learn from franchisors Jim Amos, Jim Bugg, JoAnne Shaw and others? You can immediately download their interviews with Dr. John Hayes. Click here.

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Franchisors: For Cryin’ Out Loud, Your Under-Performers Are Already Hurting Your FDD!

John Hayes — Mon, 07 Sep 2009 18:55:21 +0000

You said franchisors should get rid of their under-performers as quickly as possible. But won’t that hurt our FDD?”

The question popped up during my hour-long webinar, Getting Franchisees To Pay More Royalties Without Complaining!, which I recently conducted for Franchise Business Review.

To clarify the point that I made during the webinar, I explained that shortly after becoming CEO of the We Buy Ugly Houses® franchise company, I had requested a list of our franchisees, rank-ordered by Best Customer status. A Best Customer (and, of course, a franchisee is a customer) is one who pays the most money in the least time and follows the system.

It’s important to differentiate franchisees

I wanted to see a list that differentiated our “best” customers from our “worst” customers. Every franchisor needs to have such a list, but oddly enough, many (maybe most) do not. On any given day, ask a franchisor: “Can you tell me the names of your top ten franchisees and the names of your worst ten franchisees?” Shamefully, they can’t do it.

Every franchisor knows their “worst” franchisees

It’s more likely, however, that they can tell you the names of their “worst” franchisees because those are the franchisees who scream the loudest and steal the franchisor’s precious resources. I purposely said “steal” — these franchisees are taking something they’re not entitled to. Worse yet, the franchisor is giving it to them freely, and by doing so enabling them to become even worse franchisees!

But back on point.

When I finally saw the rank-ordered list of our franchisees — by this time the company was eight years old and no one had ever requested such a list before! — I looked at the top 25 names and said, “Who are these people? I don’t know them!” I didn’t know them because they were the franchisees who simply worked the business. They made money. They paid their bills. They didn’t complain.

How do I get rid of these franchisees?

Then I looked at the bottom 25 names on the list and I said, “How do I get rid of these people? . . . And quickly?”

Sharing that story during my webinar raised some virtual eyebrows and caused some folks on the call to question my sanity: “Who is this guy? He’s telling us to get rid of franchisees? Doesn’t he realize what that will do to the Franchise Disclosure Document?”

I’ll answer the second question first.

Improve or get out!

I wasn’t exactly saying “get rid of franchisees.” I was saying: Move the worst franchisees off the lower end of the list.” You can do that two ways: Help them improve so they’re no longer worst franchisees . . . or terminate their franchises! Get rid of ‘em!

Now I’ll answer the third question with another question: “Don’t you realize what the under-performers are doing to your FDD?”

Under-performers hurt 3 ways

You’re living in a fairytale franchise if you think under-performing franchisees are doing anything to help your franchise company.

First, they are zapping your time and energy — your precious (especially now) resources. Because they complain more and produce less, they get the majority of your attention. You return their phone calls. You give them field visits. You spend time coaching them. And they don’t get better! They simply complain more.

Second, they tell your prospective franchisees not to buy your franchise opportunity. They say things like, “Well, they’re not everything they pretend to be. . .They don’t deliver on their promises. . .No, I wouldn’t buy the franchise again.”

Third, they’re taking up space for no good return! If you’re limited by the number of franchises you can sell, your under-performers are taking up spaces (franchises) that you could sell to others who could pay more royalties and benefit your entire franchise company!

How long til your head splits?

So there you are, banging your head against the wall because you can’t please these worst customers, you’re giving away money, and they are telling your prospects to look to buy a different business. Meanwhile, when someone asks you: Why you doing all that? you say “I’m protecting the FDD.”

And how’s that working for you?

Sorry, I shouldn’t be so flip. Those kinds of comments tend to get me in trouble! On the other hand, come on now, are you in franchising to help franchisees and your franchise company? Or are you in it just so you can complain about under-performing franchisees and regulations that make it impossible for you to sell more franchises?

Your 3 point answer

Here’s the game plan I developed for the “Ugly” under-performers:

Tell them where they stand. Every franchisee wants to know how she/he compares to other franchisees in the network. Number 1 wants to know (and enjoy the fact that) she’s number 1, and number 2 wants to know how he can get more productive (i.e., pay you more royalties) and become number 1! Meanwhile, the bottom feeders need to know where they stand. Some of them, in fact, will be embarrassed enough to get themselves off the lower rung and at least into mid-tier range of your customer list. Others will remain at the bottom of the list, sometimes on purpose and sometimes because they simply can’t do any better!
Tell them what you’ll do for them. Nothing more than what’s promised in the FDD! “We want you to improve your productivity, and we’ll help you. However, you’ll have to help yourself first. We can’t help you if you won’t follow our system,” you tell them. If they want a field visit and you are not obligated to give them one, tell them they can get one for a fee! Coach them, but for a fee. Do what you’re obligated to do, nothing more. Once they start paying for your services and support, some of them will improve. Others are going to remain at the bottom even if you stand on your head and pile BBs on your nose!
Tell them what they can do for themselves. And they have some choices! One, do nothing and you’ll leave them alone (until it’s time to renew them). If they’re happy at the bottom of the stack, you’re happy, too. After all, someone will always be at the bottom of the stack. . . . Not happy at the bottom of the stack? Then: “Here’s what you can do, Ms. Franchisee.” List support and training opportunities that you make available, some of which may be expressly for under-performers — for example, rather than spending money for field visits, you’ll conduct a training webinar for multiple franchisees. The point you make is that you want to help them and that it’s possible for every franchisee to improve in your network, if they want to. “Show us what you’re willing to do for yourself, and we’re here to help you.” It’s called tough love. . . . And, by the way, when renewal comes along, emphasize the tough love. Unless you don’t mind keeping under-performers, don’t renew them. Help them transfer their franchise.

“But won’t that hurt our FDD?”

It was at about this time that someone on the webinar raised a virtual hand to ask, “But won’t that hurt our FDD?”

Oh for cryin’ out loud!

I don’t know who asked the question, but since the webinar attracted mostly operations folks, I’m guessing it was someone from a franchisor’s ops department. Someone who had heard from the franchise development team that it’s important to cater to the franchisees to keep a “clean” FDD — in other words, “We don’t want to have any more terminations in our FDD.”

Even if it means the franchisor goes broke? Or the franchisor becomes an under-performer?

Terminations are part of franchising

Color me ignorant, but I don’t agree. I’ve worked with some of the best franchise development folks in the industry and they don’t have problems overcoming FDD issues that make sense. Terminations are going to happen regardless of what you do. And some terminations are necessary. In fact, a pro-active franchisor will use terminations as a means of protecting the viability and value of the franchise network. (I guarantee you your top tier franchisees do not want you to cater to or keep under-performers).

Who wants under-performers?

As a franchisor, I didn’t. And no client of mine ever does. We all realize that franchisees are not created equal: Some will perform better than others. We also realize that the franchisor can impact the performance by recognizing the franchisee’s values-based behaviors and offering appropriate training and support. (In this regard I’ll quickly add: All franchisors are not created equal, either: Some will perform better than others).

Bottom line? Do what’s expected of you as a franchisor. Cultivate productive, profitable, satisfied franchisees. Face the facts: Not everyone in your network is cut out to be a productive, profitable, satisfied franchisee. Protect your network. Raise the bar by improving the performance of your under-performers. Terminations serve a purpose. And the FDD exists because it’s the law; smart franchisors know how to use it as a selling tool.

Coming Soon

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Five Lessons Franchisors Can Learn From Network Marketers To Expand And Build Their Franchise Companies

John Hayes — Mon, 31 Aug 2009 22:59:19 +0000

Franchise companies tend to think of themselves as a level or two (at least) above multi-level marketing (MLM) companies, but having worked in both industries I have discovered that MLMers (or network marketers) do some things more efficiently and effectively than do many franchisors.

Five lessons

Here are five ways you can borrow from the MLM community and help your franchise network achieve greater success:

Build relationships first, empires second
Make duplication as important as the system
Be willing to work for others
Make continuing education your business
Cultivate a pass-it-on mentality

Build relationships first, empires second

Network marketers emphasize building relationships. Franchisors emphasize selling franchises. Of course, franchisors train and support franchisees, too — some do it equally as well as the best MLM companies — but often there’s not much emphasis on building a relationship, either between the franchisor and franchisee, or among franchisees.

Scott Boulch, a marketer who has succeeded in MLM and also worked with franchise companies, says, “People in MLM understand their income is one hundred percent dependent on their downline success, so relationships are important. But in the franchisor/franchisee relationship there’s less of a connection. It’s like they get a big franchise fee upfront and monthly royalties, but there’s less concern about the day-to-day development of the franchisee.” Top network marketers value relationships — it’s a way of life in MLM.

Tom Ziglar, son of Zig Ziglar, whose speeches and books have inspired countless network marketers and franchisees worldwide, adds, “Success is about relationship. What a new franchisee really needs is a relationship with a real human being at the home office who can coach them every week on how to grow the business, and who also has a real relationship with them. Great network marketers not only sponsor someone into the business, they coach them daily and help them grow and recruit new people. They are more than just the sponsor, but a friend.”

Make duplication as important as the system

“Without duplication, all your time and effort goes to waste because you don’t get a big upfront payment in network marketing, and you want to be sure you get paid on the back-end,” explains Boulch. He says new MLMers are told “to do exactly what your upline does; don’t deviate.”

In fairness, franchisees are told to “follow the system.” But it’s not the same. In franchising, the upline is usually the corporate office. In MLM, distributors don’t need to call the corporate office. When they need help their upline may live just across the street, or they’ll be at the next weekly meeting. Hands-on help is almost immediate in MLM and it cultivates duplication.

“There’s no room to be entrepreneurial,” continues Boulch. “Entrepreneurs don’t make good franchisees and they don’t make good network marketers, either. Those who do exactly what their upline teaches them to do will succeed.” Relationship impacts duplication, too. It’s easier to get people to duplicate when they’re working directly with someone who cares about their performance and welfare.

Be willing to work for others!

It’s an odd thing about MLM, but the successful people, those at the top of the uplines, are willing to go to work down line. “The job of the upline,” continues Boulch, “is to make money for their downline. It’s backwards in franchising. Franchisees are seen as making money for the franchisor. But in network marketing, the upline works downstream.”

Again, relationship is a key. If franchisees sense they have a “friend at corporate” they are more likely to perform better.

Make continuing education your business

Franchising is often in the business of franchising whereas network marketing companies are in the business of training and education. “Network marketing companies are constantly educating,” says Ziglar. “They complete one event and they immediately begin building to the next event. They do a very good job of keeping people plugged in to everything the company is doing. There’s massive communication effort upline and downline.” In franchising, franchisees sometimes complain that they only hear from their franchisor when they’ve done something wrong.

In general, franchising can benefit by implementing more educational programming, as well as opportunities to communicate. Typically, in a good MLM company there are several network phone calls weekly for educational and communications purposes. In addition there are webinars and online updates. Typically, franchisors under-utilize technologies that advance communications and education.

Cultivate a pass-it-on mentality

Successful network marketers must teach the next person. They must pass on their expertise to the next person.

Franchisees learn the system in training, usually at the corporate office, and they get ongoing support, but not usually from another franchisee, or practitioner. Franchisees are not expected to teach other franchisees about how to work the business, and yet, franchisees appreciate learning from other franchisees. That’s why franchisee mentoring programs are popular. The MLM community knows the value of passing it on.

“In MLM,” says Boulch, “a distributor learns the ropes from another distributor, and is then expected to teach the system to many more distributors, thus creating their downline. Teaching re-enforces the training. The minute you have to teach someone else how to do it you get better at it.”

Go ahead, step down to new opportunities!

Even if it feels like you’re stooping, any one or all of these five lessons may stretch your franchise network to new levels of success. And there are at least five more lessons to follow — you’ll find them in Network Marketing for Dummies, a book that I wrote with Zig Ziglar.

Coming Soon

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Franchisor: You Don’t Own Your Brand. Your Franchisees Do . . . Uh-Oh For Some Of You!

John Hayes — Sun, 23 Aug 2009 18:49:02 +0000

Franchisor, you think you’ve got a strong brand and you probably do. You think that’s why you sell franchises and it probably is. It’s at least one of the main reasons that you sell franchises and prosper from your existing network.

You also think you own and control your brand, but you don’t. Your franchisees do!

Now that doesn’t sound right, does it? We tell franchisees that they don’t own anything except the equity they build in their businesses (and some franchisors try to take that away, too, or in some businesses the equity never amounts to much).

So why would I say franchisors don’t own their brands — the franchisees do?

No brand no company

Like a soul, brand isn’t something that you can reach out and touch. You can’t count it, stack it, or hold it and admire it. But it’s there! Every company has a brand, and if yours isn’t valued your company is lost, which means it will eventually disappear.

As a franchisor, you are responsible for nurturing the brand, giving it life and keeping it healthy or valuable. You do that mostly through character qualities, especially trust. Customers — in your case, franchisees — watch how your company behaves, how it handles itself, how it’s led, and how it delivers on its promises. Then they size up your brand value. What other customers say about you, your company, your leadership, your character qualities — those opinions count most. And the evaluation never ends — it’s ongoing.

Not a time to flub it up

Cultivate a cherished brand and your brand value increases, which helps you sell new franchises, more products, and helps you keep the franchisees you’ve already acquired as customers. However, flub it up and your brand gets tarnished and your company’s financials slip in value. Who wants to be associated with a tarnished brand?

“For customers to trust a company and its products,” says author Stephen Denning (The Leader’s Guide to Storytelling), “they have to know what sort of company they are dealing with, what kinds of values it espouses, and how its people approach meeting customers’ needs.”

Some franchisors have flubbed it up

It’s a tall order for franchisors, especially in this economy. Some franchise companies that once had cherished brands have watched their brand value diminish in recent months. The franchisees have rejected, or at least hold suspect, the franchisor’s intentions and promises.

Denning also says, “Strong brands are based on a narrative — a promise that the company makes to the customer, a promise that the company must keep. It’s a story that the customer has about the company and its products and services. The brand narrative is owned by the customer, not the company.”

Is this your reality?

Frightful thoughts for many franchisors today, but it also explains their reality. The franchisors that stopped delivering on their promises are struggling not only to sell new franchises but to keep existing franchisees in place. They’ll continue to struggle even after the economy recovers.

Meanwhile, franchisors that have continued to invest in their brand — which is not the same as investing in advertising — continue to prosper largely because their customer network still supports — even cherishes — the brand. You can’t help but admire the franchisors that looked the economy in the eye a year or so ago and said, boldly, “We’re not surrendering our brand to you! We’ve worked too hard, spent too much, to cultivate it. We realize its significance.” Understandably, and deservedly, those companies continue to sell franchises and they’re poised for significant growth in the coming months. Those are the franchises that customers want to buy today!

Time, money can recover a brand

A franchisor can recover a tarnished brand — we’ve seen it occur numerous times in the last 30 years — but it takes time and money. It takes leaders — not minions! However, during the recovery, competitors step in and capture market share and the once dominant brand is never the same (as valuable) again.

Bottom line: If you’re building a brand, and you must if you’re in business, it’s critical that you build it right from the start and continue to invest in it appropriately, even during a sluggish economy.

Special note to franchisees

Franchisees, you may be pounding your chest, relishing your newfound power, but don’t get carried away. You don’t own your brand, either. Your customers do!

Coming Soon

Photo image by: cote

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