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