EXPERT ADVICE
A Stellar Leadership Team is Key to
Multiunit Franchise Success
By Robert Sher
F
ranchisees who successfully
operate a single location
very often open additional
stores as a means of achieving
growth and increasing revenues.
And while this is a sound growth
strategy, it requires a keen awareness that leading a multiunit franchise—typically generating millions of dollars in revenue from
many locations—is fundamentally
different than leading a small operation.
Unfortunately, too many multiunit franchisees rely on the leadership approach they used when
they were a small business, running the business themselves or
promoting from within without
the proper training. The result?
Derailed profitability, stunted
growth, and high management
turnover.
The only way for midsized
multiunit franchisees to grow and
prosper is to plan for and invest
in a trustworthy and competent
leadership team. As proven time
and again, the bigger the investment in leadership, the bigger the
potential return.
Consider the case of Steve
Foltz, who owns 23 units, including 19 Jamba Juice stores, three
Cinnabon stores and one Seattle’s
Best Coffee in Oregon and Washington. At over $15 million in revenues, he’s one of the top performing franchisees for Jamba Juice
and Cinnabon. His veteran leadership team includes a Director of
Operations, three District Managers and a Controller. The three
original DMs are now directors of
the company, and have an aver-
position—you may have some
work to do too.
Next, look at your current
team, and identify how many employees already qualify to be in
the organizational chart of the future. The rest are gaps that should
be filled over the next 18 months.
Foltz maintains six month succession plans at each location and
two years at the executive level.
Robert Sher is the founder of CEO
to CEO and the author of MIGHTY
MIDSIZED COMPANIES: How
Leaders Overcome 7 Silent Growth
Killers (Bibliomotion; hardcover;
Sept. 16, 2014). A regular columnist
on Forbes.com, Sher has worked with
executive teams at more than 70 companies to improve the leadership infrastructure of midsized organizations.
age tenure of 23 years. Further,
they receive a five percent share
of the profits each year. This team
led them through the downturn
with only a 1.7 percent decline in
sales and consistent double digit
profitability.
Plan ahead
Having an all-star team doesn’t
happen on demand. Start by envisioning the organizational chart
you will need three years from
now. Focus in on the top two to
five positions beneath the owner/
CEO. Sketch out the experience
you would want and the key responsibilities for each. This is your
dream team. If you truly want to
grow, do the same for the CEO’s
23
Consider your own abilities
Many owners like to mentor
young leaders from within their
firm, and often talk about starting
with a “clean slate.” While there
can be advantages, such owners
must look critically at their own
abilities. Do they know how to
run a larger business? Do they
have prior medium or big company experience? Are they active
learners? Do they have the time
and patience to train? The “blind
leading the blind” typically has a
poor outcome.
Steve Foltz was just 26-yearsold when he started working with
his business partner and was an
owner by the age of 29 in his first
Cinnabon franchise. He has benefited from a few key franchise
owners that served as mentors
over the years. He is also a voracious reader, absorbing one to
two business or personal development books a month—for over 20
years. He develops new leaders
one at a time, well in advance of
need, and invests an intensive six
months into the training process.
Foltz is dedicated to his business’
mission, “Leave Your Mark,” and
shapes the team (and his own behavior) to that end.
Be loyal… to the company
Many owners tolerate poor
leaders on their team. The most
common cause is misplaced loyalty, where owners are more loyal to
a person (usually who performed
well in the past or has long tenure with the firm) than they are to
their company’s mission. Yet the
right place for loyalty is between
the company’s mission on the one
hand and each member of the
team on the other. As humans, we
often feel loyalty as being between
a boss and an employee, but this
can be distracting and problematic over time.
An executive that is acting with
loyalty to the company does and
continues to do such things that
help the company achieve its mission. In return, a company that is
acting loyally to its team members
does, and continues to do such
things to help the team member
achieve their own personal goals.
Loyalty is like a checking account
with an expiration date, where deposits and withdrawals are made
every working day. If too much
time passes without new deposits
being made, the account will expire and the executive should be
dismissed.
If needed, hire from outside
There are many owners who
are amazingly creative, hardworking and entrepreneurial, but who
are not committed or confident
enough to develop their own leadership team, or who can’t afford
to wait the year or so that it takes
to see a new leader become effective. These owners should hire
leaders from the outside.
The search for these team members should be thorough and well
executed, finding multiple quality
candidates and choosing the best
fit. Hire for experience doing the
job at hand for a company two to
three times your revenues. These
larger firms tend to have the systems, processes and management
that you need to develop to fuel
growth. Selecting a new leader
from such a firm makes it likely
that their experience is most relevant.
Bringing in outside leadership
can seem unfair to loyal employees who desire those positions, but
if they’re not qualified, they need
mentorship in order to develop.
That’s exactly what reporting to
a top notch, experienced leader
will do. They’ll learn best practices and quickly develop a solid
foundation for their management
career.
Outline expectations
As you build the top team,
roles should be written and clear;
expectations must be measurable
so that the executives are accountable. The CEO must change his
or her approach to working with
such a top team; leading executives is different than leading managers. Operational planning and
structure is crucial to allow these
executives latitude to do their job
and bring their expertise to bear,
but keeps them focused on the
company’s strategy and agreed
upon performance targets.
Barriers to leadership
change
While this shift in leadership
approach is critical to the success of a multiunit operation, it’s
not without barriers. The first is
money. Many owners can’t bring
themselves to pay market salaries
and incentives for executives. Yet
without them, the business underperforms and growth stagnates.
Great leadership is the foundation
of success for a midsized firm. Cut
or postpone other projects or expenses, or take a cut on owner’s
pay to afford one incremental executive. Within six months, they
should have created enough value
to cover their costs or more. Then
bring in the next one.
The second barrier is a flawed
business model. Some franchises
are best suited for owner-operators where the owner must work
24
in the business to earn a fair return. In these cases, becoming a
successful multiunit owner may be
impossible. There must be enough
increases in efficiency (and thus
margins) to be able to cover increased amounts of management
overhead as a franchisee’s operation grows. If there’s not, then the
only path to success may be to exit
the concept and find another.
When Jamba Juice was looking to re-franchise nine corporate
stores in Portland in the depths of
the great recession, they looked
for multiunit franchisees with
strong leadership teams capable of
scaling up quickly. “We were confident that Steve Foltz could support a big expansion of his partnership with the Company,” said
Jamba Juice chairman, president
and CEO, James D. White. “His
financial results and the depth of
his management team told us that
he was right person to offer nine
additional stores. Since joining
the team in 1998, he has been one
the more solid contributors within
our community of franchisees.”
White was right. Foltz’s ratio
of one District Manager to only
five locations (much lower than
average) meant he could stretch
his team quickly to cover the new
stores. Within five months, Foltz
reported that the annual profit on
the new stores more than doubled
in the first 12 months—a huge
win for both franchisee and franchisor. From a revenue base of $7
million in 2004, this leadership
team has more than doubled revenues to $15 million, and plans to
open another Jamba Juice location by early-2015.
As many businesses grow into
midsized operations, owners who
want growth will invest in training a strong leadership team or
will hire executives with deep,
relevant experience. Make a great
executive team your top priority.