Chapter
12
Franchising
12 - 1
Franchising
• An entrepreneurial alliance between two
organizations, the franchisor and the franchisee
• Franchisor – the concept innovator who grows by
seeking partners or franchisees to operate the concept in
local markets
• A large-scale growth opportunity based on a
partnership rather than an individual effort
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Top Ten Franchisors, 2010
Franchise
Subway
McDonald’s
7-Eleven
Hampton Inn
Supercuts
H&R Block
Dunkin’ Donuts
Jani-King (commercial cleaning)
Servpro
ampm Mini Market
Startup Costs
$84,300 - $258,300
$995,900 - $1,842,700
$40,500 - $775,300
$3,716,000 - $13,148,800
$111,000 - $239,700
$26,427 - $84,094
$537,750 - $1,765,300
$11,400 - $35,050
$102,250 - $161,150
$1,835,823 - $7,615,065
Source: http://www.entrepreneur.com/franchises/franchise500/index.html
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Fastest Growing Franchisors, 2010
Franchise
Jan-Pro (cleaning)
Subway
Stratus Building Solutions (cleaning)
Dunkin Donuts
Anago Cleaning Systems (cleaning)
McDonald’s
CleanNet USA (cleaning)
Bonus Building Care (cleaning)
Liberty Tax Service
Vanguard Cleaning
Startup Costs
$3,145 - $50,405
$84,300 - $258,300
$3,450 - $57,750
$537,750 - $1,765,300
$8,543 - $55,306
$995,900 - $1,842,700
$5,425 - $91,150
$9,000 - $15,000
$56,800 - $69,900
$8,125 - $38,100
Source: http://www.entrepreneur.com/franchises/fastestgrowing/index.html
(based on number of units added in 2008-2009)
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12 - 5
Franchise Opportunity Recognition
• Primary Target Audience (PTA) identification
• Service delivery system (SDS) design
• Training and operational support
• Field support
• Marketing, advertising, and promotion
• Product purchase provision
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Assessing a Franchise
• Multiple market presence
• Outlet pro forma disclosed or discerned
• Market share
• National marketing program
• National purchasing program
• Margin characteristics
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Accessing a Franchise
• Business format
• Term of the license agreement
• Site development
• Capital required per unit
• Franchise fee and royalties
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12 - 9
12 - 10
• Exercise
• Using the earnings claims on the next slide (governed
by FTC disclosure regulations), would this be a
profitable opportunity if:
• 1.
working capital per store
$166,000 (including franchise fee)
• 2. real estate development expense per store
$250,000
$416,000 total capital required per store
• 3. Royalty rate: 5%, Advertising rate: 3%
• What questions would have for the franchisor?
• How would you finance this plan?
• P.S. Prices are about 50% higher today.
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12 - 12
CONSULTING SKILLS
CUSTOMER ACQUISITION,
CONTRACTING, AND ETHICS
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Customer Acquisition (Weiss)
• “The easiest sales take place in an atmosphere of
need”…combine need, competency, and passion
• There is never a good excuse to cold call
• Word of mouth, referrals, networking the way to go
• If you really have to start from scratch, ask:
• Do you have strong experience in the target industry and with the
type of issues?
• Can you cite a third party to validate your work?
• Can you visit the target economically and reach people who can help
pave the way?
• Can you speak in front of key managers at an external event or
publish something or meet informally?
• Less is more, rifle not shotgun
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Preparation (Weiss)
• Consulting is a relationship business:
• Know the name of the “economic buyer” who signs the
checks, arrange to meet them (give me 5 ways), act as a
peer.
• Avoid gatekeepers
• Ten techniques to infiltrate:
• Become a customer, perform pro bono work, create a
study, engage in civic activities, write about your
prospect, become a visiting professor, write a letter of
praise, befriend an employee, serendipity, meet the
buyer socially
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If the buyer comes to you…
• Become more prescriptive, less diagnosis
• Presumably they like what you are offering
• Provide options on how to use you (not why)
• Find out what the budget is
• Provide one option above budget
• Be prepared to “walk away”
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Relationship Building
Analytic
Driver
Amiable
Expressive
Task
Orientation
People
Assertiveness
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Motivations
Type
Likes…
Dislikes…
Objection
Driver
(determined)
Power/
Results
Wasting
time
No time or
need
Expressive
(imaginative)
Attention
Ignoring
needs
No trust
Amiable
(supportive)
Acceptance Threats
No hurry
Analytic
(methodical)
Facts/Data
No money
Guesswork
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Rebuttals
• No time/need
• Show how the buyer’s power or results will be
enhanced – de-emphasize how good you are.
• Cite examples of other trusted organizations doing it
• “To make the best use of your time, there are just four
things I’d like to know”
• “What is the most fundamental issue you wish you could
solve tomorrow?”
• No trust
• Let the buyer get comfortable with you
• Use anecdotes, ask a lot question about the buyer’s
background, find points of commonality, LISTEN
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Rebuttals ctd.
• No hurry
• Buyer wants assurances, guarantees, references, pilot
tests etc.
• Provide references and testimonials, provide “fail safe”
options and contingencies, create sense of urgency (the
timing is never perfect – show ‘em it could be a hell of a
lot worse), provide a guarantee (if possible)
• No money
• Provide details of cost savings, focus on value not fee,
stress investment not cost, offer options, money-back
guarantee, provide analyses: spreadsheets and charts
showing ROI.
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Contracting (Block)
• Setting up the first meeting…telephone questions
• What do you want to discuss?
• Who is the client for the project?
• Who else will be at the meeting?
• How much time will we have?
• Do you know that you want to begin some project, or
are we going to discuss whether to do anything at all?
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Contracting (Block)
• Before you negotiate the contract…
• Ask who the client is (including the less visible parties)
• Elicit the client’s expectation of you
• State clearly and simply what you want from the client
• Say no (or postpone) a project with less than 50/50
chance of success
• Probe directly for your client’s underlying concerns
about exposure and vulnerability
• Discuss directly with the client why the contracting
meeting isn’t going well when it isn’t
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Contracting Process (Block)
Personal Acknowledgment
Communicate Understanding of Problem (acknowledge, reassure)
Discuss Client Wants and Offers (and Constraints)
Discuss Consultant Wants and Offers (and Contraints)
Negotiation
Agreement
Terminate
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After the Agreement…
• Ask for feedback about control and commitment
• “Is this project something that you really want to see
happen?”
• “Do you feel you have enough control over how this
project is going to proceed?”
• Give support
• “Starting a project like this takes some risk on your part
and I appreciate your willingness to take that risk with
me”
• Restate Actions
• Make sure you and your client know what each of you
is going to do next
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Common Problems
• Client has low motivation
• Perhaps the client is feeling coerced by his or her boss
• Go back to source – avoid the use of go-betweens
• Start with a small step project
• “Is there any way we could set this up so that you don’t
feel …stressed/losing control/waste of time”
• Ceaseless negotiations
• Including defining the problem to death
• No more than 20 mins or 35% of meeting on problem
• Credentials
• Tell a war story, name their concern, reassure that you
will get the job done
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Contracting Observations (Block)
• Ground rules for contracting…
• A contract should be freely entered
• You can’t get something for nothing
• There must be consideration from both sides
• All wants are legitimate.
• You can’t say “You shouldn’t want that”
• You can say no to what others want from you. Even
clients (and professors).
• You don’t always get what you want.
• You can contract for behavior but you can’t contract for
the other person to change their feelings
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Contracting Observations ctd.
• You can’t ask for something the other person doesn’t
have
• You can’t promise something you don’t have to deliver
• You can’t contract with someone who’s not in the
room (such as a client’s boss). They need to be in the
room.
• Contracts are always negotiable.
• Be grateful they are asking to alter the contract rather
than doing it without a word
• Contracts require specific time deadlines or duration
• Good contracts require good faith (and good fortune)
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Pro Forma Contract
• http://smallbusiness.findlaw.com/business-formscontracts/business-forms-contracts-a-to-z/form135.html
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Ethics (Block)
• The most surprising ethical snare is the willingness of
line managers to follow the fashions and buy what is
popular (do you sell it if they don’t need it, do you
push it if they need it but it’s new)
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Ethical Guidelines (Block)
• Say No (to Work) As Often as You Say Yes
• Stay True to Your Self
• Setting high growth targets means you take on marginal business
• Grow On Your Own Terms
• Give business away if you are too busy
• Show How Everybody Counts
• Not just top management
• Leave It All Behind
• Measure your work by the optimism and self-sufficiency you leave
behind, teach clients to learn and create by themselves
• Forgive Yourself
• Sometimes we take the job for the money, or we over-promise, or buy
into a fad – but be honest, at least with yourself, self-delusion is the
worst sin
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