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Guest Editiorials: Having Our Say

In recognition of the expertise available within the franchise community and in time for the International Franchise Association’s Annual Convention, which serves as networking central, Franchising World magazine is providing readers access to some of their peers and leaders in the industry who have agreed to provide their insights on issues of significance to owning or operating a franchise business. 

Creating Successful Multi-Unit Franchisees

By Scott R. Haner, CFE
Director of Franchisee Recruitment, KFC Corporation
It was not unusual in the 1960s for a couple to go on vacation, stop for dinner at a KFC restaurant and later contact Colonel Sanders about starting a franchise operation in their hometown. Dad would work the kitchen, Mom the cash register and they would remain a one or two store franchisee for the next 40 plus years. Times have certainly changed. Today, most brands seek multi-unit operators in an effort to leverage expertise, provide growth opportunities and keep franchise support costs at reasonable levels. Given the desire for quality MU franchisees, the question becomes, “How can brands create successful MU franchisees?”
I’ll offer three thoughts:

Recruit franchisees that are MU capable.
Build system capability around key “growth-ready” performance.
Actively expand with “growth-ready” franchisees.
In the KFC system, many MU capable franchisees have begun as an area coach or similar above store leader in the QSR industry and through that experience demonstrated the ability to drive performance. If the majority franchisee does not have this experience, we require the primary operator to have an equity interest in the franchise entity. The essence of our business is taking care of customers and previous success as a MU retail operator is a strong indicator of competency. We verify multi-unit aptitude with a profile test, specifically designed to assess if a franchise prospect is “wired” for MU ownership. And through a series of operations interviews we determine if the prospect has demonstrated the ability to build teams and will fit with our corporate culture. Finally, endorsed candidates need to express a viable vision for multi-unit ownership and verify the financial wherewithal to make their dreams a reality.
Once new franchisees enter the KFC system, they have the accountability to run great restaurants and build the KFC Brand. The brand’s role is to enable this performance by building system capability with clearly defined growth-ready standards, best in class programs, detailed feedback, coaching, mentoring and world class recognition.
From the first day a franchisee enters the KFC system, KFC defines how the franchisee’s operations will be evaluated and what it takes to be endorsed as growth ready. This includes, among other measures, strong customer metrics, the use of a balanced operations scorecard, and excellence in the human resource disciplines of bench planning and people development. KFC Training and Yum! University offer a wide range of courses to teach franchisees the basics, enhance restaurant performance and facilitate personal development. Our territory operations managers provide regular coaching and support, including discussions of best operations practices from across the system. And our system prides itself on a recognition culture that celebrates outstanding performance on many operating metrics, encouraging others to follow suit. But many times the secret ingredient comes from our existing franchisees. KFC has many MU franchisees that have set a high standard of operating performance and they are often willing mentors, readily sharing their know-how with others in the system, especially in the areas of building franchisee infrastructure and managing growth—all with the intent of making the KFC brand stronger.
From the first day a franchisee enters the KFC system, KFC defines how the franchisee’s operations will be evaluated and what it takes to be endorsed as
growth ready.

Finally, the brand must recognize and expand with those franchisees that have earned the right to grow. This is why growth-ready standards have been established in the first place, to help ensure that the brand is being built on a strong foundation. While this may seem simple in essence, it can be a challenge when a well-financed franchisee, albeit a poor operator, asks to build a new store or buy additional restaurants. The right answer is to focus that franchisee on fixing the existing operation and building the capability that allows him or her to be endorsed as growth ready. And it’s important to consider the capability they will need in the new expanded organization which is frequently greater than what’s needed with their existing base of restaurants.
Once a pool of growth-ready operators has been established, the brand has the ability to channel expansion opportunities in their direction. This could be new territory for development or restaurants for sale in contiguous markets. Over time, this activity promotes growth among quality operators, those with the demonstrated ability to drive multi-unit performance.
Solid recruiting; clear standards; excellent training, coaching, and mentoring; and expansion discipline–these are some keys we use to create successful multi-unit franchisees.

 
Haner can be reached at 502-874-2680 or scott.haner@yum.com.
Accessing Capital to Build Your Franchise

By Reginald Heard
President, Bankers One Capital

Uncertainty in the overall economy in the past four years has created new challenges for many franchise systems focusing on unit growth. The ability to attract access to capital for its system operators at sustainable levels and to support system growth at all levels became and remains one of the top priorities for the brand leadership at many franchise systems.
It is essential for a franchise system to build a successful brand and to sustain its overall system growth to attract lenders that can provide continuous viable options to finance most of its system operators’ projects. The overall industry benefits from a banking system that has a strong working knowledge about franchise business models, understands how to effectively underwrite the related credit risk on both the brand system and operator levels, and is active in the market to fund a broad range of franchise type projects and its system operators.
The development goals and system growth of franchise systems call for funding in such areas as new store development, transfers/resale units, unit expansions, store remodels, new equipment purchases, upgrades and working capital facilities to support ongoing operations. To attract a healthy network of lenders, a franchise system’s growth trajectory is equally correlated to its ability to attract and retain qualified system operators with diverse backgrounds on the personal financial and skilled experience levels. System growth continuity and maintaining a competitive advantage are influenced by many factors. One of the most significant factors is the system’s ability to attract competitive capital access from outside lenders with the capacity and willingness to offer conventional loan options to their more experienced and financially stronger operators, as well as Small Business Administration-backed loan options as funding solutions.
As the new economy continues to be redefined following this severely recessionary cycle, banks and lending institutions that successfully weathered the storm have since emerged well capitalized. They are now best positioned to make new loans to franchise system operators that support their business models and growth strategies. Also, this well-capitalized base of lenders with the capabilities and willingness to underwrite the franchise business projects are broad based in nature. Many of these lenders, including national, regional and community banks, credit unions, and non-bank specialty finance companies, continue to participate in the SBA loan programs. As a result, they are returning to the market actively seeking qualified projects and borrowers. Similarly for those well-capitalized lenders that provide non-SBA loans, but traditional term loans, equipment leases and loans, and working capital facilities have also returned to the market seeking qualified projects and borrowers. The operative word for both groups of lenders is how they internally define and what they consider to be “qualified projects and borrowers.”
Despite the total number of well-capitalized lenders in the market, the franchise industry continues to experience a historical gap of approximately more than $3 billion between total loan-demand for overall capital needs and the supply of capital to meet total demand. Although the demand and supply gap will narrow as the economy continues to show signs of improvement and market conditions for lender competition improve, under current conditions, lenders continue to extend business credit under tighter internal credit underwriting standards and under a heavy external “risk adverse” regulatory environment. Another significant challenge is that these well-capitalized lenders are decentralized and a significant number of them have either minimal or no prior experience in underwriting franchise business projects coupled with the greater industry knowledge limitation to the broader base of franchise systems.
It’s has been well communicated that the franchise industry is a representation of the country’s small businesses and that approximately every $1 million added to franchise lending supports an estimated 40.4 total jobs and generates an estimated $4.2 million in annual economic impact.
The current market conditions and the continuous heightened awareness about opportunities to finance franchise type projects by the franchise industry to the banking industry makes for the perfect timing for franchise systems to fully evaluate their internal systems and determine if the system is “lender ready.” It has become common practice for many banks and specialty finance companies to become fully educated and to qualify the overall systemic risk and system performance history before making any consideration to underwrite a specific operator or transaction request. To manage credit underwriting risk, experienced and non-experienced lenders for franchise type transactions, as credit management tools, lenders are reviewing, but not limited to a copy of the system’s franchise disclosure document, a FRANdata independently prepared Bank Credit Report, the SBA Franchise Registry status, the SBA performance history data, industry sector analysis, and any internal loan performance data on the system, if available.

Heard can be reached at 203-791-9998 or rheard@bankers1capital.com.
The Power of Positive Franchisor-Franchisee Communications

Ray Titus
President, United Franchise Group
Good communication is the cornerstone to a successful relationship, and that’s especially true in the bond between franchisor and franchisees. Since the success of each one depends on the other, it’s critical that open, positive lines of communication are in place. As a franchisor, you need to cultivate positive communication by taking a wide-ranging, pro-active approach to ensure that franchisees will have easy access to your messages and feel confident that their input is respected and valued.
At a multi-unit concept such as United Franchise Group or a single emerging brand, it is vital to use multiple channels of communication to be certain that you can reach every franchisee with your messages. It should start with an online support system, which can allow franchisees to make public comments and posts so they can interact freely with each other and get responses that may benefit them and other owners as well. It is also important to send regular e-mails and newsletters, or even create monthly news format videos to recognize the outstanding efforts and sales of top performing units. This keeps everyone on top of news and information.
While technology certainly makes it easier to communicate, sometimes online is not enough. A dedicated call center that reaches out to every franchisee on a regular basis and is available to provide critical help when needed is an asset that franchisees will respect and use. Regular contact with your system should be part of your basic support structure, but to really cultivate a great relationship, you need to build on that. Each and every franchisee should be valued as the integral part of your business model that they are. Every concept should strive to return each phone call before the end of the day and follow up as needed until you are certain that every question or concern is resolved. Whether it’s a franchisee, home office employee or a member of your field staff, understanding the importance of every interaction and the coordination of your efforts will allow everyone to take an active interest in the success and growth of each unit.
However, for communication to be truly successful, it must be a two-way street because it’s not just a matter of pushing out information. It’s critical to truly listen to franchisees and take an active interest in meeting their needs. One of the ways that successful brands do this is to spend time with franchisees face to face and really get to know them personally. That’s an increasingly valuable tool in today’s world of social media and online shortcuts that save time, but can take a toll on building meaningful relationships. United Franchise Group and other successful brands have dedicated field staff throughout the country that work closely with franchisees to guide them through the business ownership process.
Ongoing regional meetings, which are informative and provide a great backdrop for franchisees to mingle and meet each other, are another invaluable communications tool. Annual and system-wide conferences or conventions are also an extremely valuable part of your communications infrastructure. They are a great opportunity for franchisees from around the globe or across the country to gather in one place and share ideas, hear from experts, meet valuable vendors and stay connected.
Knowing that people support what they help to create, it’s critically important to include franchisees in all major decisions. If they are a part of the process, they are more likely to endorse it and help be a catalyst for change. A savvy franchisor will beta test new ideas with a group of highly engaged franchisees to achieve real world experience with a product and find out how it actually works in their locations before a system-wide rollout. If franchisees give it their stamp of approval, then you have a critical endorsement that will allow you to move forward and share the product with others while using the beta test franchisees to gather support from the system. This lends even more voices to the messages that you may be trying to share and it’s not just the corporate office endorsing a concept or an idea. It’s also important to ask franchisees to serve on advisory boards that meet regularly or host conference calls. Sometimes those franchisees are elected to their positions by the system as a whole, which ensures that everyone’s voices will be heard on matters both big and small. Exceptional franchisees should also be used to mentor newcomers to your system to ensure that even the newest franchisees have various ways to share their input and questions.
Respect for franchisees begins with ongoing day-in and day-out communication. If you have that in place, the free exchange of information and opinions will help your brand to improve, grow and succeed. Now that’s a relationship worth cultivating. 
Titus can be reached at 561-868-1456.

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