May 2015 Archives

Every franchise buyer wants to know how much money they can make. What are you going to tell them?

New franchisee recruitment & sales is very competitive with more franchise brand options available today than at any time in the history of franchising.

All of them are competing for your prospects.

Qualified franchise buyers might not be enthusiastic enough to buy your franchise, right now. You have to give them compelling evidence.

Here's how some franchise sellers succeed in selling in this recovering economy: using creative, imaginative, but magical communications to convert prospects to franchise buyers.

1. Partner with an industry or business publication. Give a stellar interview explaining the strength of your concept's unit level sales performance to the journalist. Of course have links to the articles on your website and send it out in your drip email campaigns.

2. Use social media chatting where you can explain the important key performance indicators on LinkedIn, Facebook, Twitter, Google+ forums.

3. Blogging is a terrific way to get the word out to potential buyers. Contract with blogger journalists for hire who will write success stories about your business model including key franchisee interviews.

4. An Investment ratio is a simple and common creative way for your prospects to do the simple calculation for gross revenue.

5. Direct your franchise candidates to your select high performing franchisees who will share their P&Ls with franchise candidates.

All of these tried and true franchise prospect "confidence builders" work very well since every franchise-buyer wants to know how much money they can make.

And you should use them only if you are willing to sell franchises both recklessly and carelessly.

So what should you do instead?

• Stop believing in magic.

• Make sure your franchise model Return-On-Invested-Cash - ROIC works for franchisees.

• Give the evidence your franchise concept is investment worthy by including a detailed Item 19 Financial Performance Representation - FPR in your Franchise Disclosure Document - FDD.

It's really that simple.

Franchise buyers demand business model performance evidence. Give it to them and you'll attract better qualified franchisees and sell more.

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For over 60 years we have thought of and configured franchise "concepts" as cookie cutter look alike replications - capitalizations upon so imprinting an image upon the public mind that instant brand recognition occurs in the mind of those with the least acuity among us.

Accordingly, we have now so devolved that the phenomenon of sameness has eroded the ticky tacky repetition of an inherently boring model to the point at which so many fight to sell ninety-nine cent Dupche Kapusta to every late night Dzebrak who still has a dollar in his pocket.

I believe that there is absolutely no economic reason on earth to invest upwards of a million dollars to sell the lowest common denominator products and services to the least able to afford anything customer base.

At that point one does not own a business in any real sense. I know that the 99 cent sandwich is not the raison d'etre of the QSR franchise industry, or of its equivalent in the services business, but it is in fact the focus of so much of its advertising message that it seems like it is. That is one of the surer signs of dilapidation of the brand.

At this point the entire ticky tacky approach should be rethought if the goal is to attract investors who are not themselves rather ignorant FranWad material to be fleeced in phantasy business proposals that have little or no likelihood of success. Anyone who follows the franchising horror stories today knows exactly what I am talking about with no need for further elaboration.

Yet there is no new approach on this horizon. So called franchising "concepts" that are not concepts at all in any real sense of economic opportunity abound.

They are sold to those who have no clue about pre investment due diligence who are told fairy tales about being able to rely on the FDD and conversations with existing franchisees as the way to satisfy themselves of the prospective soundness of an affirmative investment decision. Utter nonsense!

There are now affluent investors seeking real opportunities. Franchisors that are themselves serious about finding a more durable, less price sensitive proposition to sell should consider turning from the worn out pattern. There in another direction.

In my last article http://www.franchiseremedies.com/Selling-Investment-Worthy-Franchises.htm I described how to sell such an opportunity. Not I am going to suggest how that kind of opportunity should be configured.

Let's begin with recognition that the way customers find you is no longer focused so heavily upon signage, building configuration, color schemes and other visual references.

The Internet has made many profound changes in customer acquisition techniques.

So many go on line to find what they want, looking at sites that focus on what they want, from plumbers and electricians to dentists and places to dine.

That is the reference that enables what I am advocating here. The old mantra about putting a store within a mile of a McDonalds and making it look bright with a look that will quickly become an instant proclamation in a customers mind of your name - secondary meaning if you will - is not the reliable benchmark it used to be.

Today your store can look different at every location; comply with any sort of design theme; spend far less on interior brand identifiers like napkins with your name on them and things like that.

Today people are taught to go on line and find the directory where everyone who is in basically the same business as you is listed, together with focus aids like location (including maps), price range, ethnicity, hours of operation, special events, menus, wine lists, link to your website, and a special page for customers to blog their views about their customer experience with you - good and otherwise.

That is the ultimate game changer from the day when you had commercials about smiling brain dead people plastically endorsing you in terms only a moron would credit.

Illustratively, if you look today at a Liberty Mutual Insurance Company television advert you come away with the impression that Liberty Mutual only insures very stupid people who cut off tree limbs while their neighbor's car is parked beneath, without asking him to please move his car so he can safely cut off the limb.

Every one of their adverts has some similarly idiotic person doing something just as stupid.

In the world of television today, a Gecko is the smartest spokesperson there is. That kind of genre advertising focused upon less than room temperature target IQ customers will continue, but it has little to do with franchising going forward.

If the Internet focused website for even the semi literate to find everything they need or want is the reference point of the future - which I strongly believe it is - uniformity of logo display will quickly become less and less significant.

Franchising notions of the significance of uniformity are heading for the sewer in terms of usefulness.

The Internet is a qualitative informer. You will have to work on more substantive and really value significant messages other than price discounting.

You can no longer prevent unhappy customers from going to exactly where people look for businesses like yours and posting negative customer experience messages. Where does that leave you in your approach to franchising?

It leaves you to focus upon the individual store rather than the system of many stores. The individual store must provide an attractive look; excellent service; high levels of product/service quality and presentation; store ambience that is pleasing and appropriate.

It does not have to look like any of your other stores. You can now replicate the model without replicating the look, as the look is no longer a promise of desirability.

Model replication is now performance centric.

The performance quality just spoken of will yield financial performance quality with competent management and a competent management system.

Artificial requirements calculated primarily to generate extraneous revenue streams from franchisee to the pocket of the franchisor will still ruin store financial performance just as it now does with so many franchise concepts - think of the logo bearing napkins and tying in supplies entirely to designated suppliers that pay commissions to the franchisor on their sales to the franchisees.

(The temptation to abuse that to the point of franchisee ruination will still be there. There will still, therefore, be the Quiznos and Marble Slab Creamery models to personify franchisee impoverishment. But, that is another story.)

What is the marketing plan for this new franchise model? That is the message of http://www.franchiseremedies.com/Selling-Investment-Worthy-Franchises.htm . The franchising business is due for a major tune up. Hopefully this kind of upgrade in quality will be that adjustment.

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QUESTION: I would like to protect my small business assets from those who might file frivolous lawsuits like slander, personal liability, etc. Is a LLC the best option to protect small business assets?

ANSWER: For most assets and businesses, a Limited Liability Company ("LLC") is your best option. Similar to other limited liability entities, so long as proper accounting and other formalities are followed, LLC's and Corporations both offer asset protection from Company creditors and judgment holders (i.e., inside creditors).

Unlike Corporations, however, LLC's also offers unparalleled asset protection from personal judgments and creditors (i.e., outside creditors).

So, if someone were to win a lawsuit against you personally, they could not take away the assets inside the LLC.

Setup properly, what the personal creditor would receive is a "charging order" against your Membership Interest.

A charging order does not give the creditor management rights over the LLC. At most, they would be entitled to any distributions made out of the LLC, if any.

It is strictly up to the LLC Manager whether or not to make distributions.

Let's say the LLC made $50,000 in profits and you (as the Manager) decided to keep it all in the LLC and reinvest it. In other words, no distributions were made.

The creditor holding the charging order cannot participate in management, and therefore, cannot force a distribution or liquidation of the LLC assets. In addition, there is a strong possibility if the charging order is foreclosed on, the creditor would owe the IRS income tax on any Company income. Ouch!

Because a properly setup LLC's prevents outside creditors from interfering with management,and limits a Member's creditor to a charging order remedy, when faced with a LLC, lawyers usually encourage their clients to settle their claim rather than face the uncertainty and waiting-game imposed by LLC charging orders.

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Customer feedback programs are effective tools to learn how your customers perceive your business and provide you with feedback for improvements, but it doesn't come without limitations; response rate is important, and making sure you're not only receiving the "extremes" (highly positive or negative feedback only) also plays a factor in the success of your program.

One discussion across the industry is whether or not social media will become a new form, or completely replace, customer feedback programs in the future. Let's face it - people are more likely to voice their opinions on blogs, forums, and other sites than provide that feedback directly to the company. There is also a feeling of anonymity online that allows people to be more honest in these forums.

By not keeping tabs on social media surrounding your company, brands may be missing out on potential opportunity. For example, if you're not monitoring online conversations, you may miss the post of a dissatisfied customer. By not knowing this information and not being able to respond in some way, it can be a lost chance to reengage that customer and get them to return in the future.

Social media monitoring tools are more sophisticated than they were even a year ago. This development provides analytical data that can be incorporated into the more traditional customer feedback data. Why is this important?

First, it gives deeper information on what makes customers tick, and secondly, if can alert a company to potential challenges with their current feedback system. For example, if feedback is coming back at a 95% satisfaction rate, yet online conversations lend to a lower rate, it may be that you are only collecting feedback (or making it inviting enough) from the completely satisfied customers. Is there something you can be doing differently to encourage all customers, regardless of their experience, to share their thoughts?

It could be a case of asking the wrong questions. If the questions on a feedback survey are too general, or only focus on one aspect of your business, you may be missing out on valuable feedback. Take, for example, a restaurant's customer feedback survey. If it asks general questions about the service a customer received and the overall experience, that's all well and good. However, if social conversations are suggesting that customers are dissatisfied with the food quality or portion size, it may be time to take those issues to your customers in your formal feedback program. If you're not asking the right questions, you may not be getting full information and miss the opportunity for customer loyalty and retention.

With all of the talk about companies monitoring what people are saying online, taking further steps by analyzing the information coming in, and engaging with customers, I can see how this might complement, but not fully replace, customer feedback programs.

For now, companies can think of social media as yet another tool at their disposal to learn more about their customers and see their business from the customer's perception. It'll be interesting to watch social media evolve over the next few years; its evolution over the last two years has been quite remarkable alone!

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Come October 1, 2015 there are big changes coming to the payment industry.

The US is the last major market that is still using the old swipe and sign cards.

The familiar card technology is blamed for the fact that the US accounts for nearly half of the world's credit card fraud while only accounting for a quarter of the transactions.

Here are some of the highlights from an article that showed up in my inbox from the Missouri Restaurant Association about the changes taking place on October 1, 2015:

• Swipe and sign credit cards are being replaced with cards with a chip and will require either a signature or a PIN at the point of sale
• The way they are incenting everyone to move to the new system is by placing liability on the party that doesn't comply by the date ie:
  • If a customer uses a swipe and sign card the liability is on them.
  • If a customer has a new chip card, but an establishment doesn't have chip technology and forces the client to use a swipe and sign card the liability is on the merchant
• The new chip based cards will erase themselves if they sense that they are being tampered with.
• The NRA predicts that the industry will lag behind other industries in adopting this technology with the main reason being that there doesn't seem to be a lot fraud in our industry.

Has anyone started looking into this at all?

How are the payment vendors handling this?

Are the fees and equipment more expensive?

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On a recent sales process audit of a medium to large format full service franchise concept, we spent time with one of their new franchisees.

The concept is less complicated than a TGI Friday's but more challenging than a Qdoba Mexican Grill.

The unit is around 5000 square feet has a traditional grill menu you might expect with beer, wine and spirits.

The franchise owners were first time franchisees and had never owned a business before this one.

They both had very successful corporate careers as engineers.

Now, both are franchise owners. One is the full time primary owner/operator, the other owner is part time and still working as an engineer.

We asked the operating owner why a bar/grill concept?

His answer was straightforward and simple.

And only partly what you might think.

He and his financial partner had always wanted to be in this kind of business. Sort of makes sense - engineers are not shy around beer!

Then, I asked why a franchise and not just open an independent restaurant?

His answer was much more interesting.

He knew he didn't have the resident knowledge of the business, but could buy it in the form of franchise.

He planned to learn this new business inside and out, working as many hours as it would take and he did, and does

He also described how he could use his engineering skill, training and experience to run his franchise.

He went into great detail on how they made improvements to their operations by the way they chose to run their beer lines and design of the bar itself. He walked us through his kitchen describing the cooking and food expediting process. And told us what design mistakes they made with the build-out.

In his previous engineering role, he described the complex manufacturing problems he solved daily.

And, how he uses that knowledge everyday in running his business.

The engineer had a plan to buy a franchise in this category. He's smart. He knew what he wanted. He knew that he didn't need training - which was a good thing because his location is miles away from the corporate headquarters.

And, he approached this franchise project as an engineering problem to be solved.

Now there are a number of franchisors who would have looked at the application of these two engineers & would have rejected them since they didn't have the restaurant talent required.

They would have missed out a great franchisee who's running a topnotch unit and who plans to build two more.

And if you went into this restaurant and met the franchise owner you'd never believe he has only run a restaurant for a short time and this was his first one.

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I've read some posts on various industry portals that state that SEO is a better alternative to find franchise prospects than the franchise search engine portals (all well known to those in the industry).

Let's take a close look at these suppositions and what I call unfounded fear being driven in the minds of franchise sales executives.

Are we going to let an article change our behavior that has proven results? We need to look behind this.

One comment on a franchise group page came right out and basically said in effect that "internet franchise search portals" are dead. To me it's irresponsible to make such a bold statement. There is absolutely no hard metrics to make this statement. In fact it appears to be self-promoting. Is it relevant that the declaration was made by a group of people that are trying to get their audience to use their SEO services? Nothing worse than self-promoting declarations ungrounded in science.

I don't believe that lead generation portal advertising is dead -- and not by a long-shot.

It's true -- all franchisors want to direct prospects direct their websites. And social media is one way to do this. Any franchisor not implementing practices and programs to capture this kind of lead from the deep dark sea of prospects is missing out on growth opportunities.

In my view social media is part of a mix and to not drive leads through the franchise search portals is a huge mistake in spending. The franchisor that dismisses it as "dead" shows a lack of respect for the science behind lead generation. They do studies and their conversion rates are verifiable. Conversion metrics are proven.

It's true that brokers buy leads. But is this inherently bad? I find it rewarding to work with brokers. By and large they do a good job working with their clients to match them with franchises that will lead to fulfilling business lives.

But there are more reasons not to ignore the portals.

Users of portals do so at early stages of thinking about owning a business. They get to wander around and the media form becomes aspirational. Decisions get made over longer periods of time that that which social media is designed to prompt. To spend all the money on SEO is unwise because that is extremely costly as well and with wise spending on the portals one is "fishing where all the fish swim". They may not all want what we have to offer -- but at least our wares are for sale in the same marketplace.

Second, It's hard to know exactly what the user does, but for sure they go to the portals and the instincts of people are to open up another window and go to the franchisor's website. That would seem to the franchisor as a direct connection between the consumer and the website via SEO. But it's not. The lead came from the franchise search portal.

In fact the biggest challenge of social media (twitter, facebook, et al) from a consumer's perspective is that it is promotional in nature, and the users of such media, smell it and call it out. It's pure promotion and users frequently run for the hills. This is a truth spoken of by a great leader in social media at socialmediaexaminer.com. Don't be fooled, social media is no panacea to playing difficult odds in lead generation. It is just one avenue for spending and getting message out.

While the gauntlet may be thrown down by the pure SEO types, the fight is far from over. The franchisor -- perhaps with very few exceptions -- is best served with a mix of media forms -- and using the franchise search portals while the jury is out.

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1. Myth: Banks are not making new business loans.

Reality: Banks are more selective in making a new loan or renewing a loan. Banks are risk adverse and thus the borrower must be better prepared to answer the questions the bank requires. We help businesses get start-up and expansion financing nationwide.

2. Myth: SBA loans are more difficult to get because of all their regulations.

Reality: Most banks like SBA guaranteed loans as it reduces their potential loan loss risk. If a bank makes a conventional loan its risk is 100%; however with an SBA loan guaranty that risk can be reduced to 25%.

3. Myth: It takes 6 months to get an SBA loan.

Reality: Only if you approach the bank without being properly prepared. If your business plan meets the bank's requirements; you have 25% to 30% of the total funds required of your own cash, you have a FICO credit score of 680+, you have related industry experience, your business plan answers the Who, What, When, Where and Why, and your monthly financial plan is realistic an SBA Preferred Lender can approve your loan in as little as 3 to 5 business days. If the bank is not a preferred lender they must submit the package to the SBA for approval and that can take 3 to 5 weeks. We help you prepare the business plan loan package the banks need to make a loan commitment and then we take it to a bank that's interested in making you the loan.

4. Myth: Using a software based business plan helps you create a good business plan.

Reality: Business plan programs have to be everything to everyone and thus they do not get you to focus on the critical questions a bank requires. Banks are not fazed by the razzle dazzle of fancy graphs and charts...they love cold hard facts.

5. Myth: The business banker was excited about my business plan and said the bank is anxious to make new business loans. Weeks later you receive a "sorry we cannot make the loan you requested"; what happened?

Reality: Often the business banker you first meet with is a business development officer -- think sales person. Their job is to take your business plan and perform a "light" review so they do a "new business report". They have no lending authority and your business plan goes to the bank's credit analyst for an in-depth review as to its feasibility. Banks compare your business plan financials to similar type businesses and if your plan is too optimistic or conservative it's rejected.

6. Myth: If one bank declines my loan request will all banks decline it?

Reality: Definitely not. If your business plan meets the bank's requirements; you have 25% to 30% of the total funds required of your own cash, you have a FICO credit score of 680+, you have related industry experience, your business plan answers the Who, What, When, Where and Why, and your monthly financial plan is realistic, a bank may still decline your loan. BUT they may decline your loan not because of your business but because they are risk adverse due to loan losses (won't do loans to startup businesses) or they have a large concentration of loans to your industry.

7. Myth: If you have a great business plan and it answers the Who, What, When, Where, and Why and you have the cash to invest, good credit and related industry experience, you still get funded.

Reality: Often it's because your lifestyle requires more income than your business can generate (especially if it's the first year of a startup business). If your current or last job provided you $100,000 of pretax income and your new business can at best provide $36,000 the first 2-3 years, where will the extra money come from to pay your lifestyle expenses?

8. Myth: Banks want you to have medical insurance.

Actually it's True: Why because if you or family members were to require health care and you did not have medical insurance, banks know that you would use the loan's working capital to pay the medical bills -- leaving the business not enough money to pay bills on time, buy inventory and marketing; a receipt for failure.

9. Myth: If you have 10% of the total funds required to open and operate your business and you have a solid business plan you will get funded.

Reality: Banks must minimize loan loss risk. Without 25% to 30% of your funds in the business the bank is effectively "buying" you a business. The bank would have nearly all of the risk and you would have all of the upside reward. The most the bank would get would be the interest if you were successful. Banks help you finance your loan but are not your equity partner!

10. Myth: SBA loans don't require collateral.

Reality: As a guideline the SBA only requires collateral on the loan if it's available. Banks are free to have more stringent requirements and most do. Most banks won't do an SBA loan without 25% to 75% of the loan collateralized. Conversely, most banks require conventional loans to be 100% to 150% collateralized depending on risk.

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"When dealing with people, remember, you are not dealing with creatures of logic, but with creatures of emotion"
~ Dale Carnegie

"A simple rule in dealing with those who are hard to get along with is to remember that this person is striving to assert his superiority; and you must deal with him from that point of view"
~Alfred Adler

"Business, more than any other occupation, is a continual dealing with the future behaviour of people; it is a continual calculation, an instictive exercise in foresight."
~Henry R. Luce

"If you want to learn how to deal with difficult people, have a few kids"
~ Overheard in a Chicago bar

All managers will have to deal with difficult employees during their careers. It is a chore all managers endure, all managers despise, and few, if any, ever learn to do effectively.

First, there will always be difficult employees. In fact, I have observed that what we often deem to be "difficult" or "odd" behaviour in a person is really present in order to help this person maintain their psychological balance. "Difficult" people in this context are the people we don't know how to deal with us or those who are difficult for us to deal with due to (perceived or otherwise) them being stubborn, arrogant, oversensitive, or any trait that needs a special type of treatment Second, it's your job as the manager to deal with them. If you don't deal the problem, it will only get worse and impact the lives of those around you (and the subject employee) who would be looking to you for leadership.

Why Are Difficult Employees Like That?

Difficult employees are that way simply because it is a behavior that has worked for them in the past. They may not know any other behavior, or, they may choose this behavior when they think it will be most effective. You will be successful in dealing with difficult employees only to the extent that you can make these undesirable behaviors no longer effective for them.

In many ways, it's like dealing with children. If every times a child screams, its parents give it candy, what will the child do the next time it wants candy?

The same is true for the employee who "blows up" whenever anyone disagrees with him. When he does that, people stop disagreeing with him and he thinks he has won.

How Can A Manager Deal With Difficult Employees

1. Evaluate:

It is important when dealing with difficult employees to act quickly. Often you will need to act almost immediately to neutralize a dangerous situation. However, it is always appropriate to think before you act.

Clearly if an employee comes to work with a gun, you will need to act more quickly than when someone complains that another employee is always taking credit for her work. In either case, take the appropriate amount of time to evaluate the situation before you act. You don't want to make it worse.

Recognize that most employees can be "difficult" from time to time. This can be caused by stress on the job or away from it. Some employees are difficult more often than others. It is not always your least-productive employees who are difficult. So take a moment to evaluate each situation for the unique situation it is.

2. Do your homework:

Always act on facts. Don't base your actions on gossip or rumor, or even your own preconceptions and/or opinions. You can't allow yourself to be anything but impartial. The person(s) spreading the gossip is a difficult employee in their own way and must be dealt with when the immediate need has passed.

If you have not seen the inappropriate behavior yourself, look into it. Ask the people reportedly involved. Collect all the facts you can before you act. Don't use the fact that you haven't seen the inappropriate behavior as an excuse to delay doing something. It is important to act promptly.

Make sure you aren't part of the problem. It will be much more difficult to remain calm and impartial in confronting the difficult behavior if you are partly responsible. If that's the case, be sure you acknowledge your role in it, at least to yourself.

3. Develop a plan:

You're a manager. You know the value of planning. This situation is no different.

You need to plan the timing of the confrontation. You need to select a quiet, private place where you won't be interrupted. You need to decide whether you need to have others, like an HR representative, present in the meeting. Plan the confrontation and then make it happen.

When you have prepared, it is time to act. You do not need to act impulsively, but you must act quickly. The longer an inappropriate behavior is allowed to continue, the harder it will be to change it or stop it.

4. Confront the problem:

Don't put it off. It may not be pleasant, but it's an important part of your job. It will not "fix itself". It can only get worse. You have planned this confrontation. Now you need to execute.

5. Deal with the behavior, not the person:

Your goal is to develop a solution, not to "win". Focus on the inappropriate behavior; don't attack the person. Use "I" statements like "I need everybody on the team here on time so we can meet our goals" rather than "you" statements like "you are always late".

Don't assume the inappropriate behavior is caused by negative intent. It may be from fear, confusion, lack of motivation, personal problems, etc.

This is the important part; the part most managers never get right: Give the other person a chance to develop a solution to the problem. They are more likely to "own" the solution if they are at least partially responsible for developing it.

6. Try to draw out the reasons behind the behavior:

As you talk with the difficult employee, actively listen to what they say. Stay calm and stay positive, but remain impartial and non-judgmental. Ask leading questions that can't be answered in one or two words.

Don't interrupt. When you do respond to the difficult employee, remain calm.

Summarize back to them what they just said, "so what I understand you are saying is.....", so they know you are actually listening to them.

If you can find out from the difficult employee what the real source of the inappropriate behavior is, you have a much better chance of finding a solution.

Sometimes these confrontations will go smoothly, or at least rapidly, to a conclusion.

Other times it will require several sessions to resolve the problem.

7. Repeat as necessary

Minor problems, like being late for work, you may be able to resolve with a simple chat in your office with the employee. An office bully, who has used that behavior successfully since elementary school, may need more than one confrontation before a solution can be reached. Be patient. Don't always expect instant results. Aim for continuous improvement rather than trying to achieve instant success.

8. Know when you are in over your head:

Sometimes the underlying issue with a difficult employee will be beyond your capabilities. The employee may have psychological problems that require professional help, for example. Learn when to keep trying and when to refer the employee to others for more specialized help. Your company may have an EAP (employee assistance plan) or you may need to use resources from the community.

9. Know when you are at the end:

While the goals is always to reach a mutually acceptable solution that resolves the difficult employees inappropriate behavior and keeps your team at full strength, sometimes that is not possible. When you reach an impasse and the employee is not willing to change his or her behavior then you need to begin terminations procedures in accordance with your company's policies.

Coming to a Solution

The desired result from confronting a difficult employee's inappropriate behavior is an agreed upon solution, and the inappropriate behavior will continue unless you and the employee agree upon said solution. You will get more buy in and greater results if the employee plays a role in crafting the strategy on how to get there.

Your employees will always needs to know what is inappropriate about their behavior just as much as they also need to know what is appropriate behavior. The need for a manager to communicate clearly is always high, but it is especially important in these situations. Make very sure the employee understands the requirements, what is expected of him, and, if necessary, the consequences.

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Franchise recruitment sales is complex work.

It's very competitive out there and even more so for capital intensive franchises targeting high net worth sophisticated franchise buyers who are willing to commit to multi-unit development under an Area Development Agreement.

I have a lot of sympathy for franchise sales teams since they are under tremendous pressure to make sales happen and grow their brand.

No matter the size of the franchisor they all have budgets with a limit.

And with new franchisee marketing acquisition costs for these capital intensive franchises ranging from $12,000 - $25,000 you can easily speed through your budget doing trade shows, email blasts, direct mail, local market events, franchise portals, display print, PR, search engine optimization and social media marketing.

If we assume a $18,750 average franchise marketing acquisition cost and the franchisor wants to sell 20 new franchise deals it will require $375,000 in your marketing budget. You plan for that in your budget meetings. Before you start to sell.

But, then when it comes time to make the sale, you decide on "franchisor franchisee new development incentives" in the form of a fee and royalty reductions.

I have seen ranges from $10,000 - $30,000 with one franchisor waiving their upfront franchise fee entirely.

Will the franchisor's franchise fee incentive sell more franchises to existing franchisees?

Maybe, but I would argue if the franchisee cash-on-cash return for that franchise concept was compelling that most of those franchisees were already planning on developing new units and would have done so without a discount. The franchisor might recruit new franchisees because of the discount?

But I think that those new franchisees are like your smart existing franchisees who are looking at the numbers for an attractive cash-on-cash return. If they are not carefully considering the investment, do you as a franchisor want those franchise buyers?

But let's assume you need the $15,000 franchise fee discount to sell. What that does that do to your budget if you sell the same 20 franchises you would have normally sold?

This results in your new franchisee marketing acquisition cost per sale rising to $33,750 and a total annual cost of $675,000.

Almost a 100% increase in your acquisition budget! Would you have agreed to that at beginning of the sales process? Likely not, and you probably shouldn't agree now - especially when there are alternatives.

This is why I think across the board franchise fee discounts are bad business because they can cause discontent with your franchisees who paid full-price and they are likely not the solution to your franchise sales problem.

Here are the 4 things you should do instead of discounting your franchise fees -

1. Increase Your Franchise Marketing Recruitment Budget

2. Increase Your Franchise Fee to Invest in Your Budget

3. Drop Your Bottom Three Franchise Lead Sources

4. Re-engineer Your Franchise Sales Process

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Your franchisees are the eyes and ears of your business. They know what is working and what is broken. They are the first to hear your customer's complaints. They overhear important industry gossip from your vendors.They are most likely to identify inefficiency and waste.

Obviously, you need to know what your franchisees know as soon as they know it. That is why it is important to create a company-wide tradition that encourages open communication and collaboration. It is the prerequisite to creating a highly flexible and nimble organization that can respond quickly to fast changing customer and competitive circumstances.

Setting up a 21st century suggestion box is a simple way that many organizations capture franchisees ideas. However, it does not go far enough. Instead, you should leverage your franchisees' suggestions to create your company's Continuous Improvement cycle.

What is Continuous Improvement?

Continuous improvement is the goal of the most popular quality management approaches. For example, CMMI, (the Capability Maturity Model created by Carnegie Mellon University for the U.S. Department of Defense) offers a five step business improvement pyramid.

Notice that Continuous improvement is at the top of the CMMI pyramid.

Business improvement models, like CMMI, are helpful to explain the importance of adopting management theory. However, most organizations struggle with practical implementation.

To help, the Breakthrough Book suggests a simple three step approach to create an franchisee-powered continuous improvement cycle:

Step One: Capture your franchisee's idea, suggestion, issue or other information using a "Communication Switchboard."

Step Two: Assign a "Switchboard Operator" to forward the issue to the appropriate Process Team and to monitor resolution.

Step Three: The Process Team resolves the issue.

Communication Switchboard Template

The Breakthrough Book provides a Communication Switchboard template to help you create an ongoing tradition of communication between franchisees and the franchisor's teams.

To use the Switchboard, ask franchisee to report their ideas, suggestions, customer complaints and other issues directly to the Communication Log Switchboard Operator.

he switchboard operator then forwards the issue to the appropriate process team for resolution. The operator maintains a communication log that managers use to hold process teams accountable for resolving the reported issues. Also, the log is used to credit (and reward) employees with the ideas they contribute. The Breakthrough Book also suggests using coaching and team meetings to encourage employees to report their ideas, and ask process teams to report their progress in resolving critical issues.

In a very small company, the "switchboard" can be a spiral notebook hanging next to your water cooler. In a larger company the "switchboard" can be maintained by a receptionist, executive assistant or quality manager.

The switchboard logbook should have the following column headings:

• Date: The date the issue was first reported.

• Date: The date the issue was resolved.

• By: The franchisee who reported the issue.

• Process Team: The process manager responsible for resolving the issue.

• Idea Description: A sound-bite description of the issue .

• A sound-bite explanation of the issues resolution.

• Impact: An estimate of the financial benefit of the resolved issue.

How Continuous Improvement Can Work

To illustrate the benefits of initiating your company's continuous improvement cycle consider the following scenario:

A franchisee is frustrated because her employees are wasting valuable time looking up warehouse location codes that could be easily added to pick lists generated by the company's sales order software. Correcting this issue would improve productivity, speed order processing and reduce cost. The franchisee reported her suggestion to multiple field representatives over the years.

Promises were made, but no action was taken.

Now consider the quick resolution that is possible if the company facilitates communication between its franchisees and field representatives who are empowered to optimize and improve their procedures:

• franchisee reports her suggestion directly to the Switchboard.

• Switchboard forwards the issue to the Order Taking field representatives team.

• field representatives team discusses the issue. Several resources from the IT department are included in the collaboration. The decision is made to add the warehouse location code to the product database and add it to the pick lists generated during order taking.

• field representatives team creates a project to manage the steps necessary to implement the change.

• Order Taking process team updated related procedures and training materials.

• procedure change was communicated to all affected franchisees and their employees.

• issue was resolved quickly because franchisees and franchisor employees from multiple departments were empowered to communicate, collaborate and resolve problems that related to their areas of responsibility.

The above scenario illustrates how culture, effective process management and open communication work together to optimize your company. It is simple, organic and stealthy. It institutionalizes a culture of excellence. It leverages your franchisee's insights and creativity. It helps make your business flexible and resilient.

You will likely need to dedicate 5-10% of your franchisees' time to improving your company. Consider it the cost of your freedom. It is also a cost that should result in a significant return on investment.

Your company will finally have a way to capture your franchisee's ideas for saving money, making money, minimizing waste, and increasing quality, consistency and customer satisfaction.