WelcomeFundamentals in Franchising

May 26, 2011

How To Franchise Your Business

By:

Mark SiebertCEO, The iFranchise Group

Copyright, The iFranchise Group, 2011 All rights reserved

About the iFranchise Group

• More hands-on experience than any other firm – 27 consultants with over 500 years of franchise experience– Our consultants have worked with 98 out of the top 200 franchise

companies worldwide

• More “senior level” experience – Former CEOs, CFOs, and EVPs of major franchise companies– C-Level Experience at 23 franchise companies– Experience with start-up franchise programs, not just established

franchisors

• Services and expertise in four functional areas– Strategic Planning– Quality Control– Marketing– Organizational Development and Training

• Sales Assistance through Franchise Dynamics

• Management Recruiting through Franchise Recruiters

Who is here today?

• Considering franchising your business.

• Franchising less than one year.

• Franchising more than one year.

Strategic Planning“Success (or Failure) Does Not Happen By Accident”

If you don’t know where you are going,then any road will take you there.

The Adventures of Alice in Wonderland

Strategic PlanningThe Key to Success

• You are entering a new business

• Goals drive your business. Start with support and cost structure

• What do you need to do to help your franchisees succeed?

• Don’t rely on guesswork: The future of your business is at stake

• Financial analysis is essential

• Reverse engineer your success

Goal Driven Modeling

Goal Sell for $10M in 5 Years

Average Selling Price 6.7 times EBIT

Year Five Earnings $10M/6.7 or about $1.3M

Average Royalties $30,000 per franchise

Average Net Royalties $10,000 per franchise

Need to sell $1.3M/$10,000 =

130 Franchises

Goal Driven Planning

10

15

25

30

50

Year 1 2 3 4 5

SalesHire Franchise Salespeople

Goal Driven Planning

10

15

25

30

50

Year 1 2 3 4 5

Sales

Hire Field Reps

Goal Driven Planning

10

15

25

30

50

Year 1 2 3 4 5

Sales

Hire Support Staff

Goal Driven Planning

10

15

25

30

50

Year 1 2 3 4 5

Sales

Goal Driven Planning

10

15

25

30

50Personnel

Marketing

Office Space

Year 1 2 3 4 5

Sales

Brochures

Riskof Failure

Speed of Growth

Competitive threat

FranchiseStrategy

There is Risk Associated with Both Slow and Fast Growth

Cash Flow Modeling for GrowthAggressive Growth

$

Time

Hire Staff in Anticipation of Need and Advertise Aggressively

Royalty & Gross Margin Revenues

Fixed Costs = Salary + Advertising

Loss

Must rely on one of the following to fund payroll:

1. Adequate initial capitalization

2. Revenues from existing operations

3. Franchise sales (a worst practice)

Cash Flow Modeling for GrowthConservative Growth

$

Time

First Hire

Second HireRoyalty & Gross Margin Revenues

Only incremental cost is franchise marketing

and that can be a variable cost after a start-up allocation

The Golden Rule:

Grow No Faster Than Your Ability To Support Your Franchisees

Leverage Existing Staff and Minimal Advertising

Loss

Establishing Your Structure

Determining the Initial Fee

• Match fee to service performed

• Fee determination methods

– Cost plus

– Market comparables

– Positioning

– Financial analysis

• Average fee: $25,000 - $35,000

• Fee should not deter franchise sales

• Initial fee is a minor profit center

Initial Fee Minor Profit Center

Advertising $8,000 - $10,000

Sales commissions $3,000 - $7,000

Brochures & mailing $500

Legal $500 - $1,000

Site selection 0 - $5,000

Training at HQ $2,000 - $5,000

Field training & travel $2,000 - $4,000

Travel $1,000

Initial support $2,000 - $5,000

Totals $17,500 - $38,000

Can Leverage Off of Fixed Costs in Early Years of Franchising

Advertising $8,000 - $10,000

Sales commissions $3,000 - $7,000

Brochures & mailing $500

Legal $500 - $1,000

Site selection 0 - $5,000

Training at HQ $2,000 - $5,000

Field training $2,000 - $4,000

Travel $1,000

Initial support $2,000 - $5,000

Out of Pocket – Early Years $9,000 - $12,500

Royalty Determination

• “Me-too” is not a strategy – it is a recipe for disaster

• Need to create win-win

• Reverse engineering franchisee ROI

• Need for sensitivity analysis

– What if . . . ????

– Look at progressively worse case scenarios

• The 1% rule

– The importance of small numbers

– How can 1% of $500,000 = $10 million?

Other Major Business Decisions Affecting Profitability

• Structure

– Structure dictates support requirements and responsibilities

• Targeted franchisee

– Will dictate support requirements as well

• Territory

– 10% mistake be a disaster

• Support and Training

– Staffing is your primary expense as a franchisor

– Cannot set fees without knowing expenses

Staffing Ratios for the Franchisor

The right staffing ratios for your company will depend on a variety of factors including:

� The type of industry in which you operate

� The complexity of your unit level operations

� The speed at which your system is expanding

� The geography over which you’re expanding

� The types of franchises you are awarding

� Your philosophy toward support

Typical Staffing Ratios

Franchise development staff

� Single unit focus = 1 for each 12-25 deals

� Multi-unit focus = 1 for each 5-8 deals

Field support staff

� Single unit restaurant = 1 for each 20-25 units

� Multi-unit restaurant = 1 for each 10-15 owner groups

� Territory-based service system = 1 for each 30-35 owner territories

Overall staff to franchised locations (within a mature organization)

� 1 staff equivalent for each 9 to 11 locations

The Four Pillars Of Quality Control

The Quality Control Myth

• Many people think franchising means lower quality

– Fast food reputation

– Is McDonald’s “low quality”

– Most cannot tell a company-owned from franchise

– Consistency is the hallmark of quality

• High end brands are franchised

– Ruth’s Chris Steakhouse

– Ritz Carlton

– Berlitz

The Franchise Trade-Off

• Franchisees can be more difficult to control

– Contract vs. “At Will”

– Termination more difficult

• Yet franchisees consistently outperform

– Higher Caliber

– More highly motivated

– Longer term

• Studies and anecdotal evidence

– 10% - 30% revenue increases

– McDonald’s, Sterling Optical, Texaco, and more

Quality Control The Four Pillars of Quality

• Franchisee Selection

• Documentation & Training – the Tools

• Support

• Legal Documents and Compliance

� Intelligence

� Capitalization

� Biggest reason for failure

� Can cause franchisees to cut corners

� Work Ethic

� Personality

� Experience in leading a team

� Tendency toward being an entrepreneur

� Honesty and ethics

� Philosophy and cultural fit

� Nature (Confrontational or adaptive)

� Compatibility (you are “married” for the next 20 years)

� “Job Specific” requirements

Five Critical Points of Qualification

The Tools

• A Best Practices Operations Manual comes first

• Faster growth requires formal training programs

– For your staff

– For franchisees

• Train-the-Trainer too

– Franchisee will train their staff

– Should have tools to do so

• Video pushes QC to lowest level of organization

• On-line training decreases costs, increases quality, and can decrease liability

– Customized by employee

– Document what is reviewed and test scores

– Lowers on-site training time and costs for both the franchisor and the franchisee

Real Estate

Pre-Opening Training

Construction

Ongoing Training

Supply Chain

Field Consulting

Brand and Local Marketing

Communications and Technology

Third-Party Supplier Support

Nine Primary Areas of Support

Not relevant to some service businesses

Building Blocks for Supporting Franchisees

Quality Control Comes at a Cost

• Franchisee Selection

– Cost of walking away from a check

– Higher costs of marketing

• Documentation & Training

– First class tools, Intranet, video, etc.

– More staff required for more training

• Support

– Cost of Staffing

– Frequency of visits (travel costs, etc.)

• Legal Documents and Compliance

– Enforcement actions

– Costs of losing a franchisee (even an underperformer)

If you are willing to pay the price, you can maintain and even improve quality through franchising

Marketing Your Franchise

Marketing PlanningA Requisite for Rapid Growth

• Start locally, then regionally

– Cluster support

– More effective franchise advertising

– Consumer advertising economies

– Brand building

– Buying economies

• Don’t expand faster than your support capability

– Quality control is key

– Nothing sells franchises as well as happy and successful franchisees

– Three hour drive time

Marketing MaterialsEssential for Speed

• Franchise marketing is very different from consumer marketing

• Franchise marketing is highly regulated

• Tools:

– Your web page should be your first concern

– Develop a mini-brochure for the sake of economy

– A full-sized brochure is essential for credibility

• Be sure to have your attorney and registration states review all materials

The Franchise Marketing ProcessThe Franchise Marketing Process

Publicity PrintTrade

ShowsDirect

ContactInternet Referral

Face-to-Face/Discovery Day

Close

Lead

Close Rate = 1%

Median Cost Per Sale = $10,000

Average Cost Per Sale = $13.019

Source: Franchise Update 2010

Brokers

12 weeks

Historical

Close Rate = 1% - 2%

Median Cost Per Sale = $5,000

Average Cost Per Sale = $8.000

Publicity PrintTrade

ShowsDirect

MailInternet Referral

Face-to-Face/Discovery Day

Close

Lead

12 weeks

Brokers

Diagnosing Sales and Marketing Problems

High lead costscould indicate

media selection problems

Could indicateSales problems

-Urgency-Setting Agenda-Closing Skills

Few leadscould indicate lack of brokerconfidence

Low conversionscould indicate

Poor marketing materials

Could IndicateConcept Problems

Low conversionscould indicate

poor sales skills orpoor validation

In short, close analysis ofvarious media-specific, marketing,

and sales statistics, can be indicative of where

problems may exist, allowingfor appropriate corrective action.

Franchise

Concept

Itself

Franchise

Marketing

Materials

Sales

Process &

Technique

Franchise

Lead

Generation

• High unit investment• Financial performance• Look and feel• Franchise structure• Value proposition• Franchisee validation

• Media Selection• Media Mix• Message• Ad Spend • Target Audience • Timing

• Target Audience• Materials Used• Message• Inadequate differentiation• Design Quality• Production Quality

• Lead handling• Follow up• Effective Process• Sales Skills• Salesperson Motivation• Sales Tools• Staffing v. Goals

• Bad/No P.R.• Low unsolicited inquiries• Losing sales to competitors• Repeat objections not overcome• Prospects go dark after validation

• High lead costs• Low close rates• Message confusion• Few qualified prospects • Low quality lead sources predominate

• Bad/No P.R.• Low unsolicited inquiries• Losing sales to competitors• Repeat objections not overcome• Lose sales to market leader• Low application rate

• Low application rate• Low discovery day rate• Low close rate• Long “time to close”• Variances in salesperson close rates• Un- or under-worked leads• Few broker leads

• Evaluate design/construction model• Comparative financial analysis• Evaluate unit economics/ops• Contract comparison• Marketing comparison• Phone interviews of franchisees• Franchisee satisfaction surveys (web) • Evaluate real estate portfolio• Survey “lost” sales

Sales Factor Potential Problems Symptoms Diagnosis

• Historical vs. norms• Media specific analysis• Performance vs. competitors• Message vs. competitors• Franchisee or competitor surveys

• Review for best practices• Message based on surveys• Application rate vs. norms

• Historical vs. norms (close, speed, etc.)• Salesperson vs. salesperson• Historical vs. past performance• Develop sales process map• Mystery shop sales force• Leads per salesman• Sales per salesman• Broker validation calls

Identifying Sales and Marketing Problems

Franchise

Concept

Itself

Franchise

Marketing

Materials

Sales

Process &

Technique

Franchise

Lead

Generation

• Unit investment• Financial performance• Look and feel• Franchise structure• Value proposition• Franchisee validation• Real estate model

• Media Selection• Media Mix• Message• Ad Spend • Target Audience • Timing

• Target Audience• Materials Used• Message• Inadequate differentiation• Design Quality• Production Quality

• Lead handling• Follow up• Effective Process• Sales Skills• Salesperson motivation• Sales Tools• Staffing v. Goals

• Value engineer design and construction process• Suspend sales and work on business model, support, franchisee training• Retain design firm, consumer marketing firm, or PR firm as appropriate• Revise franchise business structure • Provide incremental value or reposition concept• Communications plan, FAC, address survey-specific concerns• Improve real estate process• Develop third-party financing programs

• Develop formal marketing plan based on survey results• Alter marketing mix to focus on higher-quality lead sources• Alter message based on survey results• Increase advertising expenditure based on goals• Optimize website and PPC campaigns• Develop and measure benchmarks; rotate bottom 10% quarterly

• Rewrite, redesign, and reprint materials as appropriate• Develop or revise standard sales correspondence• Rewrite and redesign web pages as appropriate• Add technology improvements (auto-responders, sales software, etc.) • Develop additional promotional tools (video, etc.)

• Develop and map effective sales process• Train sales staff and provide guidelines to non-sales staff• Replace poor sales personnel• Benchmark and measure performance• Alter compensation• Evaluate external resource opportunities (FSO, LQS, software solutions)• Add sales professionals, support staff, or both• Proactive broker programs

Sales Factor Confirmed Problem Potential Solutions

Problem Resolution – Phase Two

Awarding Your Franchise

The Franchise Sale

� Unique process unlike any sale

– Quit your job

– Give up your benefits

– Give me your life’s savings

– And, oh, by the way, there are no guarantees

� But it is a process

– Good Concept

– High Quality Marketing Materials & Message

– Selecting Appropriate Media

– Sales Skills

– Advertising Budget

� Averages

� Different strategic approaches

� Rule one: Be selective

Good

Concept

Good Collateral

Good Planning

AdequateBudget

Sales Skills

Good

Candidate

Franchise

Sale

GoodTraining

GoodSupport

Good

Validation

The Franchise

Sales Cycle

The Franchise Sales Cycle

Good

Concept

Good Collateral

Good Planning

AdequateBudget

Sales Skills

Good

Candidate

Franchise

Sale

GoodTraining

GoodSupport

Good

Validation

PoorTraining

Poor

Candidate

PoorSupport

Poor

Validation

The Franchise

Sales Cycle

NoSale

What Derails The Cycle?

Perception = Reality

Franchise Sales Alternatives

� Sell using existing staff

– Training is essential

– Highly regulated and significant penalties

– Often how franchisors get started

– Present value of a franchise

� Recruit a franchise sales professional

– Specialized franchise recruiters

– Track record can be a predictor of future success

– Beware of the “Order-Taker”

� Franchise Sales Outsourcing

– Eliminate the need for sales management, admin

– Hire pros you might not otherwise afford or attract

– Can be expensive

– Beware of those that want a piece of your royalty

45

MO 1 MO 2 MO 3 MO 4 MO 5 MO 6 MO 7 MO 8 MO 9 MO 10 MO 11 MO 12

Benchmarking

Initial Planning Session

Strategic Planning

Financial Sensitivity Analysis

Franchise Agreement

Disclosure Document

State Registration Process

Operations Manual

Training Program

Training Videos & LMS Content

Primary Research/Profiling

Franchise Marketing Plan

Develop/Print Brochure

Mini-Brochure

Franchise Sales Video

Web Site Optimization

Franchise Sales Training & Sales

Franchise Implementation Training

Implementation Consulting

Franchise Program for Aggressive GrowthApproximate Development Activity Schedule

StrategyLegal Documents Quality ControlFranchise MarketingSales & Implementation

Legal to sell in 36non-registration states

Legal to sell in all states

LegalCoordination

Conclusion

• Franchising is a means of duplicating success, not creating success

• Success in franchising is predictable when you have a good concept, plan properly, and execute

• Franchising thrives by creating win-win situations – make your franchisee successful and you will succeed

• You must be selective

• Franchising is a new and different business

• Is not the right solution for every business

• Provides one of the most powerful business expansion models ever developed

Questions?

© Husch Blackwell LLP

Trademarks, Trade Dress, Copyrights, Trade Secrets

and Patents:

The Cornerstones of a Franchise System

By: Wade KerriganHusch Blackwell

IP Law Resources

• Trademarks– www.uspto.gov

• Trade Dress

• Copyrights– www.copyright.gov

• Trade Secrets

• Patents– www.uspto.gov

– www.google.com/patents

A trademark or “brand name” is “anything” that identifies the source of goods or services from those of another when used in commerce.

What is a Trademark?

A Trademark Can Be:A Word or Group of Words

• COKE

• CABBAGE PATCH KIDS

• DON’T LEAVE HOME WITHOUT IT

A Trademark Can Be:A Symbol, Pictorial

Representation or Design

• NIKE “Swoosh”

• LACOSTE Alligator

• Olympic rings

A Trademark Can Be: A Combination of Word(s) Plus Symbol, Pictorial Representation

or Design

NESTEA

CHURCH’S

A Trademark Can Be:Numeral(s), Letter(s) or Combinations Thereof

• 501 Jeans

• IBM computers

• V-8 Juice

A Trademark Can Be:A Shape of a Container, Packaging

or Building (“Trade Dress”)

• COKE bottle

• Conical top of CROSS pen

• TOBLERONE chocolate packaging

A Trademark Can Be: A Color

• Orange for THE HOME DEPOT stores

• Pink for Owens-Corning’s insulation

A Trademark Can Be:A Sound

�MGM Lion Roar

� NBC Chimes

A Trademark Can Be:A Scent

“The mark consists of a high impact, fresh flower fragrance reminiscent of Plumeria blossoms”

–U.S. Reg. No. 1,639,128

Trademarks vs. Service Marks

• Trademarks identify products or goods.

• Service marks identify services.

Trademark Searches• Make sure you are not infringing third-party marks and the mark is available

• Knock-out search– Quickly determine obvious risks to using the mark or clear obstacles to registering the mark

• Comprehensive search– Includes federal trademark registrations and applications, state trademark registrations, public domain, websites, registered domain names, and business entity names

– Knock-out search returns one or more results very close to the mark

– Appears mark is used elsewhere in commerce

• The importance of comprehensive searches for franchisors

Trademarks vs. Trade Names

• A trademark is used to identify and distinguish the trademark owner’s goods or services from those manufactured or sold by others and to indicate the source of the goods.

Trademarks vs. Trade Names

• A trade name is any name used by a person to identify his or her business or vocation.

–Trade Name: Phillip Morris USA

–Trademark: Marlboro

–Trade Name: The Coca-Cola Company

–Trademark: Coke or Coca-Cola

Trademarks vs. Trade Names

• Clearing a trade name through the Secretary of State business entity database does not necessarily mean that the trade name is available for use as a trademark.

• Secretary of State’s offices will allow very similar names to be registered.

• For Registered Marks:

“®”or “Registered in the U.S. Patent and Trademark Office”or “Reg. U.S. Pat. TM. Off.”

• For Unregistered Marks:

“TM” “SM”or an asterisk indicating “A trademark/service mark of XYZ Corporation.”

Proper Marking

• There is no such thing as an “international trademark”

• File in each country

• May file under Madrid Protocol which allows you to file in multiple countries for less

International Trademark

Copyrights

• In the U.S.:

–Copyright exists automatically upon creation of a copyrightable work (fixed in a tangible medium)

–Federal registration is not required

–However, you cannot sue for infringement without a federal copyright registration

International Copyrights

• There is no such thing as an “international copyright” that will automatically protect an author’s writings throughout the world.

• Protection against unauthorized use in a particular country basically depends on the national laws of that country.

• However, most countries offer protection to foreign works under certain conditions that have been greatly simplified by international copyright treaties and conventions.

Copyright Notice

© [year of creation] [owner]© 2010 Husch Blackwell Sanders LLP

or

Copyright [year of creation] [owner]Copyright 2010 Husch Blackwell Sanders LLP

Who Owns the Copyright?

• You hire a programmer who creates software or a website for your business.

• Who owns the copyright in the software?

• Who owns the copyright in the content?

Work for Hire

A work prepared by an employee within the scope of his/her employment (i.e., it was part of the job duties of the creator to create the work).

Work for Hire

• A Work for Hire is NOT hiring an independent contractor and paying her to create a copyrightable work for you.

• ALWAYS get a written agreement from the author, photographer, programmer, etc. that assigns their copyright rights and interests in the work to you.

Duration of Copyright

• Life of the author plus 70 years.

• If work for hire: shorter of 95 years from publication or 100 years from creation.

Web Site and Software Issues for Franchisors

• Franchise Agreement Restrictions on Web Sites

• Software for the franchise system

• Data Security

Trade Secrets

• Trade secrets:

–are not generally known to the public,

– are protectable as long as the information remains secret, and

–have been the subject of reasonable efforts to maintain confidentiality.

Trade Secrets

• Confidentiality measures must be reasonable under the circumstances:

–Non-disclosure or confidentiality agreements

–Advising employees that information is trade secret

–Marking documents “confidential”

–Employment agreements

Trade Secrets

• Examples -

–recipe for a certain type of food or drink (Coca-Cola or KFC)

–customer list

–techniques/processes for a special method of making known composition or device

Patents

• What is Patentable?– Anything under the sun made by man

• What is not Patentable?– Natural Phenomena

• Snow, Leaves– Mathematical formulas

• Pythagorean Theorem– Laws of Nature

• Even Sir Isaac Newton loses out– Abstract Ideas

• A cure for cancer would be nice

Patents

• Utility Patent (Non-provisional) - 20 year patent term– any new and useful process, machine, article of manufacture, composition of matter, or any new and useful improvement thereof

• Design Patent- 14 year patent term– any new, original and ornamental design for an article of manufacture

• Plant Patent - 20 year patent term– a distinct and new variety of asexually produced plant

Patents

• Provisional Patent Applications– Preliminary (informal) application – Advantages

• Secure an early filing date• “Patent pending”• Test marketability of products• Less expensive

– Disadvantages• Only lasts 12 months – then must file a non-provisional application or it is abandoned

• Never examined• Never issues as a patent

Patents

• Patents grant their owner the right to “exclude others from”:

– Making the invention;

– Using the invention;

– Selling the invention;

– Offering the invention for sale;

– Importing the invention.

Patents

• U.S. patent covers only the United States.

• Separate patent necessary in each country – no one patent covers the world. There is no such thing as an “international patent”.

One-Year Rule for Patents

• An inventor has one year from the date of the first public disclosure of invention or the first or offer to sell the invention to file a patent application in the U.S. Patent Office.

One-Year Rule for Patents

• But, if the application is filed after the disclosure, sale or offer to sell, the inventor is not able to file for patent protection in most foreign countries.

One-Year Rule for Patents

So, what should you do?

Answer: File first and then disclose, sell or offer to sell.

You should not do any of the following without determining whether patent protection should be sought for the technology:

� Display or discuss the invention at a seminar, lecture, workshop, or trade show open to the public, or

� Disclose the invention without a signed Confidential Disclosure (or Non-Disclosure) Agreement, or

– Do Not –

• Disclose the invention on inventor’s or company’s web site, or

• Submit an article to a journal for publication, or

• Offer the invention for sale or license, or

• Sell the invention, or

• Distribute samples of the product to customers, or

• Consumer or market test a new product, or

• Distribute advertising brochures about the invention, or

• Demonstrate a prototype to a public group.

– Do Not –

The goal: to prevent unnecessary loss of patent rights due to premature use, sale or publication of patentable technology.

– Do Not –

Questions?

Break

Requirements of Franchising: The Game Plan

Answering Frequently Received Questions About Franchise Laws

By: Donald A. Culp, Husch BlackwellJohn D. Moore, Husch Blackwell

What do I have to do before I can sell franchises?

What if I call it a “License”or “Distributorship” or

something else other than a franchise?

What else can I do to avoid the franchise laws?

What happens if I sell a franchise without complying

with these laws?

Can I tell my prospects how much they can make if they ask?

What’s an FDD and why

do I need to have one to sell franchises?

What procedures do I need to have in place to

sell franchises?

How do I maintain control over my concept and how franchisees

implement my concept?

What if I decide I want to make changes in the concept after I sell some

franchises?

Can I do that?

How?

What Questions Do You Have?What Questions Do You Have?

100

Blueprint for Success:Your Operations Manual

Copyright, Husch Blackwell LLP and The iFranchise Group, 2011 All rights reserved

By:

Mark Siebert, iFranchise Group

Michaelle Baumert, Husch Blackwell

Best Practices Operations Manual

• Key here is “best practices”

• Serves many functions– Sales Tool

– Training Guide

– Reference Tool

– Liability reduction

– Enforce system standards for Quality Control

– Extension of the legal documents

Developing a Best Practices Manual

• Determining what to document • Scope of the manual

• Standards to be enforced

• Procedures to be required

• Procedures to be recommended

• Manual development process• Gathering pertinent information

• Determining best practices

• The drafting and review process

• Use of Subject Matter Experts

103

104

Operations Documentation

Limiting your liability:

•A good Operations Manual can help you avoid litigation•A bad Operations Manual can be a franchisor’s worst nightmare•Operations Manuals must provide you with adequate brand control but should not be too prescriptive – a fine line•Must avoid creating an inadvertent “agency”relationship•Must avoid potential areas of negligence or take great care when prescribing actions•Should cross-reference regulations and not cite them•Should be updated annually and reviewed by professionals and attorney

Vicarious Liability-Limiting Elements of a “Good” Operations Manual

• Clear regarding “Standards” as opposed to “Recommendations” or “Suggestions”

• Clear regarding the status of franchisees as “Independently Owned and Operated”businesses

• Clear regarding the status of samples• Samples all have required elements including name of franchisee and “IOO” disclaimers

• Limited Human Resources related samples• Samples should NEVER include exact copies of corporate documents

106

Beyond the Operations Manual

• Faster growth requires formal training programs

– For your staff

– For franchisees

Questions?

May 26, 2011May 26, 2011

Ensuring Success Ensuring Success

&&

Supporting Your Supporting Your

FranchiseesFranchisees

By: John Longstreet and Dennis Lieb

AmericaAmerica’’s #1 motorsportss #1 motorsports--themed themed

casualcasual--dining restaurant!dining restaurant!

• Founded in Sharon, PA, 1974 by Jig Warren and Gary Meszaros• Over 80 million wings sold annually• Voted Best Wings USA in 1988• Voted Festival Favorite – 2010, Buffalo Wing Festival (the Granddaddy)• 25 Award-winning (over 100 awards) Sauces – Endless combinations• Triple Atomic – ½Million SHU’s (HOT! HOT! HOT!)• Own the segment – Fun, Family Dining!

Fast FactsFast Facts

Quaker Steak & LubeQuaker Steak & Lube®® LocationsLocationsCOLORADO

Westminster

FLORIDA

Pinellas Park

INDIANA

Portage

Ft. Wayne*

ILLINOIS

Springfield*

Warrenville*

IOWA

Council Bluffs

MICHIGAN

Grand Rapids

OHIO

Austintown

Beavercreek

Boardman

Canton

Colerain

Columbus

Lakewood*

Mentor

Milford

Sheffield

Valley View

Vermilion

NEW JERSEY

Brick Township

N. CAROLINA

Concord

NEW YORK

Buffalo

Syracuse

Rochester*

Utica*

PENNSYLVANIA

Altoona*

Bloomsburg

Cranberry

Erie

Johnstown*

Lewistown

Pittsburgh

Oakland

Pleasant Hills

Sharon

Scranton

S. CAROLINA

Greenville

TENNESSEE

Knoxville

VIRGINIA

Fredericksburg

Manassas*

Newport News

Richmond

W. VIRGINIA

Charleston

Wheeling

WISCONSIN

Madison

Middleton

New Berlin

*Opening SoonRed denotes Company Restaurants

• The Lube® is the hottest brand in the restaurant industry• 43 restaurants in 15 States & Canada• Two new prototypes• 50 restaurants in the development pipeline

FastFast--Paced GrowthPaced Growth

Dennis Dennis LiebLieb -- CFOCFO

• Benchmarking Tools

• Leveraging Information Technology

• Add on Sales – Gift Cards

Benchmarking ToolsBenchmarking Tools

• Comparative P&Ls

• Daily Sales Statistics

• Guest Listening Tools

Comparative P&LComparative P&L

Chart of AccountChart of Account

IT ToolsIT Tools

• Aloha Central

• Menu Link

• BevNet

The Dollars & Cents of ITThe Dollars & Cents of ITLube Holdings, Inc.

Technology Change to Food Cost

FOOD BEVERAGE RETAIL TOTAL

TYPICAL SALES 3,080,000 880,000 40,000 4,000,000

MENULINK SAVINGS 2.00%

BEV NET SAVINGS 3.00%

TOTAL SAVINGS 61,600 26,400 88,000

Gift CardsGift Cards

John Longstreet John Longstreet

President & CEOPresident & CEO

• Operations

• Supply Chain Management

• R&D

• Marketing

• Communications

OperationsOperations

Franchise Support Team Accountability

•Same Store Sales Growth

•Restaurant Profit maximization

•Franchisee Satisfaction

•Guard the brand

Franchisee Satisfaction SurveyFranchisee Satisfaction SurveyBy Department

Marketing 4.5

Admin 4.0

Franchise Ops 4.0

Training 3.9

IT 3.9

Purchasing/R&D 3.7

Accounting 3.4

OVERALL 3.9

By Attribute

Friendliness 4.3

Communications 4.0

Responsiveness 4.0

Empathy 3.8

Quality 3.8

Timeliness 3.7

OVERALL 3.9

Franchise Support PhilosophyFranchise Support Philosophy

• Franchise Support Rep - The first line of defense

• Will coordinate the activities of Marketing,

Purchasing, R&D, Facilities, etal

• Can solve all problems

• Have all resources at their disposal

• Available 24-7

• Focus on RESULTS, not efforts

MarketingMarketing

• SSS – Total Focus

• MACs

• LSM

• LTO

• Social Media

• newBrandAnalytics

• Marketing Area Catalyst of Revenue Optimization

(MACRO)

MarketingMarketing

Shake, Wrap & Roll! Promotion

Features: Philly’s, Wraps and NEW Bar Jar

Runs until July 18

MarketingMarketingEMAIL MARKETING

Re-Roll with

new

Slip Boxes

and

CPI Focus

to gain

addresses

MarketingMarketingQR Codes to Drive Traffic to the Website

MarketingMarketingWeb Revamp top Focus on Local Events

MarketingMarketing

Backlit Signage

MarketingMarketing

• PPI Program • Web to Print• MyLube.com• Online Ordering

Supply Chain ManagementSupply Chain Management

• Study and predict commodity movement

• Contract Negotiation

• Distribution – 60 proprietary items

• Work with R&D to capitalizing on market

conditions

R&D R&D -- CulinaryCulinary

• New Menu Development

• LTOs

• Anticipating & Leading trends

• Improve food & beverage costs

• Perfect products

CommunicationsCommunications

• Marketing Committee

• Menu Committee

• Fast Trax Lube Update

• FAC

• Quarterly Franchise Owners’ Dinners

• 1:1s with Franchise Owners

• Pre-opening Training

• E-learning Platform

• Leadership Sessions

• Manager Training

• Lube jobs online

Leadership DevelopmentLeadership Development

ThanQThanQ!!

Lunch

Development of a Successful Franchise

System:The Home Instead Story

By:

Paul Hogan, Home Instead Senior Care