David Barr, the 2019 IFA Chairman, knows franchising inside and out. He’s been on the board of directors for multiple franchise brands in different industry verticals, and he’s been a franchisee of numerous restaurant brands.
We were able to sit down to speak with David about his experience as a franchisor and the best practices he abides by to help brands grow.
Q: What should franchisors ask themselves before going into franchising?
A: New franchisors should always pause before they begin franchising. There’s a variety of questions and subjects they should consider.
First, do they have a unique business model? Does their business model have a reason to exist? Are they differentiated – is their product and service that different from what’s out there today?
If so, the second question is whether they have the right profit and loss (P&L) margin and the right business model that will provide the return on investment to the franchisees. So often, franchisors consider their P&L from their own perspective, without considering 6 percent royalties or 2-4 percent ad fund contributions. They need to ask what that financial statement looks like once franchisees are operating the business.
If the franchisees can earn a good net income, the next question is whether they’re really getting a return on their capital. Most franchisees or most systems that provide that return on capital are providing a three-year payback on the investment of the franchisee – that is, if someone were to invest $300,000, they would have the opportunity to earn $100,000 per year for a three-year payback, more or less.
Q: How do you create a culture of accountability within a franchise system?
A: Franchising is based upon mutual accountability between franchisors and franchisees. Franchisors should be held accountable for growing the brand, creating unique business propositions, finding the right franchisees to grow and scale the system, evolving the brand in operations and other areas. Franchisees should be held accountable for execution, as well as delivering on the brand promise – not changing the brand promise.
In order to create an accountable culture, there needs to be clear alignment as to what the vision is, the values to achieve that vision and ultimately follow-up. At Capriotti’s, we use a system called EOS – Entrepreneurial Operating System. We do so because it provides for a framework for looking at three years and setting a vision, bringing it back into a one-year vision and then ultimately focusing on quarterly goals – what we call “rocks.” Those rocks are then broken down into weekly meetings. And the weekly meetings with the leadership team and their respective sub-teams allow for ongoing accountability to achieve the weekly monthly and quarterly goals, and those eventually add up to achieving the three-year plan.
The reason this is important is that too often entrepreneurs get stuck in vision or in what I call “the tyranny of the urgent,” when they’re looking at what needs to happen today but lose track of their vision. Or they stay lofty and look at their vision and don’t get anything done today. So whether it’s EOS or some other operating system, franchisors, as well as franchisees, need to create a system that provides for the leadership functions to advance the cause toward both daily goals as well as three-year goals.
And then, ultimately, it’s about the courage of integrity. It’s the ability to sit down in a very honest way and challenge each other. The franchise systems that are able to have that type of courage, where franchisors and franchisees can talk in open and honest dialogue, are the systems that win. Because the franchisees are the closest ones to the consumer, and they’re able to provide feedback to the franchisor. But franchisors often have more data-based insights. So, it’s through anecdotal information married with data that the two parties can come together and create the vision for the future.
Q: How do you reinforce a culture of accountability within a franchise system?
A: Franchisors and franchisees can reinforce their culture primarily through communication. Oftentimes, it’s semantics – it’s getting everybody on the same page of how they’re going to have the dialogue about character, values, integrity and delivering the brand promise.
As you arrive at a common set of words, the ability to address these topics becomes much more effortless. And through that, there’s alignment, and that alignment allows for growth for both the franchisor and franchisee.
Q: What role does transparency play within a franchise system?
A: I believe the most important attribute to leadership is communication. Communication requires both speaking and listening.
In speaking, you have to speak with integrity and courage, and that includes transparency – transparency with respect to the issues we face as a team or it may even be one’s own faults or poor decisions in the past. So, the team – in total – can understand where they’re at and where they need to go.
It’s also about listening because teams can provide feedback, including data or anecdotal information, for leaders to grow. It’s through listening and speaking – total communication – that teams can gain better alignment to achieve their goals.
Q: What should franchisor look for when building their support team?
A: As a franchisor expands, they will need to look at what the management talent is. Oftentimes, when you first get into franchising, that talent might be your local manager or the individual who used to be the local manager and is now the area manager or regional coach. Then they come into the management structure. Unfortunately, franchise systems can scale and grow quickly, and the pressure put on that management team can grow. As a result, there’s a time and point in any franchise system where it has to begin professionalizing.
So, what should that individual look like? He or she should probably have great experience within the system or within the type of system that is being grown. Specifically, if it’s restaurants, then some experience in the restaurant industry. If it’s business to business (B2B), then some B2B sales or development experience. Nonetheless, even after considering someone’s resume, I would suggest the first thing you have to consider is their character. Are their values consistent with the company’s values? Do they have alignment with the ownership group, as well as the franchisees?
Q: What should franchisors look for in franchisees?
A: As franchisors consider what franchisees might be best within their system, my recommendation is to first figure out if there’s alignment, which applies to the uniqueness of the product and service or on how those goods and services will be delivered.
Secondly, there should be a commitment. Rarely is there a business that can be a hobby. There are some business models that are owner/operator and some that can be absentee models. Nonetheless, there has to be that commitment to the business model.
And third, there should be passion. Is it the product that you would buy yourself as a franchisee? Do you love the product? Would you eat it, use it or recommend it to your friends?
Q: How can franchisors effectively grow?
A: As franchisors grow, they need to determine if they’re going to grow contiguously – from territory to territory – or if they’re going to grow nationally. And if they’re going to grow nationally, how are they going to support those franchisees?
At Capriotti’s, we’re blessed with a history of great success in the east from Delaware and its contiguous territories to Las Vegas and its contiguous territories. What that provides us now is a real advantage that we can grow our system coast to coast and fill in the gaps.
Q: How can franchisors effectively expand internationally?
A: As franchisors consider expansion, I oftentimes say as Americans we’ve just got to be careful we’re not so arrogant that we think it’s like the moon, where we just go, plant a flag and then leave. Expanding a franchise system into international markets requires a lot of work, as well as a lot of capital.
It’s always appealing, as franchisors, to take that initial franchisee fee check for a new country of expansion. But with that comes responsibility. The franchisor needs to provide for supply chain, unique marketing within that foreign market, support pre-opening as well as operation support.
As a result, franchisors often take the initial check, but fail on their responsibility. It’s the responsibility they have to the brand. But, if the brand fails in those countries, they have diluted the value of their brand. I’m not against international expansion – I’m just saying franchisors shouldn’t be doing it for the wrong reasons.