In my opinion, the most successful and reputable franchise systems are the ones in which the founders and/or leaders operated company-owned locations first. They had one successful location and then were able to replicate the model to additional locations. How can you franchise something without understanding how the business works and the types of challenges franchisees can expect to face? But the big question is: how do you know when you are ready to leverage your success? We will expand on the tactical evaluation discussed in section 1 by looking at the type of leadership needed to enable all key stakeholders to see clearly the vision of the future that you are building.
Determining when a business owner is ready to franchise will be unique to each person. Generally, I would advise a minimum of three to five years and an ability to replicate to at least a second company-owned location before considering franchising (or, in certain cases, several additional company-owned locations may be more appropriate). Beyond that, the necessary key steps in franchise expansion are not unique. You need a profitable business model that can be replicated, and you need a market demand for your product or service or the differentiation of your product or service. The great news is that the time you spend improving the profitability of your “pilot” locations and enabling the business to run without a dependency on you both improves your success in the pilot and prepares you for franchising. When you have done your groundwork, your résumé should show potential franchisees what your experience has taught you and what you can teach them, so that they have the opportunity to replicate your model and achieve success.
In the beginning of structuring a franchise system, there will be natural modifications to adapt to local market nuances. New franchisees will be nervous and will need help in navigating the inevitable challenges. Being able to say from a place of authority, “I did that” or “I experienced that, too,” gives you immense credibility. You have walked in the shoes that your franchisees will walk in, and this is the single best education and experience you can have as a franchisor. You are also passionate about your business and the services or goods you provide to customers, and you will be the best one to transfer your passion and enthusiasm to your franchisees.
You will obviously need to learn franchising. You will. You learned your business’s industry and succeeded in it. Now you will leverage both the advice in this book and your past success to take your business on a new journey to leverage franchising to grow. Your ability to build teams—to apply leadership—will allow you to succeed in franchising. There are unique skills related to leading a franchise system, and they differ from leading employees: A franchisor must be able to influence others to take action, follow systems, and build teams. Influential leadership requires a specific set of skills that a franchisor must have or develop.
There are multiple facets of leadership. You will roll up your sleeves in the early stage as a franchisor and wear multiple hats. To grow and expand, you will need to transition out of the day-to-day tasks, entrusting them to new employees as you begin to work more on the business of franchising, assuring staff in your current business that they can run, grow, and succeed without you.
Transitioning Into a New Role
Your first step in franchise leadership is to ensure that your current company-owned business can run without you. Do you have the leadership team in place to run the day-to-day operations and be accountable for delivering on the goals you have for the business? This is critical. Your team must be able to function with less than five hours per month of your leadership, and you must be confident that the team can meet your expectations. Having a self-sufficient team managing the current business so that you can really focus your efforts on the successful launch of your franchise system is the best place to start in your journey to franchising.
The two hardest lessons I learned as I transitioned from running my company-owned operation to being a franchisor are definitely worth sharing.
AVOID THIS PITFALL:
I didn’t invest in having a leader oversee the company-owned operations while I focused on my franchisees.
When my franchisees needed me, I focused on them fully, which was the right thing to do, but it also meant that my company-owned operation, which had been my source of positive cash flow, suffered financially when I took my eye off the ball. I would have spent less adding a leader for company-owned operations than I lost in profits from losing focus.
The second lesson is related, in that I did not protect my company-owned employees from having to “do their day job” while also having to support franchisees too. You have an opportunity to learn from my experiences and prepare your business to maintain its success as you transition to franchising.
Prepare yourself and your existing employees for the transitions that lie ahead by clearly documenting your expectations for each person, including yourself, during the shift.
AVOID THIS PITFALL:
Secure adequate personnel so that you have dedicated resources for the company-owned operations and different resources (including you) focused on franchising.
This transition to franchising also means that you must develop a new set of skills to influence others. Franchisees are not employees, and they are investing rather than being guaranteed a salary. Franchisees must have confidence in your leadership, and they must believe that following the model is the fastest, best path to success. Franchisees will not follow blindly; in becoming franchisees, they are taking a calculated risk that you know what you are doing. Along the way, changes that you introduce must be qualitatively and quantitatively documented and communicated clearly to influence franchisees to follow.
Transitioning from Founder to CEO
As you launch your franchise system, you will be involved in everything, primarily so that you understand each area well enough to know how to hire for the roles as you grow your franchise system. In the beginning, you will support each of your franchisees, and they will naturally not want to stop dealing with you when it is time for you to grow into the CEO role and you begin to add support personnel who will work with them daily. This is your second transition—from founder to CEO.
Early on, you are just trying to survive, giving great support to your franchisees and delaying the costs of the next hire. You will progress to investing in talent to grow once you have the mental and emotional security of getting past 10 franchisees. This will be an adjustment for you to hire and turn over responsibilities to someone else and empower them to deliver the needed results. While this is a transition for you, do not underestimate that it is also a huge transition for the franchisees. They will resist being supported by the newbie rather than by you. It will be critical for you to make time to be visible in group calls or webinars, so they don’t feel as though you’ve abandoned them. I recommend using two-way calls to stay in touch. This could be a monthly call for an hour, which is not a big commitment of time but will have great cultural impact for your franchisees.
You may evolve later in your franchise business life cycle and consider adding a president, for the day-to-day running of the franchise. This type of investment can free you up to promote the brand externally, launch new brands, travel, or work more strategically on the business. I began considering adding a president in 2008 (it didn’t happen until two years later), as I believed that I would enjoy my role much more—and I would be more valuable to my employees and my franchisees—if I were able to focus on the strategy and the culture and on developing the talent to enable the future growth of our enterprise.
Filling the role of president was a big decision for me, and I benefited from engaging a few advisors to interview candidates for this role because they knew me so well and knew the stamp I had made on BrightStar. I asked my strategic coach, Juli Betwee, and two franchise mentors, Rocco Fiorentino and Geoff Hill, to interview a candidate for me who had years of experience in a senior leadership position with a competitor.
Juli, Rocco, and Geoff each had their own valuable insights, but the collective feedback fell into two key areas: (1) In the two years since meeting the candidate, I had learned and accomplished so much that I was now at the candidate’s level, and if I were to invest in this role externally then I should hire someone who could take it to the next level; and (2) my shoes would be easier to fill by developing someone internally who could take on responsibility gradually over time and gain the buy-in and trust of the franchisees and employees. This is some of the best advice I ever received. The key here is that I would not necessarily have come to the same conclusion without involving those I trusted in the process and listening to their input.
The timing was ideal for gathering this insight, as it was received shortly before I hired a former franchisee as the VP of operations. He didn’t know my plan (to develop him to take on the role of president) until mid-2010, but I spent all of 2009 and early 2010 transitioning more and more to him, letting him make the decisions and dealing with specific franchisee issues. When I announced his promotion to president at our franchisee conference, there was absolute acceptance. I judge succession planning to be effective when you are able to seamlessly “move” someone into a new, higher role because you had already been slowly moving the responsibilities and developing the skills and assigning the authority prior to the announcement. And the great news about promoting from within is that it creates opportunities in the organization to backfill the position of the recently promoted person.
What is the Leader’s Role?
As you begin planning on growth from 10 franchisees to 50 franchisees and beyond, more time needs to be spent on the business. This is when you must begin focusing on the big picture of where the business can go and how you will get it there.
I believe the leader has three primary roles in this regard: (1) Set the vision by applying a strategic planning process and investing for the future; (2) serve as the chief culture officer; and (3) build an organization of talented individuals who are capable of growing with the franchise organization. Let’s look at each role more fully.
Set the Vision
Your franchisees and your employees need to have confidence in you as the leader of your business; they need to know that you know where the business is capable of going and how to get there. The larger your business gets, the more time you must spend away from the daily details and on the big picture. Your time must be allocated intentionally to strategic thinking and looking outside the organization for the threats to and opportunities for your business and your industry.
After we had 10 franchisees, I tried to dedicate 10–20 percent of my time on the big picture for our business. Now that we have 175 franchisees, I dedicate about 80 percent of my time to setting the strategy and developing the organization that I need to meet my long-term vision of what our business will be. It took four years to go from 10 percent to 80 percent, but I worked on intentionally building my organization to free my time; that enabled me to focus on the strategic opportunities that could be created.
I use a five-step strategic planning process for the franchisor entity that is facilitated annually by my strategic coach. This is a thorough process that gets the entire organization on the same page, working toward common goals and a shared vision of the future.
In step 1 we assess honestly where we are right now—looking at both the good and the not so good of our business. Step 2 involves an environmental scan, in which we try to look at lots of external information and how the trends may impact our business. The environmental scan includes a thorough evaluation of our business compared to our competitors, think-tank information on where the industry is going, futurist information, and a macro environment review of consumer confidence, access to credit, regulation, etc. We include the franchisees in this step by sending a questionnaire for them to complete to let us know at their local level what the strengths and weaknesses of the model are and what they see as the threats to, and opportunities for, their business and/or our industry. We utilize these inputs to prepare a SWOT (strengths, weaknesses, opportunities, threats) analysis for the brand and then for three different constituencies: franchisees, customers, and franchisor stakeholders including corporate staff. We will add a fourth view for caregivers (field employees) next year to address access to healthcare labor issues.
In step 3 we look at where we want to be at some point in the future (initially, three years out; now we are building the capability to look 10 years out) informed by the environmental scan and recognizing where we are now. During step 4 we define the strategic initiatives that will be needed to get us from our current state to where we want to be in our future state. Step 5 involves defining the projects that are needed and how we will fund them to support the strategies necessary to reach our vision.
Here are some of the critical points of this five-step process that make it very successful:
- Use an outside facilitator so the entire team can participate
- Be honest in the assessment of the current state of the business
- Gather all managers together in an off-site retreat to thoroughly review the information in steps 1, 2, and 3 and prepare a SWOT analysis (this aligns the team in seeing the vision and what it will take to get there)
- Seek input from franchisees through a survey as to their SWOT analysis of the brand and their local opportunity
- Involve the managers in identifying and assessing the projects for step 5 so they own the projects and have the successful implementation of projects in their quarterly goals.
The long-term success of the business is related to the level of emphasis on and investment in implementing the strategies needed to move from the current state to the future state. The level of investment that the business is willing to make will determine the number and size of the projects. When we saw that there was no single market leader in our industry, for instance, I made a significant investment of slightly more than 100 percent of our prior year’s profit to invest in technology and marketing strategies to capture market share and stake our position as the market leader. It was important to make this investment but also to set the expectation that this level of investment could not be made every year—as the longevity of the franchisor, and hence the brand, requires a strong franchisor balance sheet. My challenge as a leader of a franchise is prioritizing the strategic initiatives—balancing franchisees’ requests with what I know must be done to remain competitive. Our big breakthrough came in 2010 when we involved our Franchise Advisory Council (FAC) in setting the priorities for the projects that we would execute in 2010–2011. As the leader, I knew that three of the projects were critical to ensuring our competitive survival and differentiation, and I set the top three projects and the dollars. I then shared the total amount that we would invest and the estimated cost of each of the projects identified through the SWOT analysis compiled from franchisee and employee input. The FAC then listened to the senior staff pitch each of the projects and the benefits of each. The FAC then weighed in on the order of the fourth, fifth, and sixth projects and confirmed that the total costs of all six projects fell within the financial guidelines of what we could invest.
Having the FAC provide input in the setting of priorities also gave us a strong ability to focus on those agreed-to priorities. We had permission to say no to any requests that conflicted with these priorities. This integrated approach to setting the priorities for the organization aligned all parties collectively to remain focused on the initiatives that would have the greatest impact on the franchise system. Likewise, by having this open communication of what we committed to invest in 2010–2011, we had FAC support to set realistic investment levels for the initiatives selected for 2012 to be more in line with R&D expenditure and investment best practice levels equal to 4 percent of revenues. We used 4 percent of the estimated 2011 franchisor revenues to set the dollar limit of strategic initiatives for 2012 that we will prioritize with input from the FAC.
The five-step vision process dedicates time to strategic planning and to the communication needed to align the organization with a shared set of goals. Employees and franchisees want to follow a leader who knows where the franchise organization is going and how to get it there. Employees and franchisees also want to contribute to help the organization reach its potential. Engaging the team to identify and support the initiatives needed to help the business reach its potential is the key to establishing a high-performing company and franchise system culture.
Serve as the Chief Culture Officer
One of the most important roles a leader has is in establishing the culture of the organization. Often the leader may not know the impact he has on the culture. I like to be intentional about the culture that I want in our organization—both for the employees and for the franchisees.
As discussed, our culture is one of openness. Our franchisees know the sales performance, gross margin, client and employee retention, etc., of one another. This fosters healthy competition but also a willingness to help one another so that all franchisees can improve. We also openly share our goals and our financials with employees.
We are a high-growth organization, so we do work hard and have big goals. We also take time to have fun. We celebrate our wins publicly and work with one another openly to improve when we fail. We treat one another like family. I am known as a hugger, so that affection and affinity for our people is important to me in setting the culture of the organization. Our focus on helping our franchisees succeed and always striving to improve their unit economics is an intentional message that is known to the organization in all that we do and in the investments we make. We are committed to helping franchisees execute the business model when they are doing the activities required, delivering the highest service and quality to represent the brand well, and investing in the marketing and recruiting required by the business. We are also committed to helping franchisees exit quickly—and for the best possible price—when they are unable to commit the time or resources to executing the model. We do this because we are equally focused on the greater good for the family as a whole and must ensure that our support resources are focused on the franchisees who will make the best use of the resources. We want 80 percent of our resources to be focused on supporting franchisees who are committed to succeeding, rather than following the normal 80/20 rule, whereby 80 percent of the resources are focused on the 20 percent who are not invested in following the model.
Cultures often take on the tone and personality of the leader.
BRIGHT IDEA:
For an optimal culture in a franchise organization, there is one pervasive element that must exist: shared success.
The franchisor cannot succeed without franchisees’ being successful and growing. Franchisees cannot succeed without the franchisor’s being successful. The franchisor cannot succeed without high-performing employees. Employees cannot succeed without the success of both franchisees and the franchisor, because success means bonus opportunities, growth opportunities, and possibly long-term incentive opportunities. All three constituencies must understand their interdependency in the outcome.
Build the Organization for Growth
I learned the hard way over the past five years that hiring good people to fill an immediate need rather than hiring for what I needed to meet my goals in the following two years was cheaper but was also an inhibitor to growth.
BRIGHT IDEA:
Once I began building job descriptions for the job that I needed two years out, and hired for that, the pieces the organization needed to grow began to fall into place.
To build an organization that is capable of growth, you must recruit talent that fits the culture, and you must also be intentional about how to retain exceptional talent. Let’s look at the role of recruiter and talent developer that the leader needs to play.
The Leader’s Role as Recruiter
As the leader, you always have to be recruiting. Even if you are not ready to hire for a position, you must spend time thinking about what roles you will need in the next one to two years. Once you know what positions you will need in the future, it is important to place yourself in situations to meet the people you may want to hire. Consider what events these candidates attend and the online groups they are members of. Find a way to spend time among the pool of potential candidates in their circles. I share my vision for the future organization with the members of my team so that they, too, become recruiters of the talent that we need for future growth.
It is also paramount for the leader to be heavily involved in his industry. The leader needs to be visible so that the top talent seeks out opportunities to work for his company. This takes time, but it is a multiplier of your ability to recruit and hire the employees you want and need to grow your business.
The Leader’s Role as Talent Developer
While most organizations have a human resources function that plays a role in developing talent and/or ensuring that managers are developing their people, I believe that what the CEO prioritizes and engages in is what actually gets done. If the CEO talks about the importance of developing talent and creating succession plans for key positions, then the organization will make this a priority.
BRIGHT IDEA:
Our breakthrough came with recognizing that leadership was responsible for ensuring that employees were being developed for their future roles and understood the opportunities the future held.
I believe it is critical for employees to know explicitly what their role is today and what their role could become over time. The future state must be defined with clear objective goals so that employees know what their titles and compensation will be, once they reach those goals. It puts the account-ability for the outcomes and the development plan of the skills needed to get there with the employee. The employee becomes empowered to reach his potential.
I ensure that our top-performing employees receive an opportunity to attend healthcare or franchise industry and/or role-specific events as well as to attend job-specific training to help them be ready for the next role. Brand-new managers attend “new manager” training, for example. As employees take on more project management responsibility, we train them in that new skill so they can be successful. We make a conscious commitment to an investment in developing our high-potential talent. Their boss will serve as a mentor and is expected to help guide them up the career ladder. I personally am involved in reviewing and providing feedback on the development plans of the top 20 percent of our employees.
Ultimately, as the organization grows, the leader needs to get out of the middle and have the organization progress on its own. When I began including the broader organization in the annual strategic planning exercise and the priorities for the organization, I got out of the middle because the organization knew collectively where we were, where we were going, and what needed to be done to get there. I didn’t have to call all the plays to get incremental results; the team had the whole playbook and could run them totally on their own. Setting the vision for the organization and doing so as a group allows everyone to be driving to the same goals; no one is waiting around for the boss to tell her what to do next. The path has been set and the team has been empowered to deliver the needed results.
Especially for Founders
I wanted to include a special section for those of you who are founders, who have built your business and who will build your franchise system. As you embark on building a much larger organization, I want to challenge you to think about the following questions to help you get the most from the journey:
- What role(s) do you most enjoy?
- Are you a business builder (strategy/sales) or a business maintainer (operations/finance)?
- Do you enjoy being the external face and voice of the business?
- Do you want to continue to run the day-to-day operations of your larger business?
The reason I think it is important to ask these questions is that, as your business grows, you, as the founder, have more opportunity to choose the role you enjoy the most. Think about Bill Gates not wanting to be CEO and instead positioning himself as chief software architect (and then subsequently chief philanthropist, through the Bill and Melinda Gates Foundation). You will have the same opportunities to decide what role you like best or whether you want to stay involved full-time in the day-to-day business at all.
By understanding the answers to the four questions above, you will know better who to hire to fill the holes of the organization that result from your choice not to do certain functions. You will also be able to identify talent internally that you can develop to fill future roles to allow you to transition to the role you love. By knowing how long you want to be involved day-to-day and what role you want within the organization, you can start with the end in mind when you begin designing your future organization—much as I did in hiring and developing my vice president of operations for the role of BrightStar Care president.
For me, BrightStar is my passion, and I can’t imagine not being active in my business daily. I did realize, however, that I enjoy building much more than maintaining. This realization created an opportunity for me to move up as the CEO by investing and grooming an internal candidate to take over as the brand president. I will likewise invest in brand presidents for each of the new brands I start. While I thought my background as a CPA would have aligned more with being in the maintenance of the day-to-day operations of the business, I have found that my love is for strategy development, people development, and shaping company culture.
As important as it is to focus on what you need to intentionally focus on, it is equally important to be aware of and acknowledge the potential traps that founders can find themselves in, such as the following: being afraid to let go, hiring friends and/or family who can’t meet the growing demands of the position, the tendency to push information down to franchisees without pulling information up, and being afraid to hire employees better than themselves or to intentionally hire “yes” people.
Closing Thoughts
If you do decide to transition some or all of the functions to someone else, prepare for the transition. Even though you are executing a plan you designed, you want to avoid ending up on a short-term emotional roller coaster. That’s where I found myself as I turned over some of my responsibilities to my brand president. It was natural, in hindsight, but I wish I had planned for the impact. BrightStar is like my firstborn, and transitioning some of the day-to-day business and some of the visibility with my franchisees was difficult. It was ultimately the best decision for me, for the future of the organization, and for our franchisees. My best contribution is in setting the vision. I now am able to spend 80 percent of my time looking at best practices and trends outside of our organization and bringing them back to be implemented to help us achieve our potential.
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To support your franchisees, you will need to assemble a great team. Plan for and seek great talent so that you can always meet your franchisees’ needs. Turn the page for the most critical component to the success of great companies—the internal team.
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