Great teams are necessary to build and sustain great companies. Average teams will never build or sustain great companies—only average companies or failing companies. It really is true that there is no “I” in “team.” I once rolled my eyes at that saying, too, but as I’ve reflected on our success, I’ve realized the truth of that statement.
I think it is equally important to think about how you define your team. Is it limited to your staff? Does it include your franchisees? What about your advisors, suppliers, and consultants? For me, a team includes all of these. In chapter 10, you will learn how to build an intentional culture so that franchisees are naturally a part of the team. And in chapter 5 we will discuss how suppliers and consultants, as well as a board of advisors, work to build a much stronger and effective team.
This chapter reveals a lot of our secrets to building a great team in any industry, from senior leadership throughout the entire organization, whether it is franchised or not. Though some of the tips on potential structures and ratios may be applicable only to franchising, the overall content about building a high-performance culture should be appropriate and, I hope, valuable to all companies.
Building a team begins with identifying and selecting talent. I will share some broad thoughts on building teams from a general perspective and then walk through a second section that focuses on building the right team specific to your infrastructure evolution as your franchise system grows. The final section is about linking pay to performance, which is a critical component in attracting, developing, motivating, and retaining great talent. Selecting people who are passionate and committed to our higher mission—of providing care to families and enabling individuals to own businesses and create jobs—and then aligning their compensation and recognition around accomplishing a set of individual and sharedgoals allows everyone in the organization to be fully engaged. The team knows where we are going and what their contribution will be individually and as part of their department or as part of a project team to get us there. We all share core values of positive attitude, passion, and commitment: We work hard, we play hard, we have fun, and we move forward together.
Identifying and Selecting Talent
You should always be networking for talent. As mentioned in the previous chapter, you will always need great people, so embracing the role of recruiter is an important and key role for the CEO/founder. Finding great talent comes from using multiple sources: networking, search firms (paid recruiters), and job boards. I prefer to leverage networking for positions that I have directly managed before. When I am adding a position to my organization that I have not managed previously, I will consider using a search firm to help me evaluate what I am seeking in the position and what to expect, and to serve as a conduit during the on-boarding process.
There are two types of recruiting searches: retained searches and non-retained ones. For the very high-level positions where you are likely sourcing someone who is not even looking for a job or you are performing a confidential search, you may consider a retained search whereby you pay some portion upfront and the recruiter seeks the right person to fill the job, exclusively for you. On the other hand, a non-retained search can be placed with one or multiple firms, and you pay only when you hire a candidate they have presented to you.
One of my best-ever hires, my chief of staff, came through a search firm under a retained search agreement, and though I hate paying headhunter fees as much as anyone else, in this case the ROI was priceless. I have used job boards like Career Builder and have also networked among good people. Other successful hires have come through employee recommendations and by bringing franchisees in to join the corporate team.
Proactive Networking for Talent
Networking for the positions that you know you will need in the next 12 to 18 months can be a proactive strategy to allow ample time to find great people to fill jobs just at the time you will need them. Bear in mind, however, that there is a difference between getting a name or referral from someone and getting a recommendation. In the past I have asked people in my network if they knew anyone who would be appropriate for a job opening at BrightStar Care. It was great to get leads, but I made the mistake of interviewing more lightly and not checking references as I normally would.
AVOID THIS PITFALL:
It’s paramount—no matter what business you’re in—to avoid treating the name you receive from someone you trust as though it were a recommendation.
All candidates must follow the same interview process and reference checks to protect the integrity of the company you’re trying to build.
On the other hand, I have had tremendous success when existing employees recommend people they know for open positions. I can think of no higher compliment than an employee suggesting to someone he knows and respects to join our company.
Attitude Is Everything
I hire attitude first because skills can be taught or improved if the right attitude is there. Every time I have deviated from this—yes, everysingle time—I have been burned, whether I was “sold” by a great salesperson in an interview or fell for a résumé. In my experience, if someone has never succeeded as part of a fast-paced team, hasn’t thrived in or been a part of a highly accountable organization, hasn’t gone above and beyond to reach goals, or hasn’t been a part of a company growing by triple digits, that person probably won’t magically start performing on all cylinders once hired onto the team.
True motivation and a positive attitude are internally generated. I may like to think of myself as a high-energy leader who inspires others, but the reality is that I won’t be able to inspire anyone to take an action she is not willing to take otherwise. Those who are willing to work hard to meet a deadline, to take a client call at night or over the weekend, to drive performance, and to respond to the CEO’s e-mail after hours will take your inspiration and run through brick walls. Those who do the minimum work required in order to keep a job, but no more, won’t suddenly start giving more because of your high energy, the high-growth atmosphere, or their peers. Use behavioral interviewing techniques to ensure that prospective employees can demonstrate experience in a fast-paced organization or to show where they have proactively improved a process or led a project. For example, I want to hear about actual experiences from those in field support, so I ask them to tell me about (1) their most struggling franchisee and what actions they took and what was the result; (2) their best-performing franchisee and how they specifically supported him; and (3) their franchisee with the worst attitude and what actions they took and what the result was. I am looking for different approaches because franchisees are individuals and need customized support; I am also looking for their ability to initiate and manage difficult conversations.
Building the Right Team
The ideal team is not built overnight and it will not be built flawlessly. You will add people to the team who may not adapt to the environment or may not be able to develop quickly enough to keep pace with what you will need as the business grows. That said, there are a few tips that can improve your odds for hiring talent for the long haul that fit your culture and what you need as the organization evolves.
Always think about what background or skills are critical to a position. For example, if the majority of your sales growth comes through franchise brokers (brokers are external resources that prequalify and introduce prospective franchisees to you; we will discuss this further in chapter 7), it would be important to hire franchise salespeople and team leaders with existing relationships and past success with brokers. Likewise, if your franchisee’s success is based on sales efforts at a local level, it would be important to hire field support people who have experience and are successful at it. It is obviously unrealistic to think that someone with no sales experience who is hired for field support will be able to grow sales.
Do not limit hiring to candidates with franchising experience. In the shared services areas such as marketing, finance, human resources, and technology, find the best employees in terms of their skill set, experience, and attitude, regardless of their knowledge of franchising. All of our senior management team and any other of our “Top 10,” which we will discuss later in this chapter, are required to be International Franchise Association Certified Franchise Executives (CFEs), and if they are not CFEs when they are hired, they are enrolled in the program and attend the annual IFA convention to raise their level of knowledge about franchising—for themselves and our team. However, in the areas of field support and franchise sales, I do try hard to recruit from within the franchise industry because these are highly nuanced positions, critical to growth and to the success of our franchise.
My addition of a franchisee to the corporate team worked so well the first time in October 2008 that I did it again in early 2010. Franchisees know what is required to run a successful operation within your system, and they will help improve your model for other franchisees, which is critical to long-term success. I recommend ensuring that the franchisee had profit-and-loss accountability in her corporate life before becoming a franchisee and can demonstrate that she understands that both the franchisee and the franchisor must win financially. You need someone in corporate to have the franchisee perspective, but you also need to ensure that she will focus on improving the system and the franchisor’s results too. My first franchisee to be hired onto the corporate team was seamlessly promoted to president within two years of his hire, during which time I let him make more and more decisions and deal with specific franchisee issues. This individual had large department and business unit profit-and-loss accountability for billion-dollar divisions and/or companies in his corporate life, and I spent time with him to be assured that he could represent franchisee and franchisor interests. I identified another franchisee with strong prior technology background who I felt could also represent the franchisees in what the technology could do and in the scalability and controllability of costs that I needed as the franchisor. Our senior VP of technology—who had been a franchisee for over three years—accepted my offer after seeing the large investment I was willing to make in technology and my commitment to using technology as a major differentiator and method of achieving scalability and excellence. (At this writing we are in the middle of a 12-month technology upgrade costing over $1.8 million.) Our focus on technology provides our brands with the tools and innovation to stay ahead of our competition because we are not limited by a third party’s willingness to upgrade its software.
It is hard to entice franchisees who are performing well (and of course those are the ones you want to hire) to leave working for themselves to return to the corporate world. We have been fortunate that our franchisees are passionate about our brand and are looking for ways they can have the greatest positive impact. Some also enjoy an opportunity to assume a role that utilizes their deep knowledge and experience in a functional area, like technology or operations, rather than having to apply the broad array of skills needed as a business owner.
Evolving the Infrastructure
You may have a small number of people in the beginning, but hiring will need to ramp up as your system grows. It is more important and relevant to consider the number of employees needed to handle the number of franchisees than to think about the changes that will need to be made in infrastructure over time. Our philosophy was to hire in advance of growth, and that is why our ratio of employee to franchisee was low in years one through five. This strategy of hiring in advance worked for us because we were able to see others in our industry consistently adding franchisees each year and we were confident that we would grow into our larger-than-necessary personnel structure. Your industry segment and its growth history and capitalization will determine the level of infrastructure you can invest in and how early. The evolution of our corporate infrastructure, shown year by year later in this chapter, will assist you in considerations of what positions to hire and which to outsource, and when these positions should be evaluated.
Scale in infrastructure in terms of productivity, measured through revenue per dollar of payroll, begins to normalize and reach top quartile performance in the industry in years six and thereafter. This shows that while we have one of the lowest employee-to-franchisee ratios, and hence high payroll investments, the support staff are driving revenue high enough to justify the investment.
One lesson I learned very early on was to make sure the position title matched the job description.
AVOID THIS PITFALL:
I initially brought people in and gave them titles that were too high and did not really reflect their authority and ability to act independently.
People love titles, so it is an easy and inexpensive thing to give, but knowing that the company will grow will make it a challenge later. I would recommend hiring individuals laterally with the same title as previously held and then performing a compensation and title review after six months.
I had to go through several conversations in 2008 and 2009 to reset titles to appropriate levels so we could fill in the organization more accurately. A vice president’s role in an organization that had reached system-wide sales of $100 million annually was quite different from what the role was when the organization was at $10 million. This may be obvious, but it is never easy to discuss with an employee. I would rather bring people in at lower levels and give them every opportunity to progress and take on more responsibility and earn titles that accurately reflect their responsibilities as the enterprise grows. This is the approach I began taking in late 2008, and it has served me well.
Another lesson I learned early on is that those who start with you may not stay with you. You may have employees who cannot keep up with the pace of change, who may not take the initiative to improve their skills so that the company’s growth is an opportunity for them rather than a threat, or who have poor attitudes. I have found that having direct conversations as early as possible and documenting the gaps that the employee must address thoroughly lays the groundwork to improve performance to acceptable levels or to ensure the proper documentation for a clean termination. You may have some employees who are less comfortable with ever-changing technology, even though nearly all aspects of business are enhanced by or dependent on it, and as you implement new tools they will resist them. Often these are the very employees who will be positioned to train, reinforce, and influence use of these technology tools by the franchisees. You should make training available to them, but if they are not embracing it after several opportunities, you need to part ways.
After going through a few painful situations in which great people were no longer able to meet the needs of our larger organization, I changed my hiring approach. Things dramatically improved when I decided to hire people whose skills exceeded what we needed. I recognized that if I was willing to make the higher compensation investment, this higher talent could be a part of the recipe to actually get us to the revenue level we wanted to be at two or three years later—faster, too, quite likely.
The Early Years
In this section, I walk through the evolution of our organization by calendar year. I have provided the number of franchisees at the beginning and at the end of each year to illustrate support ratios. My intention in showing you specifically how our organization grew over time is to share the order in which we hired certain positions and to show whether there were alternatives we would have considered if we had known about them. I will highlight the additions but will not specifically address title changes, as some titles needed to be adjusted down (as mentioned earlier) and some were adjusted up according to employees’ ability to grow their skills to take on more responsibility as we grew. I also have excluded all personnel dedicated to company-owned operations from the discussion and from the organizational charts.
At the conclusion of each year there is a chart that visually depicts our historical organizational, with a recap to help you process the information. This will help you understand the order of positions and how your assumptions for your financial statements will change based upon whether you maintain your own technology platform or not. Most companies will not invest in technology the way BrightStar has (that is, license the technology to our franchisees). The summaries therefore highlight the personnel in the technology area, and the revenues and earnings per employee excluding both the investments in technology and the revenues derived from technology. As of 2010, we moved our technology into a separate entity to allow better comparisons to the majority of franchisors who have not built their own proprietary technology and invested to license it to their franchisees.
From the information in the following section, you will also be able to consider your strengths and how they influence decisions to delay hiring for some positions, as you’ll learn was the case with our finance hire (in hindsight). To assist with demonstrating the level of investment and how it impacted revenues and EBITDA per employee, I will disclose these metrics for each of the years, with technology revenue and profits as well as employee count excluded, and the breakdown of our employees into three key areas—franchisee support, technology, and administration. Franchisee support includes BrightStart, field support, preopening support, national accounts, the support center, and franchisee operations. Administration includes franchise sales, marketing, finance, human resources, executive, and learning and development (training).
With that, let’s walk through how we built our team and provide you a vision for building your team.
2005
I began and ended the year with no open franchisees, but I sold one franchise before the end of the year.
The additions and/or changes for the year included the following.
Franchisee Support Additions/Changes:
I hired a person who would be responsible for supporting franchisees and assisting with training—this was a seasoned person from my industry and from franchising. The addition of this seasoned field support professional (vice president of sales training and field support) was a huge help. It may seem early to have hired this position before we opened a franchise, but I felt that I would need to work with this person for a couple of months to get him up to speed on our business model, our vision, and our values. I also knew that I would be training new franchisees and that I would need help training the sales areas.
Technology Additions/Changes:
In early 2005 I hired an IT director to support our technology platform and work with our external programmers until we could build an internal technology team.
Administration Additions and/or Changes:
I added two positions during the year. The first was a controller to relieve me of some of the accounting functions so that I could focus more on the new responsibilities that being a franchisor required. I also brought in someone who had no franchising experience to handle franchise sales. I thought I would be able to train this person to handle franchise sales, but within six months, I knew she was not the right person for the job. Fortunately, my co-founder and husband, J.D., rescued me by taking over this role.
Both of my administration hires were a mistake. In hindsight, I would never have hired someone to handle franchise sales. I now believe that the founder should interact with the prospects when selling the first 10 to 25 units. They are taking a huge leap of faith that the franchisor will really get to 50, to 100 and beyond, and they need to know whom they are buying into. At the earliest stages, prospects are buying the leaders as much as the brand, concept, and industry, maybe more. Before the end of the year, I rectified my mistake and replaced the employee with J.D.
I also would not have hired a controller that early. Hire entry-level finance talent. This is not just because I am a CPA, but more because of what is truly required in that department at this stage. Outside CPAs can be brought in a few hours a month to supplement the entry-level talent at a much lower combined cost.
AVOID THIS PITFALL:
If I could do it again, I would hire a strong assistant or an accounting clerk who could handle of lot of the repetitive tasks, copying, etc., so my time could be freed up to handle the new responsibilities of being a franchisor.
I recommend that founders keep high-level (high-salary) functions that they have solid experience with as long as possible and add administrative bandwidth (at lower salary levels) as needed to support the founders.
Summary:
I had five employees, including J.D. and me, supporting the launch at the end of 2005. We had sold one franchise and would open it in March 2006. There were negligible revenues in 2005, so key metrics are excluded below.
2005 Recap:
Open Locations:
- 0 (1 sale had been made but it would not open until 2006)
Staff Hired:
- 4 – 1 replaced with co-founder (net of 3 additional employees in 2005)
Functions Outsourced:
- Legal is fully outsourced. Expected partially in house 2012.
- IT development partially outsourced. Fully in house by the end of 2007.
End-of-Year Organization by Category:
- Franchisee Support: 1
- Technology: 1
- Administration: 3
2006
We began 2006 with no locations open and by the end of the year had opened 10 locations (as well as sold three more locations that were not open as of year’s end).
The additions and/or changes for the year included the following.
Franchisee Support Additions/Changes:
We added a position dedicated to supporting franchisees with state licensure and regulations and in training the franchisees’ directors of nursing. We recognized that, since we were not targeting franchisees with a healthcare background, we needed someone as part of the corporate team to assist franchisees in hiring and on-boarding their director of nursing.
Administration Additions and/or Changes:
We added a part-time accounting clerk/administrative assistant. Understand what you do well, as dollars are precious. As a CPA, it took me more time to train and manage someone than it took to do the job myself. That wasn’t good long term, so adding a part-time accounting clerk to support accounts payable and administrative tasks that support the finance area was a more cost-effective approach. At this stage one strong full-time entry-level accountant would have been enough for our organization leveraging my background as a CPA; I would estimate that using an outside CPA 5 to 10 hours per week in addition to a full-time entry-level accountant would be sufficient to support the finance function for a founder without a strong finance background.
Summary:
At the end of the year we had seven employees, including J.D. and me, supporting 10 open franchisees. This was an extremely high level of support, but I anticipated that in the next year we would sell at least another 25 locations and more than double. I wanted to have the infrastructure in place before the next phase of rapid growth so that new employees had time to learn our business model and culture and support franchisees through that period.
2006 Recap:
Open Locations (Number of Locations and Franchisees the Same):
- 10
Staff Hired:
- 2 (total staff: 7)
Functions Outsourced:
- Legal is fully outsourced. Expected partially in house 2012.
- IT development partially outsourced. Fully in house by the end of 2007.
End-of-Year Organization by Category:
- Franchisee Support: 2
- Technology: 1
- Administration: 4
2006 Key Metrics:
- Revenue per $ of payroll: $2.08
- Revenue per employee: $137,503
- EBITDA per employee: ($49,129) loss
- EBITDA as % of revenues: N/A
2007
We began 2007 with 10 locations open and by the end of the year we had 27 locations open. We ended the same year with 47 locations sold, selling 34 locations during the year.
The additions and/or changes for the year included the following.
Franchisee Support Additions/Changes:
We added a preopening support position that I refer to as a “preopening concierge.” The addition of the preopening concierge has been one of my best hires—his positive, service-oriented attitude is unparalleled and sets the top example for the rest of us, as he is a good example of an A-player that many throughout the organization labeled as a “Top 10” (which we will discuss later in this chapter). Our preopening concierge has been critical to getting our franchisees up and functioning as quickly as possible.
Technology Additions/Changes:
We expanded our technology department with the addition of an IT (junior) developer. In 2007, we began building our internal technology team and stopped depending on outside developers to enhance software.
Administration Additions and/or Changes:
During the year, we added a franchise sales professional to take over the majority of franchise sales. The franchise sales professional has been one of our best performers for four years. We recognized that, as we were getting a solid base of franchisees, J.D. did not have to remain involved in the sales process for every franchisee. The addition of the franchise sales professional freed up more of J.D.’s time to work on sales strategies and what would be a major rebranding initiative in 2008. Freeing up J.D.’s capacity when we did was important. When you start to recognize that momentum is building, assess your talent bench and contrast that with what you (and your partner, if you have one) offer to ensure you’re ready for growth.
Summary:
At the end of the year we had 10 employees, including J.D. and me, supporting 27 open franchisees.
2007 Recap:
Open Locations (Number of Locations and Franchisees the Same):
- 27
Staff Hired:
- 3 (total staff: 10)
Functions Outsourced:
- Legal is fully outsourced. Expected partially in house 2012.
- By the end of the year, IT development was no longer outsourced.
End-of-Year Organization by Category:
- Franchisee Support: 3
- Technology: 2
- Administration: 5
2007 Key Metrics:
- Revenue per $ of payroll: $4.37 (our high point before investing heavily in 2008 and 2009 to support our franchisees and enable multi-brands later)
- Revenue per employee: $310,429
- EBITDA per employee: $61,481
- EBITDA as % of revenues: 20%
2008
We began 2008 with 27 locations open and by the end of the year we had 79 locations open. We ended the same year with 105 locations sold, selling 58 locations during the year.
This was a very high-growth year in terms of the number of franchisees added and opened, as well as for building infrastructure. We began 2008 with 10 employees and we finished the year with 27 employees, more than doubling our employee count in a single year.
We made some very key additions in 2008 that I realize in retrospect were critical to our future scalability and the ability for us to move into multiple brands in 2012.
The additions and/or changes for the year included the following.
Franchisee Support Additions/Changes:
We added a vice president of operations (now the president of BrightStar Care). With many new franchisees, having someone dedicated to operational efficiency and scaling our business effectively was required. Hiring at the vice president level was paramount.
We also added an experienced field support leader as the vice president of field support. This very valuable employee now leads our BrightStart team as vice president and is another one of our highly recognized team members who multiple members of the senior leadership team selected as a “Top 10.” In addition, we added four regional field support directors during the year. The additions in field support were more than we needed, but we felt confident that we would continue to grow rapidly in the future, and we wanted our field support team up to speed and working cohesively as a group. We added the four of them between mid-August and the first of December.
In addition, we created a position for the first time dedicated to securing and supporting national accounts. This position was upgraded to a director in 2011.
In summary, in this single year we more than tripled franchisee support resources—growing from three to 10 employees.
Technology Additions/Changes:
We added four additional IT developers, taking our technology team up to six members. I recommend, if you are building proprietary technology, that you make time for frequent reviews of how resources are being applied and if there are any gaps to reach the timeline and quality requirements. Skill gaps within the team take a bit of time to identify, and you will be unable to do that without spending time on a recurring basis. Routinely check the temperature of your team to ensure there aren’t “blips” on the horizon that will push you off track. In chapter 5, we will discuss using outside consultants in technology to assist nontechnical CEOs with overseeing and holding accountable this function.
In summary, in this single year we tripled our internal technology resources—growing from two to six employees.
Administration Additions and/or Changes:
We began to build our marketing team with the addition of a dedicated marketing and communications coordinator. This position should have been added a lot earlier; we also should have added a marketing leader much earlier, too—a vice president over marketing was finally added in late 2009. The good news is that when we hired our coordinator, we hired really well and this individual was promoted to manager in early 2011. Without a dedicated leader in house, we outsourced projects and the over-all project cost was more because of not having someone internally with the bandwidth and experience to manage the projects under way, including the development of collateral materials, the launch of a rebranding effort, and the redesign of a consumer-centric website and social media strategy.
If considering any type of rebranding (which is common for young companies as you evolve your brand and adapt to what your market needs and wants or possibly even demands), even when using an outside branding firm, you should have a dedicated resource in house. Coordination, launch, and implementation are time-consuming activities, and there is a high level of need for someone internally to ensure all implications are considered and the rebranding is done right. Marketing leadership should be added as soon as fiscally possible (likely as soon as you reach 30 to 40 franchisees); regrettably, we waited one to two years longer than we should have in filling that role full-time based upon delaying national ad fund contributions until after 25 locations were opened, as discussed in chapter 2.
Brand development will stave off competition and can help you achieve goals—both on the franchise sales side and in the development of programs that allow your franchisees to be successful in a competitive environment. The level of funding that you will do in advance of collecting national ad fund (NAF) fees should be planned for and proper expectations should be set with franchisees; as the system grows, there will be more NAF dollars to drive visibility and customer awareness, but in the early days you will need to balance what you collect from franchisees with what you know you need to spend; often the timing of these dollars will be out of balance early on. We found it much more economical, and more beneficial to our franchisees, to hire dedicated marketing staff and charge those hires to the NAF, as explained in Item 11 of the FDD, rather than spending much higher amounts with outsourced advertising agencies. We continued to build a team to bring most marketing activities in house.
We also expanded in many other areas, including within the executive offices, in finance and in franchise sales. We added my chief of staff (the answer to a lot of prayers) who was unanimously selected as a “Top 10” by all of the senior team. This addition made me more effective because I had someone to anticipate my needs and act as a strong presence in my absence or on my behalf, allowing me to focus on the matters at hand.
We added an accountant role to our finance team to create capacity for benchmarking and analysis and supporting franchisees.
We significantly expanded our franchise sales area with the addition of another salesperson brought in as a director, as well as adding a manager of contract administration (since promoted to a director) and a franchise sales coordinator (since promoted to a manager). Contract administration during a period of high growth takes a lot of time. This is a critical area for the business and a position that interacts extensively with franchisees, so find someone diligent, brilliant, and ethical who is also a strong, tactful communicator. You’ll reap the rewards of that every day. Given the large growth in the franchise sales area and J.D.’s lack of bandwidth and experience in managing personnel, we engaged an outside consultant to help manage the department and build the processes for J.D. to take on that role.
In this single year we more than doubled the administrative foundation—growing from 5 to 11 employees.
Summary:
At the end of the year we had 27 employees, including J.D. and me, supporting 65 open franchisees.
2008 Recap:
Open Locations:
- 79
Open Franchisees:
- 65
Staff Hired:
- 17 (total staff: 27)
Functions Outsourced:
- Legal is fully outsourced. Expected partially in house 2012.
- Branding and strategic marketing. Brought in house late 2009.
- Franchise sales leadership partially outsourced. All sales personnel employees of BrightStar. In house prior to the end of 2009.
End-of-Year Organization by Category:
- Franchisee Support: 10
- Technology: 6
- Administration: 11
2008 Key Metrics (All lowered due to heavy investment nearly tripling employee count):
- Revenue per $ of payroll: $2.30
- Revenue per employee: $320,417
- EBITDA per employee: $32,580
- EBITDA as % of revenues: 10%
2009
We began 2009 with 79 locations open, and by the end of the year we had 140 locations open. We also ended the year with 171 locations sold, selling 66 units during the year.
This was another very high-growth year in terms of the number of franchisees added and opened as well as the continued investment in building infrastructure. This second high-growth phase required an increased focus on franchisee support. At the same time, the economy was still sputtering and we felt that continuing to invest in support would allow us to partner with our franchisees through the toughest economic climate we had seen in our lifetime and strengthen our franchisor–franchisee relationships and our system. Remember, we began 2009 with 27 employees after nearly tripling the number of employees in 2008. We ended 2009 with 45 employees, after nearly doubling again the employee count.
The focus in 2009 was to make additions of personnel to reduce each manager’s span of control and to begin to have specialists rather than generalists. Having these conversations proactively with employees helped ensure a positive culture; we wanted to demonstrate our willingness to invest in additional resources to enable our employees to be successful and to prevent burnout. All of us recognized that it was natural in the early stages of an organization for nearly every employee and manager to wear multiple hats. As the organization grew, to reach optimal productivity and employee development and retention, the organization had to be sufficiently staffed so that employees could begin to specialize in a functional area rather than being spread thin across multiple areas. This was easier at lower levels within the organization but was the goal at every level. We also knew we had to reduce managers’ span of control to increase their bandwidth to develop their employees.
We have plans in place to get each senior leader responsible for only one key area by filling in their organizations in 2011, and by hiring additional C-level executives, including a chief operating officer and chief counsel, in 2012–2013 to add capacity as we launch additional franchise brands. Beginning in 2009, we began to think about and build organizational charts and strategic plans looking five years out, so that we could anticipate the investments that would need to be made to reach our goals and plan for how to develop talent internally to grow with us.
The additions and/or changes for the year included the following.
Franchisee Support Additions/Changes:
We added a manager and two specialists during the year to enable the launch of our support center (we will discuss the support center more fully in chapter 9). We identified that having dedicated support help available for franchisees and their internal team for any need—finding a marketing flyer, using the technology systems, obtaining vendor information, etc.—allowed the franchisees to call one number for anything related to how to find a resource or how to click a button, and then to contact their higher-cost field support director for business reviews, strategies, and skill development. The support center was also necessary to assist our franchisees with adoption of new technology and systems. We have an intense focus on innovation, and the adoption of new programs and tools by franchisees is critical to achieve the ROI on the initiatives.
We restructured field support during the year, creating two separate teams—BrightStart and field support—to provide resources to franchisees with different skill sets based upon their needs to grow sales or operational and leadership needs (we will discuss the strategy behind and implementation of the BrightStart team and the split of support resources into three teams—BrightStart, the support center, and field support—in chapter 9). We hired an additional regional field support director during the year (to replace the one who moved to the new BrightStart team). We also added a BrightStart sales specialist to split preopening responsibilities into operations and sales activities. This role is responsible for the sales activities in the preopening stage as well as supporting the sales effort in the franchisees’ first four months.
We also created a new position in response to the difficulty for our franchisees in accessing capital. We added a new position—franchisee finance services director—to assist franchisees with reviewing cash flow and breakeven and with accessing capital. This employee was promoted to a vice president in 2010 and is most definitely a “Top 10” in our organization based on his performance and ongoing contributions.
Lastly, in 2009, we added a director of international operations. This employee resides in Canada, where our first two master franchisees opened in 2011. We invested in a dedicated role so that the resources support-ing our domestic franchisees were not strained, and also to dedicate time to understanding the international markets and to ensure that we had a strong investment in supporting our international masters with someone who had experience in homecare in Canada, Australia, and the UK.
Technology Additions/Changes:
We added a quality assurance analyst to our technology department, bringing the team up to seven people.
Administration Additions and/or Changes:
We added a vice president of marketing and franchisee on-boarding, a director of marketing, and a second marketing and communications coordinator (separating the roles so that one would be focused on print and the other on search engine optimization and search engine marketing). With the rebranding initiative under way, it was time to make a bigger investment in our marketing team. Again, we had people wearing multiple hats, and this was the year to narrow each employee’s focus. By adding three positions, which included a leadership role, we were able to provide more support, initiate competitive marketing programs, and start tracking and setting goals around key metrics of brand awareness.
We added a full-time dedicated trainer as the manager of learning and development.
We added a senior vice president of global sales. (In late 2010 we would have J.D. once again assume leadership over domestic franchise sales and have the president of BrightStar Care assume national accounts, using the dollars to invest in 2011 into incremental positions for international sales and national accounts.)
We recrafted some roles within our finance team, which already had a controller, an accountant, and an accounting clerk. As we started to see the need for more detailed analysis, we promoted our accountant to financial analyst. We backfilled an accountant role that would also support franchisees in the use of the accounting software used system wide.
We also added another franchise sales director (salesperson).
We added our first dedicated human resources position, a human resources manager, as well as some key administrative help to support the rest of the organization, including a paralegal and an administrative assistant.
Summary:
The large investments in marketing and the support center, and the investment to launch the BrightStart program, dramatically improved our ability to support our franchisees.
In summary, at the end of the year we had 45 employees, including J.D. and me, supporting 114 open franchisees. One of these employees was dedicated to international expansion efforts.
2009 Recap:
Open Locations:
- 140
Open Franchisees:
- 114
Staff Hired:
- 18 (total staff: 45)
Functions Outsourced:
- Legal is fully outsourced. Expected partially in house 2012.
End-of-Year Organization by Category:
- Franchisee Support: 17 (16 domestic and 1 international)
- Technology: 7
- Administration: 21
2009 Key Metrics (significant cont’d investment—positive impact starts 2010):*
- Revenue per $ of payroll: $2.11
- Revenue per employee: $217,920
- EBITDA per employee: $25,009
- EBITDA as % of revenues: 11%
*Costs for director, international operations, and revenues from international expansion excluded.
2010
We began 2010 with 140 locations open, and by the end of the year we had 198 locations open. We began the year with 171 locations sold and ended it with 244 locations sold.
In 2010, we dramatically expanded our technology team and made some key shifts in roles, particularly on our senior leadership team, and began laying the foundation for supporting multiple brands. When I envisioned multiple brands, I definitely wanted to leverage the efficiencies and economies of scale of having certain functions that were shared by all brands—buying the services in a chargeback manner based upon usage—such as human resources, finance, marketing, franchise sales, learning and development, clinical support, and technology. During the year, we promoted three vice presidents to senior vice presidents and built detailed two-to-three-year plans for their opportunity to move to C-level positions (i.e., CFO, CMO, etc.).
We also increased our investment in human resources with an upgrade in talent from a manager to an assistant vice president of human resources, recognizing the higher-level skills needed in the role to support succession planning and a stock option plan. We have had minimal (less than 5 percent) turnover of our top and/or not easily replaceable employees in the past three years. That said, with an improving economy we want to ensure that we can dedicate more time and resources to employee development, so we maintain a low turnover rate for our employees who are exceeding expectations.
The additions and/or changes for the year included the following.
Franchisee Support Additions/Changes:
With the investments in 2008 and 2009, no further positions were added in 2010.
Technology Additions/Changes:
We doubled the technology department by adding the following positions in 2010: a vice president of technology (promoted to senior vice president before the end of the year), a project manager, four developers, and a second quality assurance analyst.
Administration Additions and/or Changes:
After the large incremental additions in 2008 and 2009, we made no additional hires and also reduced one member of the senior leadership team related to restructuring franchise sales.
Summary:
At the end of the year we had 51 employees, including J.D. and me, supporting 140 franchisees. We added seven during the year but had a net employee count gain during the year of six after the restructuring of franchise sales.
By the end of our fifth year, our 51 employees were aligned by department or function as follows:
Franchisee Support:
- Sixteen domestic franchisee-dedicated positions across field support, BrightStart, national accounts, preopening, and the support center (or one employee for every nine franchisees and every 12 locations). The size of this group and their breadth of talent are engaged holistically to constantly improve franchisee unit economics. For some franchisees, this will mean additional resources and/or support are required, and for others proactive support to transfer out of the system by selling their business. With shared goals among these employees centered on continuous improvement in franchisee performance, the cross-functional team is working together to offer the right type of support at the right time to achieve the best outcome for the franchisees.
- One dedicated international operations director
Technology:
- 14 in technology
AdmInistration:
- 5 in franchise sales
- 11 in finance/administrative/executive/human resources/contract administration/learning and development
- 4 in marketing
We embraced the magic wand and invested heavily in support. I use the word invested because we consider adding staff an investment, not just an incremental expense. It was certainly a leap of faith, but we soon began to see that we made the right choices. We had revenues per dollar of payroll higher than those of most of our peer group, as shown in the audited financial statements included in every franchisor’s filed FDD. That came about because we were helping our franchisees drive higher revenues, so our revenues rose in turn. We see greater opportunities to accelerate our franchisees’ results and our own with the large number of technology enhancements that will be completed in 2011.
2010 Recap:
Open Locations:
- 198
Open Franchisees:
- 140
Staff Hired:
- 6 (total staff: 51)
Functions Outsourced:
- Legal is fully outsourced. Expected partially in house 2012.
End-of-Year Organization by Category:
- Franchisee support: 17 (16 domestic and 1 international)
- Technology: 14
- Administration: 20
2010 Key Metrics:*
- Revenue per $ of payroll: $2.37 (improvement; 2011 projected above $3.50)
- Revenue per employee: $233,603 (improvement; 2011 projected above $350,000)
- EBITDA per employee: $53,762 (doubling over 2009; 2011 projected $150,000)
- EBITDA as % of revenues: 23% (doubling over 2009; 2011 projected 40%+)
*Costs for director, international operations, and revenues from international expansion excluded.
Linking Pay to Performance
The ability to inspire a team is critical in the early years because you don’t have excess dollars to drive performance through monetary reward. Actually, I don’t believe that money is what drives employees, as long as they feel they are compensated fairly for what is asked of them. This is at the crux of building a great team.
That said, however, you get what you pay for. Just as you can’t buy a Lexus for the price of a Taurus, it is equally unlikely you will get and retain an A-level player for D-level compensation.
Compensation Philosophy
At BrightStar we benchmark wages annually and subscribe to resources such as FRANdata’s Annual Compensation Study, which provides the low, average, median, and high wages and total compensation for the most common franchise positions. We decentralize our BrightStart and field support teams to have them nearer to their franchisees and reduce travel times and costs. This philosophy makes the regional data available in compensation studies less relevant to us, but for those systems that require all personnel to work from the corporate office, then regional or local pay data will be an important data point to evaluate. The study also breaks down those figures by food and non-food categories and by the size of the franchise system. We want to make sure we have our star players at the high end of the compensation range. With our average field support director’s salary double the median recorded in the FRANdata Annual Compensation Study for non-food, we get what we pay for—an average of 15 or more years of experience and experience in franchising, staffing, or home care.
I don’t believe in across-the-board merit increases or one-size-fits-all investments in professional development. I believe that A-level players have demonstrated their ability to contribute, and they have gone the extra mile by meeting every deadline and exceeding every goal. This high-quality talent is a critical part of our success. A-level players should make up 20 to 30 percent (hopefully) of the employees in most organizations. I recommend directing company funds toward these top employees—both for increased compensation and professional development.
It’s okay to not increase the salaries or invest in the professional development of average players or lower-performing players. This frees up more money for the high performers. If you factor a 3 percent increase in wages into a budget, then a handful may get 10+ percent increases and double that number may get 0 to 2 percent to offset it. Every employee has the opportunity to hit his goals and meet his deadlines; when everyone does, I will be thrilled to increase the wages by a lot more than 3 percent. In a performance-based culture, you are rewarded on results, not tenure, popularity, or likability. Some employees thrive in this culture, but others don’t because they are not accustomed to this degree of accountability.
Driving and Rewarding Results Through Accountability
We have a specific process in place to ensure that collectively, as an organization, we have identified our A-level players. Annually, sometimes more often, the senior leadership group force ranks the entire organization. We invest heavily in the top 20 percent with formal succession planning, professional development investments, and increased stock options (we will discuss these later in this section). We review for each employee what possible career paths could be available and match that with the employee’s interests. We then assess the hard skill and soft skill “gaps” and build a plan and allocate dollars for the employee to remove the gaps to prepare for the next role. We have several success stories where quantifiable goals were defined that an employee could achieve to move to the next level. I may have expected one employee to take 12 to 18 months, but because she knew the opportunity, she drove harder and faster to accomplish the goals (resulting in significant increases in leads for our franchisees and new business) in six to eight months. We also have committed to a plan by which, as our revenue per dollar of payroll exceeds $4.50, we will extend formal succession planning and professional development programs further into the organization, reaching our top 50 percent.
To build a culture of shared success, you have to decide whether you are willing to share your profits with the entire organization. Employees are often supportive of decisions to not receive bonuses (that doesn’t mean they have to like it) when they see that the company didn’t achieve its goals (i.e., meet or exceed its budget). Your employees have to know that they and the company are in it together. In the early years when we had financial losses, we didn’t give bonuses. Once we began growing royalties, we looked for opportunities to implement bonus programs to share BrightStar’s financial success.
Bonus Programs
In 2008 we achieved full-year budget goals and paid annual bonuses to all employees based on each employee’s position in the company’s hierarchy. The same bonus program was in place in 2009, when we did not reach our budget goals, and no bonuses were paid. That decision, while executed according to the budget policy, tested the company culture collectively and our employees individually as to whether they were committed for the long term or the short term.
In 2010 we invested extensive time in researching and building an accountability-based bonus program that calculated and paid bonuses quarterly. Bonuses were variable, based upon the extent to which the company achieved its budget profitability. We used a good, better, and best budget approach, in which revenue goals increased between levels (details about this budgeting approach are covered in chapter 8). Each employee has four goals, each worth 25 percent of the bonus opportunity, with two that can be accomplished individually and two that are shared with others—amongst the department or between departments.
Line employees and managers have equal opportunity in this program, the amount increases for directors and VPs equally, and again, at senior leadership levels, the amounts increase. The program comprises two individual goals and two department goals that are mutually agreed upon by the employee and manager (and then are reviewed and approved or sent back for revision by the senior leadership team). This motivates your A-level players in particular—no matter what their position in the company—because their engagement level to meet goals directly results in their earning potential. Frequently we see the dollars paid to a few line employees exceed those paid to directors, VPs, and, occasionally, a member of the senior leadership team.
In our accountability-based bonus program, goals are selected that increase franchisee revenues and/or decrease franchisee and corporate expenses, or improve franchisee satisfaction (which is the best way to increase the sales of new franchises), thus meeting the company’s budget.
Benefits Package
In addition to ensuring that we are paying at or above the higher end of the salary scale for top performers and offering a lucrative quarterly bonus opportunity when the company does well, we look for other ways to share the company’s financial success. For example, in August 2010 we increased our health insurance employer contribution, which increased our monthly cost of health insurance by $5,000 per month. We increased the contribution for employees to 70 percent (up from a flat amount based on position within the company) and added a contribution toward spouses/partners and children for the first time ever, of 50 percent. We also decreased the time period required before the company’s contribution to our 401(k) program kicks in, beginning January 1, 2011, and in January 2011, the short-term bonus pool opportunity for the “good” budget results was doubled.
Stock Options
In 2010, we reorganized all of our entities under a C Corporation in preparation for the launch of our stock option plan in January 2011. I asked each member of my senior leadership team to pick his or her “Top 10” in the entire company, to force-rank within his or her own departments, and to rate as a T, M, or B all other employees. For every employee in the organization, we would know if each was or was not a “Top 10,” how each was rated as a T, M, or B, and how department managers force-ranked each of their people. The T (top) designates top performers who are critical to the organization and whose replacement would take approximately one year to perform at or near their level. The M (middle) designates solid performers whose replacement could be functional within six months. The B(bottom) designates those whose replacement could quickly get up to speed within a month.
I assign stock options to all employees based on our high-performance, high-reward culture. As with bonuses, sometimes line employees have more options than their managers, and some directors have more options than VPs. The achievement of quarterly goals under the quarterly bonus program, to recognize those who achieved a higher percentage of their goals, and the rankings were used to determine the initial number of options granted to each employee. Again, since there is an opportunity to award future stock options, with the consent of our board of directors, both new employees and existing employees who increase their contribution or their role within the organization have continued opportunity to share in the potential increase in the value of the enterprise, as we may consider an initial public offering in the future.
The valuation was made as of December 31, 2010, by an independent third party recommended by our law firm. Future valuations, prior to any IPO, will be made using the same methodology. This program allows employees to have an opportunity to share in an IPO event when or if our valuation is higher than when they received options, without having tax consequences until they actually take action to buy the underlying shares (which is known as exercising the option).
Succession Planning
We prepare a formal succession plan for our “Top 10” to help them objectively see exactly what is needed for their future roles. In addition, our top performers receive a professional development investment allocation to build the skills necessary for them to perform future roles. We are investing heavily in the professional development of these employees, including IFA’s Certified Franchise Executive certification. We are planning to allocate additional dollars once the company’s productivity reaches $4.50 of revenues for each dollar of payroll (selected based upon its correlation to when we will achieve EBITDA as a percentage of revenues of 60 percent, considered by those I network and benchmark with as the best practice standard) to perform this formal succession planning for another 15 employees, bringing the total to 25 employees, nearly 50 percent of the organization.
BRIGHT IDEA:
Ultimately the goal of building a high-performance, highly accountable organization is to build a culture in which employees are empowered and rewarded as owners.
I want my employees to be able to execute our plans without needing or wanting me to approve each step. If an employee needs to wait for her boss’s approval, a bottleneck is inevitable. You need to make sure that all employees understand your strategy and your budget goals and then empower them to make the decisions and take the actions to deliver those results.
Weed Out Poor Performance
Equally important—quite frankly, this is even more important—is the review of the bottom 20 percent. This is critical for two reasons: First, top performers don’t want to work alongside or be held back by weak performers. If you don’t weed out the employees who are missing deadlines, exhibiting poor attitudes, pushing work to other departments, and not meeting goals, your A-level players will either (a) get fed up and leave or (b) stop performing like A-level players. Second, employees who do not fit into your high-performance culture will be happier and fit better elsewhere. In any event, you and your organization will be better off without them. I say this because we all want to be nice, especially to those we like, but leadership isn’t about being nice. It’s about being able to make the tough decisions that are for the “good of the whole.”
Annually, I look long and hard at the employees noted as “B” (bottom) performers and ask myself and my senior team if the organization would be better without those individuals. If the answer is yes, clearly they need to go. I review my senior team in the same way twice a year, rather than annually, because a weak link or bad culture fit in leadership can derail the entire organization if left to fester.
Another important question to ask in evaluating your “B” players is whether you would hire an individual again for the same compensation you are currently paying him.
The real key is to make improvements so that the number of employees who don’t meet one or both of these tests declines year to year. For example, at the end of 2009, we had five employees who were assigned a “B” (bottom) rating andhad failed both of these tests. We took steps to remove them from the organization (after meticulously documenting poor performance and missed deadlines), and they were gone a year later. At the end of 2010, we had a strong organization rowing together with only one employee who was designated a “B” and failing both tests. The important distinction is that being a “B” in and of itself is not bad, as there are many roles that contribute to the organization but still could be transitioned to a new employee relatively easily (or in less than one month).
The organization has become stronger due to at least three personnel development strategies: (1) We have hired better as we focused on hiring for attitude and assessing for skills that we will need in two years; (2) we are investing in our talent with better bonus programs, benefits, and stock options; and (3) we have built a culture aligned together, with 50 percent of the bonus opportunity being tied to shared goals with other employees (within or among different departments). Employees are rowing together to not let one another down. Employees prioritize the shared goals and have a higher achievement rate on them than they have in the other 50 percent that are individual goals. This has built camaraderie. The bonus program design is discussed more fully in chapter 8 to assist you in considering a program with equal weighting between individual and shared goals to build accountability while also building a team culture.
Closing Thoughts
Early on we invested heavily in the infrastructure, and now we are beginning to grow into our capacity. We will continue to add field support positions annually and a few key positions here and there. We made the hard choice in 2008 and 2009 to add 17 and 18 positions, respectively, when most others were downsizing because of the weakened economy. We pushed forward to increase the tools and support we could make available to our franchisees.
We have begun laying the foundation to support additional brands. We thought this through from multiple vantage points in 2010 when we realized that within three years (by 2013) we would be sold out domestically in the BrightStar Care brand because all territories would be sold or committed to as part of a development agreement. In a mature brand, we wouldn’t be able to keep departments such as franchise sales, learning and development, BrightStart, and preopening, since they serve franchisees only at the beginning of our relationship or only occasionally. Only by adding future brands that require each of these shared functions, which are engaged most of the time, can we make these same shared functions available on the rare occasions when our BrightStar Care franchisees need them. For example, if a franchisee wanted or needed to sell her business, she would need help from the franchise sales team, and if she had employee turnover, she would need learning and development to train the new team member. By continuing to plan ahead for future growth through new brands, we retain exceptional talent and ensure that our franchisees will have available the resources they need, though very infrequently, when they need them.
· · ·
An organization is only as good as its people. Our team is the single biggest factor in our success. Whether you choose to franchise your business or not, you have learned some key guiding principles on attracting, developing, and retaining top performers. You learned how to implement a process to continually upgrade the talent of your organization. You probably have a great team in place, but these examples will hopefully help ensure that you remain focused on this critical priority. With a great team, it is important to focus on engaging and retaining them by driving and rewarding accountability
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