My entrepreneurial outlook was shaped in 2002 when I read Rich Dad, Poor Dad by Robert Kiyosaki and Sharon L. Lechter (2000), after which J.D. and I attended one of his conferences. The conference forever influenced my concept of the power of a strong team—both internal and external. Robert had an amazing partner who he had brought on to help him dramatically expand; he had an amazing event coordinator; and he had a host of advisors-consultants to whom we had access and who really added a lot to the conference from a content perspective. The key to Robert’s real success, as he himself acknowledged, was the strength of the team he had formed.
I knew that over time our success would similarly be enabled, enhanced, and sustained through building a strong team, both internally and externally. In the previous chapter we looked at the key elements of building and retaining a strong internal team. In this chapter I want to hit on a few key areas where an external team can create a breakthrough: (1) form and leverage a board of advisors; (2) find and utilize functional experts to bridge the gap where you don’t have as much experience in managing; and (3) build strong supplier relationships for what you buy and what your franchisees need to purchase. BrightStar’s external team created a strategic advantage for us.
Form and Leverage a Board of Advisors
You may already have a board of advisors for your existing (company-owned) business. First, you may be asking what the difference is between a board of advisors and a board of directors and when you would use one versus the other. A board of directors generally is a voting group that helps direct the organization and is the group to whom the CEO reports. A board of directors is necessary for publicly traded companies and is also common if you have outside investors. A board of directors makes decisions and therefore takes risks in its actions, so the board members need to be protected with directors and officers insurance coverage—which can be expensive.
Since we are privately owned and have no legal reason to have a voting board of directors (other than me, as the sole managing member of our LLC and sole shareholder of our C Corporation), I formed a board of advisors to provide me with a group of individuals to help me improve on the results and strategy for the business. You might consider establishing a board of advisors if you have no legal need for a board of directors with outside directors and therefore lack outside help in evolving your company and identifying and planning for outside opportunities and threats. This group should be focused on the franchising initiative and have specific franchising experience to offer you when you are ready to franchise your business. Building a board of advisors who have the expertise that you lack will multiply your capacity for thinking through the best ways to grow. You know your business and your industry. You do not yet know franchising.
Two of the most important ingredients in selecting a board of advisors are (1) that the group understands your size at start-up and the path you are on to become a bigger company, and (2) that each board member aligns with you from a values perspective. You need board members who put you and the success of your organization as a high priority.
When I first began thinking about franchising, I was fortunate to discover a program called Athena Power Link. This program helps female business owners reach new levels of success by providing them with a board of advisors free for one year. The program selects five or six advisors to serve on the board and trains mentees on how to prepare for board meetings and utilize board members individually and collectively. I enjoyed this experience from late 2004 to late 2005, during which time there were a few hard lessons to learn.
AVOID THIS PITFALL:
One of the hard lessons I learned was that I should be extremely cautious in hiring a consultant who was also already an advisory board member.
We did not yet know one another well, nor did I have much experience with the dynamics of a board. Though many around me warned that the consultant in question might have had an ulterior motive, I wouldn’t believe that this person wanted anything more than a potential full-time job with our company. I became somewhat dependent on this person, and then this person tried to come between J.D. and me as co-founders and demanded a third ownership of our company without any intention of putting in any cash.
The second hard lesson came at about the same time, when a franchise attorney on the board suggested that I work with his partner, offering me a “huge price break” because I was just getting started.
AVOID THIS PITFALL:
Always screen board members and negotiate with them just as much as you would with any other third party.
I was naïve and did not shop around and compare offerings from all possible suppliers of the same service. My “discount” resulted in overpaying by at least $75,000 when I compared what I would have paid either of my next two law firms. The hard lessons, though, are where I learn the best, so I set out some rules when I formed my own board of advisors.
Your board members will be in a unique position to have complete access to you and your organization’s proprietary information, so you will want to have confidentiality agreements in place and choose advisors who do not have ownership in any competing businesses. While it is not uncommon for a business owner to ask an existing vendor or consultant to serve on the board of advisors, I do not recommend hiring or beginning to buy services from a board member and then keeping that individual as a board member. It will be difficult to treat such individuals as you would any other vendor (if, for instance, they solicit you to do business or for a job) and it will be difficult to be confrontational with them to negotiate with them, so it’s better to steer clear from the beginning.
I formed my own (non–Power Link sponsored) board of advisors in 2006 with advisors that I selected. I determined to have a board with an odd number of members. (A board of advisors is a non-voting group, but you may on occasion want to take a count of the various positions, and an odd number prevents a tie.) I first sought a franchise attorney and had the good fortune of hearing a brilliant one, who also had great business acumen, speak at a Franchise Update Media Group’s annual Franchise Leadership & Development Conference. I wanted him on my team in any capacity he would offer to be until I could afford to hire him. Another member was a banker who had been on my original Athena Power Link panel. I also sought two local area franchisors—one who was a working mother at the time she had expanded her brand internationally and had 25 years of experience, and another who had been franchising for only a few years and thus would clearly remember the bumps and bruises of the early stage. The last person I approached was an executive from one of the largest franchise systems in the world who had just begun consulting. Every one of my advisors was willing to help me. I simply asked and they said yes. They had been successful, remembered their struggles or those of others, and wanted to help me. Many liked feeling a part of something that would make a difference (creating businesses and/or healthcare) or liked being part of helping a business grow without having to roll up their sleeves again to do the work.
During that inaugural year the majority of the board members contacted me privately to wisely suggest replacing a particular board member whose experience lay with a very large franchisor and whose input therefore was not useful to me at such an early stage of franchising. Just as with employees, you will most likely need to replace board members as your need for different skill sets changes or if they no longer have the time to contribute. I met with the board member privately, and he graciously acknowledged that it was difficult to provide relevant advice for the start-up phase of a franchise compared to what he had seen offered by the multibillion-dollar franchise company where he had worked.
Let me mention here that I didn’t pay my initial board of advisors because we were in the launching phase and didn’t have much money. They knew that when I could afford to pay them I would. BrightStar provided lunch and reimbursed travel for each of the four annual meetings in the first few years. As we became profitable, each board member received $500 per meeting attended. I also looked to increase my board of advisors as we grew and faced new opportunities. In 2010, for example, I added the president of another franchise company, who is an expert in consumer marketing. I recommend seeking others to help you in areas where you do not have the expertise as you expand your organization. (For other resources to supplement your knowledge base, see the section titled “Find and Utilize Functional Experts” later in this chapter.)
My board was very supportive and challenged my thinking, but I knew I wasn’t leveraging them as much as I could. I had experience presenting to a board of directors in my corporate life, but I had never had to run the meeting or been ultimately accountable to a board, so I needed to develop this skill set. At the IFA’s Executive Leadership Conference in October 2009, the guru of managing boards himself, Ram Charan, was one of our speakers. I began putting the key ideas from Ram’s book, Boards That Deliver ( Jossey-Bass, 2005) to work, including ensuring that the board clearly understood our strategy, our brand positioning, and our competitive landscape as well as defining the information they needed to advise me better. In addition, I committed to presetting the agenda for the full year, using the main topics from the book such as strategy, organizational structure and evolution, information, competitive assessment, and succession planning. I also increased my frequency of communication to include a monthly e-mail listing of the key activities that had occurred in the prior month, so the board was well informed about the changes in the organization and were ready to hit the ground running at the board meetings. These changes really made—and continue to make—a huge difference in our overall effectiveness.
BRIGHT IDEA:
I believe so strongly in the value of having a board of advisors that we recommend the same practice to our franchisees and provide them with an instructional video to assist them in forming their own boards.
Though I don’t think any of our board members would ever use knowledge of BrightStar’s proprietary intellectual property and secret business initiatives in a way that was not in the company’s best interest, we nevertheless use a non-compete and confidentiality agreement specifically crafted for a board of advisors. It is simply good business practice to protect against any potential harm, just as it is good practice to have non-compete and confidentiality agreements signed by employees (where allowed by state law) and social media policy guidelines signed or acknowledged by both employees and franchisees. It is better to be safe than sorry.
We have benefited from having a few trusted franchisees as informal advisors, too. Before you get too far along in the process, discuss with this small group of franchisees a communication or a new program and gauge how it will be received by all franchisees. You will also be able to confide in these franchisees to gauge how pending employee changes will impact and be interpreted by other franchisees.
Find and Utilize Functional Experts
I have a CPA background, so I understand finances and banking. As the CEO in my organization, however, I must also manage other key support areas such as technology and human resources. To handle these areas well—speaking the same language and accomplishing what needs to be accomplished—I have needed a “translator” to help me ask the right questions and set the right expectations in these areas.
BRIGHT IDEA:
In each area where you do not have prior experience and therefore cannot adequately evaluate the performance of those you manage, you should learn enough to do so or hire a consultant/advisor to help you.
I didn’t begin using these resources until after we had nearly 100 franchisees, when we were nearing royalty self-sufficiency. Although I could have started working with one or two consultants a year earlier, and wish I had, experts are expensive. But the ROI is high and this investment is critical to reach true scalability and success.
Had I learned this lesson earlier, I would have made smarter investments in technology and been able to develop our technology department much sooner. Fortunately, at the 2008 IFA Executive Leadership Conference I met Scott Klososky (www.Klososky.com), an expert in the technology field. Scott has extensive experience in growing many successful businesses, and he knows that the two disciplines—business and technology—are sometimes at odds. I hired Scott to help me evaluate our technology tools and our team to ensure that I had the necessary ingredients to build a world-class technology platform and innovate our business by leveraging technology.
I had also never directly managed human resources and realized I also needed a “Scott” in this area to help me learn and to assess what we were doing well and, most important, what we needed to add or improve. I hired a human resources consultant recommended by my strategic coach, and we bridged the gap by ramping up my knowledge and ability to hold the leader accountable and help her with succession planning and development.
I am likewise now working with a strategic coach on a regular basis. However, this is different from my examples of hiring consultants in technology and human resources because strategy is my greatest strength. (This was confirmed when I read Tom Rath’s StrengthsFinder2.0[Gallup Press, 2007]. I highly recommend this online test to any manager in any organization, as it focuses on how to encourage, develop, and utilize every individual’s strong suits for better performance.) StrengthsFinder 2.0 defines my #2 strength as relating to others, by the way—hence the hugging.
So, if I know how to be strategic, why do I have a strategic coach? Just being able to see trends and invest in external information and take the time to review how this information may impact our business model does not mean that the best solutions can be identified alone. A great strategic coach will ask questions to challenge your thinking to help you evolve your ideas to even greater heights. It is hard for us as leaders to spend time thinking about and formulating strategy. The focus here is not on the best way to execute strategy for the organization, but to build in the resources to ensure that you are spending time on strategy. We will always find time for the tactical because, quite frankly, it’s more fun to cross items off a list than to spend hours “thinking” without necessarily having anything right away to show for it.
Great strategic coaches are best defined by their ability to formulate great questions so that you and your team can develop better strategies and own them. These coaches don’t provide the strategy—they are building a capability and facilitating a process to help the team get to the strategy. One of the best decisions I ever made was to recognize the capabilities of our Women Presidents’ Organization facilitator and begin working with her in 2008 on our strategy. We eventually brought our senior leadership team into the process and still later a broader team of about 30 people, including all field support and BrightStart members and all managers and above from every area of the company.
With a strong board of advisors, a couple of franchisees as confidants and sounding boards, a few strong external team members to supplement your knowledge in areas you are less familiar with, and a dedicated commitment to strategy through a strategic coach, you are ready to focus on developing strong relationships with your suppliers.
Build Strong Supplier Relationships
You will need suppliers for the services you require as the franchisor and for the products and services your franchisees will need. The stronger your relationships with your key suppliers, the better. Ultimately, you want to work with suppliers who will look for new and innovative ways to add value to you, but you should realize that they will go to this level of effort only if they know you value them beyond the next transaction. Our suppliers are so much more than providers of services—they are constantly on the lookout for opportunities for us. You will have an opportunity at IFA events to meet good suppliers that are knowledgeable about franchising and to ask other franchisors what suppliers they are using.
Franchisor Suppliers
In the very beginning, you will be well served to use suppliers who are experts in their field and who will deliver a higher quality output than you may be able to do on your own. For example, I would recommend working with an expert to design all training content, from the operations manuals to the training curriculum, to make sure that you structure them correctly and that they are user-friendly. If you have never worked with an expert to revise your operations manuals, any time is the right time, but the sooner you can upgrade the better—and this will spare you the expense of hiring a full-time employee or spending your own time to generate material that may not be as effective.
One of the best suppliers I ever selected and still happily use today is Fishman Public Relations. Regrettably, I overspent in the beginning by hiring a big national public relations (PR) firm that said they understood franchising but didn’t. It is critical to have a PR firm that understands franchising and that is actively involved in the IFA. At some point, you may have so many local PR opportunities that you will need a second PR resource for local franchisee PR support.
In the world of franchisor PR and national PR opportunities for the brand, I couldn’t be happier with our choice of Fishman Public Relations. Brad and Sherri Fishman are very active in franchising and attend nearly every IFA event. Both of them took me under their wing, helping me meet key people in the industry and securing national coverage for us
in the WallStreetJournal, Entrepreneurmagazine, Crain’s, and on Fox Business Network. Brad and Sherri became great mentors and were passionate about helping my brand succeed. They went the extra mile to help me network in franchising and to deliver ROI with our public relations dollars, both in finding new franchisees and in helping our franchisees get new customers.
Franchisee Suppliers
The range of suppliers you will contract with on behalf of your franchisees will vary widely based on your industry. Vendors that understand franchising work with two customers: the franchisor and the franchisee. The vendors that have not been able to progress with us as we grew did not service franchising and/or they declined to become involved with the IFA to learn franchising and to leverage it as a way to expand their business.
Franchisors generally will have much greater success in negotiating for the quality and pricing with suppliers than individual franchisees will. To execute this strategy, a franchisor needs to be able to leverage the supply chain framework laid out in Item 8 of the FDD, the section that describes the approved supplies, products, and/or services that a franchisee must buy through an identified third party or through the franchisor.
We actually took a financial risk in our earlier stages, trying to do the right thing for our franchisees by committing to large print volumes to get their individual order prices reduced. This usually isn’t a big deal as long as you continue with the same supplier, but sometimes you outgrow a particular supplier and must move on. We were fortunate in 2010 to find a great new printer. It is a decision not to be taken lightly, and I would advise you to evaluate early the types of clients that any supplier is servicing. Does the supplier service franchisors and do these franchisors have thousands of locations? You do not want to be the supplier’s largest client at some point and have to change because they cannot handle the volume.
AVOID THIS PITFALL:
Changing printers is difficult on everyone involved and expensive, so do your homework and make your decision the right one, the first time.
In many cases, franchisees can get their Uncle Phil or some other relative to print brochures and produce promotional items with the logo for cheaper prices. The franchisor’s primary role, however, is to protect the brand, and that means balancing quality and price so that customers see only high quality. Of course, mandating quality will cause the price to be higher than if there are no quality standards in place.
BRIGHT IDEA:
Franchisors should select and mandate the use of any suppliers who will assist in positively and consistently presenting the image of the brand.
Another supplier relationship that franchisors should absolutely foster involves access to financing. Up until 2008, franchisors could remain uninvolved in the franchisees’ need to access financing because home equity loans and small business loans were readily available. Times have since changed, and every franchisor must realize that the only way to continue to grow is to continually develop, nurture, and promote financing sources for their franchisees. We have taken a very active role in presenting our business model to multiple lenders and trying to streamline the process for our franchisees as much as possible. There are great supplier relationships that can assist with this: For example, in our first year we ensured that our brand was on the SBA Franchise Registry. Administered by FRANdata, the process includes an FDD review to ensure that all provisions meet the guidelines for the underlying business to be eligible for SBA financing. As soon as we learned about Bank Credit Reports, we began ordering them for our brand. A Bank Credit Report is a brand-specific evaluation that details the key areas of growth and risk for the brand, its competitors, and the industry as a whole that bankers are concerned about. We have used them for years with banks to assist franchisees with access to financing. (Both the SBA Franchise Registry and the Bank Credit Reports are available through FRANdata.)
We were the first franchisor approved for a credit facility through Franchise America Finance, which makes SBA financing available to start-up or expanding franchisees. The credit facility allowed us to know that there was money set aside for our franchisees and allowed us and our franchisees to know the conditions necessary to be approved, including credit score, liquidity, and net worth. We have taken an active role in making financing available to our franchisees, including adding a position to our franchisee support team. Since most franchisees don’t “speak banker,” we hired an ex-banker with franchise operations experience to bridge the communication between bankers and the franchisees, and to assist in the challenge of accessing limited available capital.
Ron Feldman, the founder of Franchise America Finance, says that “in today’s capital access environment, when franchisees are seeking financing, your FDD is not your friend.” You need a lawyer who understands that there is potential growing tension between providing useful business information about franchise systems to lenders and to prospective franchisees, and that separate rules may apply to each of those groups. You need a compliant process to provide information directlyto banks in a format that they need to make lending decisions—they want more than what is in most franchisors’ FDDs (especially since most franchisors still do not include any Item 19 information in their FDDs). Also keep in mind that, because of regulations regarding financial performance information, you are unable to provide any financial performance information to a prospective franchisee beyond what is in Item 19 of the FDD. Your franchise lawyer should understand how important it is to assist you in finding a solution to this dilemma.
You will have numerous suppliers for areas such as payroll processing, credit card processing, office supplies, computer equipment, job boards for hiring, etc. Regardless of the product or service your system requires, the approach you take to ensure the best quality and pricing for your franchisees can be enhanced by following these guidelines:
- Spend time helping suppliers understand your vision so you can pre-negotiate volume discounts for a declining pricing structure as you achieve certain volume levels. This prenegotiation will also mean that you won’t have to keep going back to the supplier as your volume increases, because the next one to two years of projected volume levels were already prenegotiated.
- Secure a most-favored-nations clause to ensure that any other companies ordering the same volume are not getting a better price than you are.
- Mandate that any franchisee-requested modification of the product or service is submitted to the franchisor for preapproval to keep control over system standards.
Take a methodical approach in securing supplier relationships that includes identifying all the types of goods and services your franchisees are buying and then prioritizing them based on the estimated amount being spent by the entire system on each of these. Begin working your way through the list by starting with the highest dollars spent. By doing so, you are likely to be more successful in achieving price reductions for volume and, in turn, having the biggest impact in improving your franchisees’ bottom line. I’ve also found it prudent to put key supplier contracts that impact the franchisees’ profitability out to bid every two years—not necessarily to move the relationship, but to assure that we have fair prices for the volume our system is ordering.
Closing Thoughts
Building a strong team is the key to a solid business. In this chapter we reviewed some key ways to expand your thinking about the team to include the external players: your board of advisors, functional experts, and suppliers. Seek board members whose expertise complements your own and who will ask the tough questions to help your business grow. Functional experts can fill in your gaps of knowledge and make you a much stronger, well-rounded leader. Selecting suppliers in the franchise industry has nuances that selecting suppliers in other industries do not. Franchise suppliers must understand and be able to effectively service two customers simultaneously: the franchisor and the franchisee.
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You now know you need to have a strong foundation in place with a world-class FDD and team to begin selling your franchise opportunity. In the next section, we will walk through how to build a sales process, how to implement technology to streamline that process, and how to find potential franchisees and screen them so you select the best for your system.
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