Looking for a Franchise?The Good, the Bad, the Ugly

By Jim Smith and Bob Vitamante, SCORE Counselors,

Santa Barbara Chapter of SCOREwww.sbscore.org

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GOALS/Promises FOR TODAY

• An overview of Franchising– The major components– The principal areas of conflict

• Prepare future franchisees for decisions to move forward

May 7, 2014

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You will help direct today’s meeting

• This will be interactive – ASK Questions!• Where are you in your Decision cycle– Just Curious? Exploring Concept? Actually

Searching? – Goals: Have them?

• Who is today’s audience?– (Potential) franchisee?– Franchisor

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First, a little about Us

Bob Vitamante (a Franchisor)

• Olsten Temporary Services– 3rd Largest temp biz in US as a

Franchisor and biz operator– Responsible for all support

companywide– Reacquired franchises and

trained new owners & licensees

• Pinkerton’s & Select Temps• CPA with KPMG, Peat Marwick

Jim Smith (a Franchisee)

• A franchisee– Ice cream, yogurt, etc– Consulting & accounting

• A Franchisor– Development, training and sales– 0 to 22 locations in 4 years

• A business owner/operator– Printing company

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What is the franchise business?

• A business arrangement where the owner of a product/service (the franchisor) licenses another (the franchisee) to market his product or service in a defined territory following the franchisor’s guidelines.

• There is virtually no product or service that is not available through a franchise business.

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Types of Franchises?

• Product/ Trade name Franchise

– CocaCola, BMW, Mercedes

• Business Format Franchise A complete package is offered: product, trade name, operating

systems, quality standards, training, support and facility design. – Express Temporaries– Mail Boxes– Jiffy Lube– Molly Maids

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The GOOD (Pros) of Franchising

• Proven business system & track record• Name Recognition• Training & Support • Site Selection• Financing and (possibly) lower financial risk• Advertising

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The BAD (Cons) of Franchising

• Risk of investment• No Control over Franchisor support• Ongoing Franchise Fees & Royalties• No Control of Franchisor actions• Limits on Franchisee ability to change

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The Ugly of Franchising

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The Ugly of Franchising

Franchisee has little control• Franchisee wants to expand• Franchisee wants to work differently, use own

ideas, sell new products or services• Franchisee wants to sell business to others• Franchisor wants to expand• Franchisor’s Brand becomes negativeMay 7, 2014

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The Ugly of Franchising

Franchisor support is inadequate• Systems don’t work, or function poorly• Promised advertising and Branding is poor• Training is inadequate or not timely• Franchisor’s support team collapses• Royalties and fees are not adjusted ‘fairly’• Product costs rise, higher than local area

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Selecting a Franchise - Some considerations

• Demand? - Is there a product/service demand? Fad? Seasonal? Does it generate repeat business

• Competition? - Similar businesses in your area? Internet impacts? Is your product competitive?

• Name Recognition? - Is there brand recognition? How long has Franchise been in business? Any complaints?

• Training offered? Initial training? Where? How long? Online or in person? Ongoing learning opportunities?

• Support?– Advertising, Processing, Supplies, Equipment, Location and Business advice, Penalties for ‘non performance’?

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Disclosure Statement!!!! Get it!

• Franchisor background and Business Background• Litigation History and Bankruptcies • Ongoing franchise costs• Restrictions• Training• Termination Policy• Advertising• Current and former Franchises, & related associations• Earning data: Incomes per size, average income, gross

sales and geographics

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It’s okay to disagree!

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General Principle #1 Know thyself

Strengths Weaknesses Special skills & TalentsPassions Likes & Dislikes

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Principle #2 Know thy (Personal) Goals

What are your personal goals for business– To lead or to follow?– To work alone or with others?– Inside or outside?– Creative expression?– Contribute to society?– Make a living for self and family?– Very little stress? Safety?– To build?– To get rich? By when?

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Principle #3 Know thy (Business) Goals

• What results do you want?– Must be specific, actionable and measureable– Must be time bound– What is your business cycle - Daily? Weekly?

Monthly?• Why?• What needs do you want fulfilled?

If you don't know where you are going,you'll end up someplace else.

Yogi BerraMay 7, 2014

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Principle #4 Need Help figuring this out? Get a mentor!

Who or What is a Mentor?A Quick History

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Principle #4 Characteristics of a Mentor•Real life experience•Subject matter expertise•Demonstrated achievement•Cares about you and your growth•Objective, neutral•Honest and open, and knows their limits•Solution oriented•Can meet you where you are; been there, done that•'Reduced ego' - Limited personal investment of 'self'•Big picture oriented

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To Summarize

Our focus was on becoming a franchisee:– How they work and your role– Your business priorities– Your planning, goal setting, etc

Your external team – Mentors – Don’t go it alone, contact us at www.sbscore.org

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Thanks for your attentionGood Luck!

May 7, 2014