Franchised businesses constitute 40% of the retail economy. Find out whether franchising might be right for you or a client.

1. Should Your Client*
Franchise?
Franchising as a Growth Strategy
Presented by
Mike Baum
Sophia Consulting LLC
October 18, 2011
TO MABC – MADISON, WI *Or you?

2. Sophia Consulting LLC – Mike Baum
My Life in Franchising
• 1984-1994: Chicago management consultancy
specializing in franchising
• EVP/general manager 1991-1994
• ~1000 new franchise programs, + redesigns &
studies
• Among my clients:
•Culver’s •Britannica Learning
•Jimmy John’s •Sterling Optical
•Hyatt Legal Services •Mobil Oil
•Texaco Europe •Valvoline
•Pollo Campero •Farmland Industries

3. Sophia Consulting LLC – Mike Baum
Franchising Today
• 40% of all retail sales - 10% of the U.S. GDP
• >75 different industries
• >900,000 franchised businesses
• Directly employ 11 million
▫ 21 million total jobs
▫ 14% of private sector employment
▫ $661 billion in payroll – 11% of total US payroll
• >$1.53 trillion in revenues
• >$2.3 trillion in total economic output
Source: the iFranchise Group

4. Sophia Consulting LLC – Mike Baum
Franchising Thrives
On Recessions
Franchised jobs increased
12.6% versus 3.5% for other
businesses
Franchised payroll increased
21.6% versus 15.4% for
other businesses
Output increased by over 40%
versus 25% for other
businesses
Franchised establishments
grew 18.5% versus 15.9%
for other businesses
Source: The iFranchise Group

5. Sophia Consulting LLC – Mike Baum
It Isn’t Just Fast Food
• Restaurants only 25%
• Retailers
• Direct sales
• Services
B-to-B B-to-C
•Consulting •Law firms
•Advertising •Medical, health
•Placement •Hotels
•Internet related •Lawn & home services
•Tax prep & accounting •Home meals, senior care
• Manufacturing

6. Sophia Consulting LLC – Mike Baum
What Is a Franchise?
• Contractual arrangement between franchisor
and franchisee to run a branded business
• Original “virtual company”
• Should be win/win
Franchisor gets… Franchisee gets…
•Accelerated growth •Proven business
•Minimal capital requirements •Training
•Motivated unit management •Brand name
•Operating leverage •Support & collaboration
•Ideas •Network power

7. Sophia Consulting LLC – Mike Baum
Legal Definition
Name
System
Franchise
Fee
Franchise Fee
Royalty
Advertising
[Product]

8. Sophia Consulting LLC – Mike Baum
Name Name
System = Franchise System = Trademark
License
Fee Fee
Distributor
Name Name
Business Dealership
System = Opportunity System = Agency
or License
Sales Rep
Fee Fee
Joint Venture
Source: The iFranchise Group

9. Sophia Consulting LLC – Mike Baum
WA ND
MN ME
SD WI
MI NY
IA
NE NH
IL IN OH
UT
RI
KY VA
CT
CA
OK NC MD
SC
AL GA
TX LA
States having no franchise or
FL business opportunity laws
Hawaii
States having franchise registration
laws
States having business opportunity
Legal Regulations Vary
laws
States having both franchise
registration and business
opportunity laws
Source: The iFranchise Group

10. Sophia Consulting LLC – Mike Baum
Growing by Franchising vs. Owning
PRO CON
• Time (faster growth) • Limit to income (vs. all
• Capital from franchisees revenues)
• Unit management • Quality Control [Myth]
• Reduced risk • Litigation [Myth]
• Less focus or staff on • Good relations with
daily operations franchisees take work
• Organizational leverage • Starting a(nother)
new business

11. Sophia Consulting LLC – Mike Baum

12. Sophia Consulting LLC – Mike Baum
Ways to Think About Franchising
• Means of distribution
• Source of capital
• Organizational structure
• Management incentive plan
• Liability shield
• Risk hedge
• Portfolio management
• International option

13. Sophia Consulting LLC – Mike Baum
So…Should My Client* Franchise?
Depends…
• Goals • Type of business
▫ Really fast growth? ▫ Individual operating units?
▫ Competitive pressure? ▫ Value in branding?
▫ Quick exit? ▫ Trainable?
▫ Captive distribution? • Personality
• Capital ▫ Control freak?
▫ Accessible by client ▫ Detail & service oriented?
▫ Amount required per unit
▫ Financeability of unit
investment
*Or I?

14. Sophia Consulting LLC – Mike Baum
Should Your Client* Franchise?
Maybe…
• Goals • Type of business
▫ Really fast growth? √ ▫ Individual operating units? √
▫ Competitive pressure? √ ▫ Value in branding? √
▫ Quick exit? ▫ Trainable? √
▫ Captive distribution? • Personality
• Capital ▫ Control freak?
▫ Accessible by client  ▫ Detail & service oriented? √
▫ Amount required per unit √
▫ Financeability of unit
investment √
*Or you?

15. Sophia Consulting LLC – Mike Baum
Should Your Client* Franchise?
What is s/he* trying to accomplish?
• Capitalize on intellectual • Beat the rush?
property? ▫ Remember frozen yogurt,
▫ Maybe trademark licensing is fast lube, & eBay stores
simpler • Create a captive
▫ But is ancillary service distribution channel?
important to the integrity of ▫ Remember Pepsico
the brand?
• Grow a really great idea
• Sell products?
▫ Maybe just sell to retailers
fast?
▫ Now you’re talking!
▫ Can be hard to get shelf
space, mindshare
*Or you?

16. Sophia Consulting LLC – Mike Baum
400+ stores 400+ stores
Founded 1985 Founded 1921

17. Sophia Consulting LLC – Mike Baum
Components of a Franchise Program
• Feasibility study
• Strategy & structure
• Franchise agreement & offering circular
• State franchise registrations
• Area/subfranchise agreement(s)
• Operations manual(s)
• Training materials & agenda
• Franchise brochure
• Franchise marketing plan
• Franchise sales process/training
• Franchise sales video
• Site selection process/manual
• Web optimization plan

18. Sophia Consulting LLC – Mike Baum
•Mike Baum – mhbaum@gmail.com
•The iFranchise Group – iFranchise.net