Important Takeaways from the 2014 Franchise Leadership and Development Conference

What you need to know from this year’s conference

By Thomas Scott and Joe Mathews

FLDC 2014

The Franchise Leadership and Development Conference kicked off its 16th year in Atlanta with the highest attendance it’s had since the recession — indeed, one of the highest attendance levels in its history. More than 200 franchise brands sent staff and executives to learn and share best practices. The conference remains our most recommended event for anyone in franchise development.

Peter SheahanKeynote speaker Peter Sheahan, CEO of ChangeLabs and a well-known business author, opened with this quote: “The world is changing – so must you.” The world of how franchise candidates buy businesses has already changed. We are starting to see hard evidence that what worked for franchisors in the past 20 years has become failed strategy in today’s franchise buying world.

According to Sheahan, when faced with these changes, companies and executives respond in one of three ways:

1. Lie down in a corner sucking their thumbs and hoping the change goes away.
2. Acknowledge that change is afoot and that some people are getting better results, but quickly slip back into comfortable mindset, ignoring the change.
3. Or accept that change will affect their plans, get on board and behave differently, adapting to change and turning it into an opportunity to grow.

Most of the executives at the conference this year fell into the last two buckets: those who were giving lip service to change, and those who have adapted full-bore. The results data from the “lip service group” was staggering, giving weight to Sheahan’s point that “often people can’t escape the gravity of experience, and they make bad decisions based on what used to work — rather than adapting to what others are doing that works today.”

Lastly, he pointed out “Nothing ever changes in an industry that nobody predicted. It is always possible for forward-thinking companies and people to foresee the change and adapt before it disrupts business.”

Our Top Takeaways:

#1. Lenders are putting franchisors on notice. “We are watching you.” 2014 has proven to be better than past years for most systems. FRANdata CEO Darrell Johnson said in his presentation that lenders have set in motion the measuring of statistics and key performance criteria that compare one franchisor’s effectiveness against others. The lending market, citizen journalists and business publications, and perhaps even state governments and the federal government will seize the opportunity to publish such rankings or criteria, so unskilled and mediocre franchisors have been put on notice. External forces are in motion, and they are only likely to increase over the next several years. More people are looking at franchise ownership than ever before. While borrowing is becoming less difficult, mediocre and poor franchisors will find a time in the not-too-distant future where their franchisees’ financing sources are cut off. Conversely, skilled franchisors will find their efforts rewarded and will receive additional tailwind.

#2. The death of franchise sales and rise of franchisee recruitment: There appeared to be two distinct philosophies about onboarding franchisees: franchise sales and franchisee recruitment. Franchise salespeople talk about “closing deals,” “handling objections” while using traditional “sales speak.” They listen for whether or not candidates are “qualified” and “ready to buy.” Franchisee recruiters approach their job distinctly differently. They primarily view their task as “to help both the franchise candidate and franchisor to determine fit.” They ask more; they pitch less. They solve problems instead of handling objections. They coach, educate and facilitate; they don’t sell. They accept responsibility for how a franchisee that they onboarded performs, where a salesperson would say, “That is operation’s problem.”

These two groups had radically different ideas about franchise lead generation, franchise sales processes, franchise skills and the strategies a company uses to achieve a development goal.

Franchise sales is a dated philosophy that is horribly out of sync with how buyers want to research opportunities. Franchise buyers expect transparency and prefer to control the sales process. They don’t trust salespeople, and recruiting is far more in line with the way they want to invest. In today’s market, recruiters post higher results, and we expect this trend to continue because it is consistent with how people buy.

FranData#3. Slow growth ahead: Darrell Johnson, CEO of FRANdata, gave his annual “state of the economy” speech and predicted a few points about the years ahead:

2014 was an incrementally better year than 2013, and the next three to five years will also have incremental, gradual growth in the number of franchisees onboarded. If your chain is to experience a breakthrough, it will most likely be at the expense of other chains, rather than from an influx of new buyers.

Don’t expect much growth until after the 2016 elections. The last two years of any two-term president’s term are rarely explosive growth years. We shouldn’t see much growth until 2017 or later.

Lending is up a healthy 26 percent from the previous year, and credit requirements are starting to loosen up. Lending may get back to more normal levels in 2015.

Franchisors may need to develop more transparent data and KPIs banks can use to better gauge risk. Continuity is an important statistic that few companies use: How long is the average tenure of a franchisee, and what’s the churn rate? This statistic is core to what banks want to know: Companies with a low churn rate are less risky.

Consumer and CEO confidence levels are increasing and evening out. This might indicate increased hiring and expansion as CEOs get more comfortable with the market.

Franchise unit growth is still slow. It spiked after 2012 but is still below pre-recession levels. Any growth is better than no growth, but we still have a long way to go.

#4. While credit markets loosen, some franchise candidates will struggle with financing. Despite high levels of interest, some franchisees are unable to obtain financing, which keeps them out of the market. Factors FRANdata presented include:

☻ 34 percent of the workforce has no savings set aside for retirement

☻ As of 2014, student debt adds up to $1.2 trillion with more than 7 million former students in default. These young people, many of whom are open to business ownership, are unable to get financing because of student loan debt and defaults.

☻ Small business loans decreased from 35 percent in 2008 to 24 percent in 2014, as an overall percentage of business lending. Entry-level loans to the typical new franchisee are still hard to come by.

#5. Out with the boomers and in with the Millennials: Johnson also shared some facts about the Millennial generation, which will affect every franchise system:

As record numbers of Baby Boomers retire, Millennials are the fastest-growing segment of ownership. Often Millennials buy resale units rather than opening new locations, which will affect growth goals for most brands over the next decade.

Nearly 60 percent of Millennials consider themselves entrepreneurial. These Millennials don’t expect or want traditional corporate careers, and franchise ownership may be more attractive for many of them. The universal availability of Obamacare or ACA health plans give many people freedom to pursue business ownership.

A shockingly high number of Millennials are already self-employed. Johnson said that 27 percent of Millennials already are in entrepreneurial positions. These people are the future of franchising. To put that in perspective, on Feb. 6, 2014, Career Builder published that 6.6 percent of the total workforce was self-employed, so we may see an entrepreneurial breakthrough in the not-too-distant future.

#6. Baby Boomers are retiring. More than 20 percent of this enormous generation is already older than 65, and large numbers of them will retire over the next decade. This is adversely affecting many franchise systems, because Baby Boomers often decide to shut down their operations, even when the businesses are sustainable and profitable. Doug Dwyer, CEO of DreamMaker Bath and Kitchen remodeling, echoed this, telling us about two franchisees in his system who retired and shut down operations rather than renew. Expect this trend to continue: You will have a higher number of resales and transfers as the number of Boomers older than 65 increases. This will affect your ability to grow in new locations, so plan on devoting more resources to handling resales, and consider developing exit plans for franchisees far in advance of their retirement dates.

#7. Franchise recruitment websites are the single most important component of franchise development: The franchise recruitment website has evolved into the single most important factor in your ability to grow. It is essential in today’s market to have a separate website focused on educating your audience of potential franchisees. This isn’t a new trend, but the data on how important a separate website is keeps adding up. Despite this common knowledge, there was confusion among more than a few of the executives who were hiding in the corner, hoping this trend goes away. Here are some stats:

Forty-three percent of franchise brands are still using a page on their consumer site for franchise lead generation, despite clear data that this isn’t effective. As John Teza, CDO for Jersey Mike’s said in his panel, “Not having a separate franchise recruitment website guarantees that you will underperform.”

Only 43 percent of separate franchise recruitment websites are built for mobile devices, despite the skyrocketing number of mobile users.

Sixty-five percent of franchise recruitment websites lacked information about the cost and fees of the franchise. Based on the lead generation work we do with dozens of franchise brands, this the TOP QUESTION candidates ask, and not listing it keeps people from opting in. Popeye’s CDO and chairman of this year’s conference Greg Vojnovic theorized that some companies do this because the salespeople fear that candidates won’t opt in if they get the answers to too many of the basic questions. We have tracked this in our lead generation efforts across many brands, and the hard data suggests that the more information you put out there, the higher the sales result. Takeaway: Put costs and fees clearly on the homepage and in several places throughout the site.

We’ve often written about how the first conversation a salesperson has with a candidate now happens on the internet. Your salesperson has essentially been fired from this portion of the process.

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#8. Website conversion rate is the single most important statistic in franchise sales: How do you measure how good a franchise recruitment website is? One measure: What is its conversion rate — which is the number of unique visitors divided by the number of leads and phone calls you received.

There was lots of discussion about this important metric at both the CEO summit and during the lead generation panel. CEOs appeared to have a typical conversion rate of 1.4 percent — meaning from 1,000 visitors to your site, 14 leads would result. One CEO indicated when his site has a 3 percent conversion rate, his team would celebrate the milestone. This year’s Lead Generation report stated that the average conversion rate for the small percentage of companies that track it was 5 percent. This conversion rate was dismissed as faulty data by some members of the panel because none of the panel members were close to attaining this number. At FPG we know that not only is 5 percent conversion rate attainable, but that it will emerge as the new target for performance for all franchise opportunity websites.

Franchisors should rethink celebrating a 3 percent conversion, they should divert resources and personnel to discover and resolve why 40 percent of their potential leads are now new leads for other chains.

Here is a general rule of thumb:

Websites that convert

4 percent of unique visitors or higher are generating highly engaged franchise leads.

3 percent to 4 percent are “preaching to choir” and converting only those who would have converted anway.

Less than 3 percent are ACTIVELY WORKING AGAINST YOU, KILLING POTENTIAL DEALS. This website should be burned to the ground and the franchisor should start over.

At Franchise Performance Group, we build and manage franchise recruitment websites and ongoing lead generation for many franchise systems. Our websites, for companies such as Menchie’s, Marco’s Pizza, Chem-Dry Carpet Cleaning, TeamLogic IT, Midas, Huddle House, PostNet and a variety of other brands generate conversion rates between 4.2 percent and 11.6 percent, without diminishing lead-to-close ratios.

When you evaluate what type of recruitment website you want, use “unique visitor-to-lead” conversion rate as your primary metric and select a vendor that can demonstrate high rates from multiple sites. If the vendor cannot prove to you that they have a track record of converting 4 percent of unique visitors or more, don’t use them.

#9. Content is king: When franchise candidates look to invest in a franchise, they are engaging in a highly emotional and complex process. They don’t want to be hyped or sold; they simply want information they can trust. Art Coley, former CEO of AlphaGraphics, was spot on when he said, “The franchise buying process begins way before our phone rings.” He stated candidates often visit AlphaGraphics franchise opportunity website many times before opting in. In his view, the more transparent you can be with content that helps a candidate learn the specifics about your opportunity, the better results you will produce.

FPG believes franchisors must make a compelling case why their business is unique, profitable, sustainable for the long haul, necessary to customers, and will offer the franchisee not only a good return on investment, but meaningful work. FPG believes franchise opportunity websites should be in an article format with long, scrolling pages, video, infographics, detailed brand storytelling, articles and interviews with franchisees — these items increase engagement. The more engaged your candidates are when they opt in, the faster they will complete an application and possibly buy.

We find the winning formula for a franchise opportunity website is 20 percent design//programming and 80 percent content. The content must be meaningful and informative. Franchisors need to avoid what they believe to be catchy phrases and hype, like custom apparel retail franchise whose agency crafted the tagline, “Own a franchise that fits you like a T.” Sophisticated investors will be at best completely unimpressed and at worst will roll their eyes and scratch you off the list before they get the rest of your story. Sites dominated by catchy phrases and skimpy content may as well have placed a flashing neon banner alerting franchise candidates, “Leave our site and buy another franchise, because we don’t get it.”

#10. Rise of mobile: Do you know what percentage of visitors to your recruitment website are viewing it on a smartphone or tablet? The average franchise recruitment website had 34 percent of its visitors from mobile devices in 2013, up from single digits in the years before. This year, we saw the number increase to 54 percent. Fifty-four percent! That means that the majority of franchise candidates are not viewing your site from a desktop or laptop computer.

This change has serious design implications for your franchise recruitment website.

Mobile visitors are much more likely to use a phone number to opt in — sites should be one click on a mobile device. Sadly, few sites even have telephone numbers, and when they do, the recruitment department has no process for capturing data. FPG recommends using an answering service to capture contact information.

Phone leads from mobile devices now make up 25 percent of leads for most of our sites, and they appear to be closing at a higher rate than those who fill out web forms. While there are often customer complaints and solicitors mixed in with the leads to filter through, there are also highly engaged candidates.

Because franchise sales teams initially found themselves fielding and routing calls outside their job responsibilities, we found that using an answering service solved that problem.

Viewing a website on a smartphone or tablet is very different than viewing it on a desktop. Many franchise recruitment websites are not built with responsive HTML. “Responsive” means that the website elements automatically resize to fit the different mobile screen sizes. On a typical responsive / mobile website, the content stacks vertically so you can easily see the content by scrolling down. We build all of our clients sites this way.

#11. The impact of response times: The faster you can call a candidate, the larger your pipeline will be. In the CEO summit, we overheard this comment: “The new business standard for call response time is now one-half of a business day.” If a lead fills out a form at 8 a.m., you have a MAX of four hours to respond, or by noon that day. If a lead comes in at 4 p.m., the lead expects a call back by 11 a.m. the next morning. That doesn’t mean franchisors need to wait four hours, but if you don’t call back in less than four hours, you are wasting your company’s advertising dollars, and you’ve guaranteed that you will underperform. Two FPG clients won the first-place STAR awards this year for fastest lead response: Christian Brothers won first place for best website lead response, and PostNet won fastest telephone response and most thorough internet lead response.

#12. PR firms will be judged on franchisee recruitment results, not story placements: Franchisors using PR firms should track PR effectiveness according to the cost of acquiring a new franchisee. Many PR firms don’t want to be held accountable for bottom line franchise lead generation results and cannot produce hard data such as leads generated, lead-to-close ratios, numbers of franchisees recruited directly from their work and the cost of recruiting a franchisee. They prefer to use traditional PR metrics — impressions and placements.

PR is an attractive spend for many companies, but when you pull sales data, it rarely produces the result most CEOs want. We often advise clients to spend on PR after they have organic lead generation sorted out and are generating good results. It isn’t a poor advertising spend, but it shouldn’t be the first item on your list. If you insist on using a PR firm for development, work with one that reports on leads generated; we haven’t yet found one that does.

#13. Franchise salespeople underperform, again: There is no way to say this nicely. Every year, the mystery shop of the brands that attend the Franchise Update Leadership and Development Conference produces gut-wrenching and horrifying results. This year’s mystery shop produced some of the worst performance we’ve seen, and we should all be ashamed. Our salespeople are not performing at an acceptable level, and something has to change. It isn’t a market problem. It isn’t a lead problem. It is a problem with your salespeople. Every company in this mystery shop understood they were going to be shopped, and they still performed poorly.

Here’s the data from the report:

  • 63% of salespeople in the mystery shop NEVER CALLED THEIR LEAD.
  • 36% never emailed the prospect. Not even with an automated email.
  • 65% of the ones that did call didn’t respond in the first 24 hours.

This year isn’t an outlier – these results were very close to other years. Even if there was a magic silver bullet for franchise development, it won’t matter if your salespeople don’t respond to the inquiry.

#14. Portals increased in 2014: Portals made an incremental comeback this year, which parallels what we are seeing in our sales results with the 20-plus brands we work with. According to the data:

Of internet leads that resulted in closes, 34 percent came from portals, or 17 percent of closes overall.

Broker networks produced 16 percent, one degree less than portals. Franchise salespeople complain loudly about portal leads, but the data suggests they shouldn’t; there are clearly closes in portal leads.

Organic search and paid search produced another 20 percent of all closed deals in addition to portal leads; this is important because it indicates that buyers doing self-directed research are likely to end up on a franchise portal.

What does this mean? We always suggest advertising with some portals, and the data backs up that portals can produce sales. They may not be the highest quality forms or leads, and it may take more leads for each close than other sources but they still are worth advertising on. If you don’t, others will.

As Sheahan mentioned, we are in the midst of change in our industry. As he also said, the change is clearly visible before it affects your business if you are brave enough to look for it. What were your takeaways from this year’s conference? How is change affecting your brand?