Tax Tips 2013 Third Quarter

Tax Tips 2013 Second Quarter

Fueling organic growth in your franchise territory.

A stable and continually executed local marketing plan to build clientele is one of the most important elements in maintaining a successful franchise, and goes a long way to fostering a strong, mutually rewarding relationship with the franchisor.

Although the franchisor will always have a proven (hopefully!) marketing plan for new and existing franchisees to follow, that marketing usually concentrates on developing the franchisor brand across multiple territories, much like a regional or national campaign to develop brand awareness; the responsibility to build local loyalty and growth remains with the franchisee.

The work of the franchisor to build brand recognition across the larger, possibly national landscape is a valued complement to local marketing efforts, but can’t replace local, grass-roots engagement.

In my time as franchisee of a restaurant franchise chain, our target market was children, the idea being to get the food into the mouths of the children so that they would evolve as ambassadors in the homes and sell the parents on the product.

This was a good local campaign, but just as politicians today still resort to the tried and true method of face-to-face contact with voters, so franchisee owners need to extend this type of effort to other opportunities to engage customers in their territory, such as public events, sponsorships, business relationships and partnerships.

This is difficult to do, however, because of the way the franchisor prefers the franchisee to operate – the franchisee (or spouse) should be in the restaurant operating it and making sure that everything runs according to the manual and to optimal operating standards.  Also, as many franchisees reading this know, there’s not a lot of energy left after committing the time and energy to operating the unit as the franchisor desires.

Marketing is a full-time job, from the planning, to the relationship building, to the execution and ordering of materials – all components in the local marketing plan take time and energy.  Franchisees need to, therefore, develop a system to allow one of the partners to concentrate on this area, while the other focuses on operations, with some assistance from good, proven assistant managers.

So from one (past!) franchisee to another, here’s what any good local marketing plan for any franchisee needs to include:

1.   Relationship building

Many franchisees do not do any local marketing.  This will not result in failure for the franchise unit, because (assuming a strong franchisor brand), the national advertising of the franchisor will carry sales for the franchise unit and provide a living.

If a franchisee is in this business, taking the risk, working the long hours, to earn a living, then that’s a decision within their prerogative.  However, exceeding average sales and surmounting the inevitable inertia consumers have towards purchasing a new brand involves disciplined, strategic options, such as relationship building.  This is done in many ways, including:

- Introduction to local businesses.  Finding ways that your product . service helps businesses; provide discounts to businesses in your area.

- Chambers of Commerce. Establish relationships with other business owners who may be part of your target market.

- Identifying any other place your target market may be, and establishing relationships with those people.

The intent of establishing relationships with the right people is to establish trust.  Once the trust is established, then you’re 90% of the way to securing new customers.

If you think about it, in most cases, unless you’re in a transactional business, where someone needs something now and they’re going to make a relatively quick purchasing decision, selling the product or service to someone is going to be predicated on a foundation of trust.

This of course takes time, but the intended result is a higher quality pool of clients because of a relationship based on trust .  When someone trusts you, the value component of the product or service you’re offering will be enhanced because they attach your strong values to the product/service.  Strong sales and loyalty naturally follow.

Contrast this with a merchant – customer relationship based on price.  For example, someone enters the store and inquires of the price.  After finding out, he shops around and determines that your price is the lowest, so he purchases from you.  TO use a metaphor of boiled water, the relationship is relatively cold because it really has had no time to warm up.  With no trust and no attachment, the customer will change vendors as soon as he can find a lower price.

Unless your billing for each sale is high (in which case it’s in your best interest to make the sale), the benefits of such a customer relationship are limited.  Without time to establish trust and value, this person will probably hunt for your lowest price, will never turn into a referral champion, and may, in the long run, use up more or your business resources than add to them.

2.  Target the right type of customer

In the food franchise arena, anyone who breaths and eats is a potential customer; I’m not suggesting that you profile among people.  Rather, it’s advantageous to concentrate local marketing efforts among a demographic, locale, or other criteria which you can identify as having the highest probability of your return on time and money invested.

Take the focus on children that we had.  We concentrated our efforts on school programs and, yes, sponsorships on sports teams.  We knew that the parents would be there at the games, and considered it strategically viable to host various parties for the players and their parents so that the food would get into their mouths.  And, of course, they never left without a coupon for the next purchase.

Regardless of your target  – or emphasis – market, there are venues to which those people will congregate.  So the idea is to emphasize where they are.  A shotgun approach will probably result in under-performing benefits.

3.  Discipline

A local marketing effort of course takes time.  The benefits really only start to accrue when you have an established place in the community (ie: many people know you’re there).  They subconsciously know that your name will be at public events and locations.

When this happens, people start to refer because your name is on their mind.  At the beginning when financial resources are more limited, local marketing and “get-the-name-out campaigns are word of mouth and take time – you can’t substitute eye-to eye contact for a mailer.  This takes a lot of time from the franchisor, who may need to get back to the store until midnight and then get up early the next morning to take the kids to school.

I’ve had competition that executed local marketing efforts well, which forced me to do the same.  Our franchise benefited from local efforts, but it was a substantial investment in time and, eventually money.  However, the money was only spent when it was there, and once spent, we were careful to track the success of each marketing dollar spent.

The fact remains that local store marketing will drive sales and future growth.   Ongoing marketing efforts can “protect” your boundary from possible future competition moving into the area, since your name is at least known to people in the area, and the competition are going to have an uphill battle wedging in to the influence that you’ve created in the minds of both existing and non-existent (soon-to-be) customers.

 

The Optimal Revenue model for driving tech ventures.

The quest to turn your idea into money, a career, or a successful exit can result in some important foundational tasks left unattended.  It’s commendable to work hard and strategize correctly to bring your business into reality, but soon it comes time to introduce VC’s to the strategy.  You may not get to where you want to go without them.

Take the point at which you’ve gone through a Series A round, you’re through beta, the bugs are out and you’re ready to mobilize, scale, market, distribute and otherwise disrupt the market.  Although the product is ready to go, doing the marketing and penetrating your target market takes lots of more money, backing, support, and still more discipline.

In an effort to spare you the utter devastation of multiple VC funding denials, get ready before you go in front of them by having thought through your optimal revenue and compensation models.  Why?

The revenue model is obviously important because it tells them how you’re going to get this thing off the ground and profitable, and the compensation model is necessary because it tells them that the strong management team on board is going to be motivated to see this thing through.

Necessary components in the revenue model

Let’s assume that the VC’s you get in front of are pre-disposed to what you’re doing (ie: the product is the right fit for their fund), so they’re already interested enough to assess it’s viability, the team, and overall prospects).

If you’re not monetized yet with a strong backbone to facilitate consistent, graduating revenue (with a wide traction base), consider backing up and re-working your previous funding options, such as angels and other primary investors.   A monetized idea goes a long way with VC’s.

Absent this, your revenue model should:

Be realistic

Forget pie-in-the-sky numbers and instead show sustained, justifiable revenue increases year-over-year facilitated by a pre-requisite sustained effort to grow your traction base  (increased, sustained traction resulting in an increasing revenue base).

Remember that the numbers, the strategy and the execution will all be a reflection of the ability of the management team to bring the venture to financial fruition.  A great management team combined with a revenue plan containing leaks and irrationalities will possibly capsize a VC funding.  Sure, the VC’s want to see 30% revenue increase year-over-year, but only if it’s ../Tax-Tips-2012-Third-Quarter/feasible.  The VC’s need to see a high probability of success in the revenue model; the only real variable in the equation should be the management team’s ability to execute consistently and successfully, and the experience of the team will cover off this concern in the minds of the VC’s.

Be consistent and confident

The VC may, if he/she hasn’t heard of your venture, say no on principal and see if you’re serious enough to work for the funds’ money.

If you’ve been able to get an introduction to the VC from someone in your network who has pre-emptively lobbied your venture, you may not have to worry about this.  However, sometimes your first intro is a cold one – the only prior knowledge he/she has about you is your business plan and what other people are saying.

You’ve heard and read everywhere that the 30-90 second elevator pitch needs to be refined; what’s worth repeating here is to not verbalize the mechanics of the venture during the pitch, but rather a quick, 3-strike penetrating message:

This is the problem – 10 seconds

Here’s our solution – 10 seconds

What the solution provides – 10 seconds

The venture’s activity over the next 6 months – 10 seconds.

 

Put a solid, confident pitch out there.  Don’t say too much because the more you talk, the greater the tendency to get into the mechanics of the venture, which the VC will get to in due course, but not now.  They’re smart and don’t need you to explain everything.  The key is to sell yourself -  as confident and able to disrupt the market you want to penetrate.

Also make sure that the activity for the next 6 months is reasonable for where the venture is at the moment.  If you get it right, it shows reasonability, a well thought-out plan, and adds to the confidence picture you want to portray.

Local, national, international

These parameters get blurred with the globe one URL away, but the message is to penetrate a manageable space, secure that space, and then scale.  Relaying this to the VC will again show a reasonable plan for penetration and growth.  So you emphasize, for example, hitting the west coast market, then once your metrics show viability and sustainability, you venture our nationally, etc…

Showing the VC a structured and manageable plan lowers the probability of failure and attests to the ability of the management team to do things right.

These are just a few highlights of what I think you should have ready when you go before a VC to get funded at this level.  Above all, your ability to show confidence and exude ability and trust will go a long way to get their money and business support, which may be the key to your own success.

2012 Tax Checklist

Tax Tips 2012 Fourth Quarter

Tax Tips 2012 Third Quarter