March 2013 Archives

We sat down with Joe Caruso and discussed franchise lending loan amounts with Joe Caruso out of Balitmore.  We talked about the current deal making environment in franchising.

We focussed on deals about the $350,000 limit.  Are things getting better, we wondered?

 

Bob Coleman: We're talking with Joe Caruso on the Strategic Committee of the International Association of Franchisees and Dealerships out of Toronto, a trade-based organization. He's also the President of the Capital Area Franchise Association. Joe, welcome; tell us about franchise lending today. What's it look like for you and your peers?

Joe Caruso: Well, at the Capital Area Franchise Association, or CAFA, we just had Steve Caldeira from the IFA in January commenting on a variety of things in franchising, but one of the most important topics was the access to capital.

Bob: Is it getting easier?

Joe: Yes, it is absolutely getting easier and the lenders that I talk to on a regular basis are saying that as well. It's getting easier for those people borrowing greater than $350,000; that $350,000 or less loan amount is still a challenge. The thing I hear recurring from originators and lenders is it costs us just as much money to originate a $350,000 loan as it does to do a $3 million loan.

Bob: Absolutely.

Joe: And the quality of the borrower, they're more organized at higher levels; they're more sophisticated; it's just easier to get the deal done and it's more profitable.

Bob: Are you seeing that the deals that are being done - are they for second and third concepts, or can we still get financing for that start-up Franchisee who's just retired on out of Boeing?

Joe: The lenders are much more interested in seasoned operators who have existing operations that want to add to their portfolio, either with the brands that they already have, or they want to add an additional brand. There's no question about that, although a lender I spoke to this week is focused on, interestingly enough, Franchisors with less than 100 locations, but more than 25; and they are willing to do first time Franchisees. And the loan amounts are just above that 350 level; they're really in the $375,000 to $500,000 loan amounts; and they're focused on that. But they're more of a niche player, and more of a boutique firm.

Bob: Great. Joe Caruso out of Toronto; thank you very much for joining us and giving us an update.

Doesn't matter what you're selling or providing, if you're a franchise owner and have a staff you have the same concerns.

How do we keep our clients (customers) or whatever you want to call them, you name it, happy and coming back? That's the big question.

Sadly there's not just one skill and definitely there are more than 3, but in order to get you off on the right foot here are 3 big ones you can start with today.

1. Listening Skills - "HUH?" "WHAT DID YA SAY?" and other caustic phases like that won't do. Every time you ask a customer what they said is a red flag to them. It simply says "I wasn't paying any attention to you."

Getting their order wrong says you weren't listening/paying attention. Sending the wrong information says you weren't listening/paying attention. And that goes for whether you're a fast food or a service provider.

Remember. We hear, but are we really listening? Are we paying attention?

2. Sympathy and Empathy - And being sure they know the difference.

* Sympathy - Sincerely feeling badly something happened and acknowledging it.

* Empathy - Understanding how a customer feels that something happened and acknowledging it.

Not acknowledging a situation is big cause for your customer to take their business elsewhere.

3. The Ability to Apologize Properly - Believe me, "SORRY 'bout that" is not an apology. When we screw up, make a mistake, or do something wrong, the words need to be, "My apologies." Not, "Sorry 'bout that."

Wrong change, wrong order, or wrong information is "MY APOLOGIES."

They say employees can only grasp 3 items at one time and for your information, it takes 21 days to change a habit. These are not overnight changes.

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Reprinted with permission of Telephone Doctor Customer Service Training. Nancy Friedman is a featured speaker at franchise, association & corporate meetings. She has appeared on OPRAH, Today Show, CNN, FOX News, Good Morning America, CBS This Morning & many others. For more information, call 314-291-1012 or visit www.nancyfriedman.com.

The term "Factoring" has gotten a bad reputation in the world of small business credit over the years.

Many small business owners view it as financing of a "last resort" and worry about what their employees or customers will think about the longevity of the business once they learn their employer/supplier has entered into such a financing arrangement.

While business owners should be concerned about how their customers perceive their business, entering into a factoring arrangement is rarely the "red flag" that many fear it will be due to the fact that factoring has become a much more common means of providing a company with access to working capital. The odds are excellent many of your customers are RIGHT NOW paying many of their invoices to factoring companies in lieu of their suppliers who have taken advantage of this valuable financing tool.

Since access to credit for small business owners has contracted over the last several years, it has become more challenging for small businesses to obtain traditional credit lines. Many lenders reserve these facilities for only their "best" customers, which are often defined as those who have strong profits, increasing revenue trends and high balances on deposit.

Financing may still be available to these strong companies who also have "hard assets" to pledge as collateral. These are often defined as property, plant and equipment. In other words, if you own a business with good profits and stable revenue trends and have equity in a commercial building filled with valuable equipment, you may qualify for a small business loan. However, if a business owner operates out of rented space and provides a product or service which does not require much in the way of equipment, small business loans can be elusive.

Factoring can be a convenient alternative to businesses which cannot meet today's stringent criteria for small business loans but have a strong base of customers. Under most factoring arrangements, the factoring company ignores the financial condition of the client and strictly focuses on the credit quality of their customers.

If the customers are creditworthy, there is an strong likelihood a factor will be interested in "factoring" the accounts receivable. When factoring a receivable, a business sells the right to be paid by their customer to the factoring company in order to receive the bulk of the amount due (usually 75%) shortly after issuing the invoice, with the balance, less a factoring fee, remitted to the business once their customer makes payment to the factoring company.

Fees can range from 2% - 5% of the invoice amount for each 30 days an invoice is outstanding. In other words, if a customer typically pays their invoices in about 40 days, the business would take on average about a 3% discount on their invoices in exchange for the factoring company advancing 75% of the invoice amount shortly after it is issued.

Like any industry, there are also unscrupulous factoring companies out there. It is important to ask for references and to Google the name of the factoring company you select to see what, if any, complaints are out there. Many factoring companies are run by long-time veterans of the business and are often the best choice with which to develop a financing relationship.

While many business owners fear what they do not understanding, the truth is that factoring can provide businesses which cannot yet qualify traditional bank financing with the working capital bridge they need until they can meet the standards for traditional business credit lines.

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Chris Lehnes is a 20 year veteran of the small business lending industry. He has held positions in commercial loan documentation, credit analysis, operations management and business development at one of the country's largest small business lenders. Currently, Chris is a Business Development Officer at Versant Funding where he provides non-recourse factoring to businesses in a wide variety of industries with annual revenue from $1 - $50 Million. You can reach Chris at 203-493-1663, [email protected], or www.ChrisLehnes.com

Menu Testing - In Real Time

Menu testing is a vital aspect of any food service business. To attract and maintain customers, restaurants must ensure the menu meets their customers' expectations and is continually evolving with new, innovative choices. Menu R&D should be a creative but efficient process, with the two-part goal of creating value for both the business and the consumer.

As food prices continue to rise, finding ways to cut costs without sacrificing quality is especially urgent. R&D projects can determine how to utilize already available materials and equipment to create new menu items, as well as cutting out unnecessary steps that might be reducing efficiency and wasting money.

However, new menu items will have zero value for the business if its customers are not on board. Customer feedback is an essential aspect of R&D and is at the forefront of the entire process. Consumers are evaluated during the first step when researchers analyze market trends and focus groups to identify what's popular and what's important to consumers. They are evaluated again at the final step when potential new menu items are tested in the restaurant.

Though it can be enormously beneficial, R&D is costly for businesses in terms of hiring professionals and creating testing facilities.

Introducing new menu items can be a financially risky gamble if you're not confident new menu items will be well-received.

Make sure the time, effort, and financial cost is worth it by using a system like ours here at On The Spot to gather feedback directly from customers. Rather than estimating what consumers want through market research analysis, why not eliminate guesswork and save steps by simply asking them directly, in real time?

While you're starting to think of the answers to all these hard questions, here's some more food for thought:

The Small Restaurant Advantage

So, if all this time goes into Menu Testing, why is it that smaller restaurants are usually the ones that have the best new items that really excite you?

There's a small pizza place across from our office building in Boston - they specialize in, well, pizza and there's only about 20 seats in the whole place. But, that doesn't stop them from coming up with a new pizza that will really knock your socks off- using ingredients you didn't think would taste good together and ones that you'd never picture on a pizza.

What's so cool about this place is that they have great food and it'll cost you about as much as a Subway sandwich at lunchtime. So, how do you think they do it?

Thave the advantage of operating with a very small gap between the company and their customers. The time between introducing a new menu item and being able to gauge the customer's approval or lack of enthusiasm is miniscule in comparison to a conventional restaurant chain with many locations all rolling up to a corporate decision maker.

In this highly competitive industry, food is still the most valuable asset in attracting new customers. Bring your customers into the conversations you're having during the menu testing process. Remember that the industry experts you have at the corporate level can't substitute for actual feedback from guests. To your guests it's not all about what hot new ingredient is stirring up chefs in kitchens across America.

Your customers are the only people who can tell you what you're doing right and wrong with a new dish.

And, if you use a location based menu testing platform, you can identify patterns in different markets across the county.

If you don't get close to your customers on a location to location basis, you're losing out on valuable insights that can guide you towards a new approach that will throw the "one size fits all" menu type out the window.

Get accustomed to accepting feedback and critiques of your menu items at the local level- don't worry if the aggregate national data doesn't show much. For example, if customers in Idaho think the new pasta dish is too salty, and customers in Maine think the dish could use a little more salty richness, don't average the two together and decide not to change the dish. Use the local menu testing feedback to better inform the chef and staff at each location how they should adjust the dish to be more appealing to the market where their customers live.

Franchise Examples

Domino's Pizza introduced a successful new pizza recipe in 2009. Tate Dillow, Domino's "Chicken Chef," attributes the success to customer feedback. He suggests, "Find out what's in their heads. We actually asked them and we found out our pizza wasn't good. We had a challenge we needed to fix. Once we did that, we started selling twice as many pizzas as we used to."

Most people would strongly prefer the taste of a fresh, oven-baked pizza made from a local shop over one made of highly processed ingredients. Domino's will always lose to local stores when it comes to taste, and therefore those stores (or the concept of eating at local shops) are major competitors to the brand.

Luckily for Domino's they still have the advantage of their price and convenience- elements of a business that can be standardized for greater returns at a national level. So, you can see that there are different approaches to menu testing based on a restaurant's business model- larger chains that thrive from sales related to low prices and high convenience don't necessarily claim to compete on the taste scale- they make a pizza that's appealing to the majority of consumers and stick with it.

But, if you really want to get the maximum value in menu testing, try taking it down to the local level to help guide the decision making process.

Incorporate R&D questions into the mobile menu testing survey that you already give customers at your restaurant. After they've weighed in on their dining experience, continue the survey with specific questions about what they like and do not like about your menu, as well as more general questions about their personal food preferences.

Your R&D team can use data gathered from customers' responses to come up with new, innovative menu items that you can be sure your customers want - no focus group needed. This allows larger chains to compete with those small, boutique restaurant concepts- being in touch with the local flavor can make a big difference at the national level too.

During the testing phase, add survey questions regarding the potential new menu items. You'll hear directly from customers about how they liked the items, with valuable feedback on what to improve or whether to scrap the items completely. Keep in mind that adding a new dish to the menu in only the part of the country that responded positively is okay too- use the data you gain from the menu testing process to rationalize the decision at the corporate level.

Conclusion

So, I challenge you to think twice before adopting a one-size fits all menu- when you listen directly to customers on-location you're getting a more accurate idea of what your customers want and what they think of your menu, greatly reducing the risks associated with introducing new menu items and saving significant time and money.

The other day, someone asked me, "What's Customer Experience, Nancy?"

They had not heard the expression yet. And as I went on to explain, I realized it's not just one item, it's many things. How can you put the entire 'experience' into one word? Not sure we can.

And since 'customer experience' seems to be the new hot buzz word of the day, we wanted to share a few of the tips that will help make a better customer experience for you and your customer. Common sense that they are, they're not often done.

1. "No problem" is not a substitute for the gold standard of "you're welcome." "My pleasure" or "glad to help" will save the day and make a better customer experience.

2. "Sorry 'bout that" is not a replacement for "I apologize." When an error occurs, "sorry 'bout that" won't work. "I apologize" always helps make a better customer experience.

3. "Hey, how ya doing?" is not a good greeting, on the phone or in person. "How nice to talk/or see you/or meet you" brings the customer experience to the forefront.

4. Want to spoil a good customer experience quickly? Chew gum, crack your knuckles, cough or sneeze without covering your mouth and not saying excuse me. All these will ruin a good customer experience.

5. Just being 'nice' isn't going to create a great customer experience. You're suppose to be nice! Say or do something extra special to make it great.

6. Being on your cell phone or texting while helping a customer will completely ruin a good customer experience.

7. "Please," "thank you" and "you're welcome" will never go out of style. Use them often for that great customer experience.

8. Listening skills is one of the, if not THE, most important customer experience skill you can have.

9. Ownership (not passing the buck) is one of the best personal skills you can have when it comes to making a great customer experience.

10. No excuses help make a great customer experience. Excuses only say, "I'm not going to help you now."

11. We don't let the customer leave the store or off the phone until they're happy. We stick with it.

12. We stand up if we're sitting down when the customer comes into the store or we're at a tradeshow booth. We don't just stay seated. That's not a good customer experience.

13. While 13 is usually thought of as unlucky, this tip is the luckiest and I'm betting you already know what it is. YUP - smile! On the phone or in person, it can be heard. Your customers want to work with happy, upbeat people. That's what makes a great customer experience.

So you ask, what is customer experience? As you see, it's a whole lot of things. What it is NOT is brain surgery or rocket science.

There are hundreds of things that help make a great customer experience.

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Reprinted with permission of Telephone Doctor Customer Service Training. Nancy Friedman is a featured speaker at franchise, association & corporate meetings. She has appeared on OPRAH, Today Show, CNN, FOX News, Good Morning America, CBS This Morning & many others. For more information, call 314-291-1012 or visit www.nancyfriedman.com.

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