| Market Trends from page 53
greater insights. For instance, the companies in the sample took, on average, 33
months to break even; the longest period
was more than five times the shortest.
Certainly it would be a compelling
marketing message for brands with the
shortest period to break-even to emphasize
that fact. Franchisors with above-average
performance data should, and are, moving
from a defensive mindset regarding FPRs
to a marketing advantage mindset.
Who can blame them? After all, unit
financial performance always has been the
number-one thing prospective franchisees
want to know, and it’s the single most relevant indicator of franchisee health a franchisor can monitor.
Since the arguments against their use
are not persuasive and there are definite
benefits in providing this data, I think it is
reasonable to predict that FPRs are coming on fast. And it’s about time.
Darrell Johnson is president and CEO of
FRANdata, an independent research company
supplying information and analysis for the franchising sector since 1989. He can be reached at
703-740-4700 or djohnson@frandata.com.
| Technology That Works from page 15
tribute our sensors,” says O’Reilly, to help
drive a wide array of analysis software
tools that reside there. Unfortunately,
there is a dark side to all this frothy innovation. As more and more data and software applications migrate to the web,
O’Reilly warns there is a real threat that
ultimate control of most of those applications and data may become centralized in
the hands of a few large technology companies. “We need to watch that,” he says.
Fortunately, those who believe that
everything that is new is not necessarily
better can take solace in the prediction
that the revolutionary tool that made the
web possible, the web browser, will most
likely be around for a long time to come.
The reason? Despite the fact that the web
browser is “so nineties,” the tool is such
an entrenched part of the web experience
for users across the globe, it makes no
sense to reinvent that wheel.
“There’s really no incentive,” says
Mark Andreessen, co-founder of
Netscape, the company that created the
web browser that has played a pivotal role
in the emergence of the web.
—Joe Dysart
| Metrics That Matter from page 16
5)Do I qualify? Prospects want to know
if they meet basic qualifications so they don’t
waste their time responding to your concept.
And they’re a waste of time for you too if
you don’t at least list initial financial requirements. Flurries of emails and phone calls
from individuals who can’t afford your
$300,000 franchise make little sense. Let the
interested reader know up front if your success profile dictates strong management
and sales skills, an engineering or mechanical aptitude, or prior food service experience. Remember, buyers want to be prescreened so they can investigate franchise
opportunities that may be the right fit.
Boost your performance now
It’s easy to measure results to ad copy and
headlines, especially with the online measurement tools that provide you with real-time
intelligence ( e.g., copy version “A” converted
40 of 500 page visitors to leads, an 8 percent
conversion rate, while copy version “B”
converted 110 of 550 page visitors to leads,
a 20 percent conversion rate). The payoffs
in greater ad performance are particularly
important in today’s tight marketplace.
—Steve Olson
| Cover Story from page 25
doesn’t do as well, when in fact, franchisors
that make FPRs are far less likely to get
sued for common law fraud than those
that don’t. In reality, an FPR (and compliance statement) provides an effective
means to refute a prospect’s alleged
reliance on statements made by franchisor employees engaged in the franchise
sales process. For example, a prospect
would have a hard time proving that he
relied on a statement made by the franchisor’s salesperson that the unit in question would earn $1 million in gross sales,
when the published FPR shows an average unit volume of $250,000. Therefore,
it is our view that making a legally compliant FPR may be the best protection
against the very liability that franchisors
are concerned about.
Exemptions under the Amended Rule
The Amended FTC Rule also provides
exemptions for certain transactions, which
means that the FTC Rule, including
those parts that pertain to an Item 19 FPR
may not apply.
• Existing outlet for sale. If a franchisor
wishes to disclose only the actual operating results for a specific outlet being
offered for sale, it need not comply with
the Item 19 requirements, provided the
information is given only to potential purchasers of that outlet.
• Sophisticated investor exemptions. The
Amended FTC Rule creates three exemptions, collectively referred to as the “
sophisticated investor exemptions”: 1) the large
investment exemption, where the
prospective franchisee makes an initial
investment totaling at least $1 million,
excluding the cost of unimproved land;
2) the large franchisee exemption, in
which the franchisee (or its parent or any
affiliates) is an entity that has been in business for at least 5 years and has a net worth
of $5 million; and 3) an exemption for
franchisor officers, owners, and managers, which exempts certain franchise
sales to qualifying officers, owners, and
managers of a franchisor.
In creating these exemptions, the FTC
acknowledged that “franchising today
often involves heavily negotiated, multi-million-dollar deals between franchisors
and highly sophisticated individuals and
corporate franchisees with competent
counsel.” In the course of such deals,
prospective franchisees often demand
and obtain material information from the
franchisor that equals or exceeds the
FTC’s disclosure requirements.
• States with franchise registration laws.
Generally, states that require pre-sale registration of the FDD do not recognize the
sophisticated franchisee exemptions. Those
that do, such as California, Maryland, and
New York, which recognize in some form
sophisticated or experienced franchisee
exemptions, require that the franchisor file
for and be approved for the exemption.
