Day 1 of Running the Company: Sales Are Falling and Franchisees Are Ready to Mutiny

By Catherine Monson, CEO, FASTSIGNS, Carrollton, Texas
When I became CEO of FASTSIGNS in January 2009, a franchise company of 530 locations that provides signage and graphics solutions to small and mid-sized businesses, I stepped into a challenging situation.

The beloved founder and chief executive had announced his retirement and the board of directors chose me, an outsider, to replace him. What's more, they passed over the former CEO's right-hand man and the company's president, further alienating me from the company I was about to lead.

It gets worse: The company had experienced its first decline in same-store sales in the company's history beginning in September 2008, five months before I joined, and the upcoming year was not looking great. In 2009, same store sales declined 17%. Our total network sales fell from $326 million in 2007 to $267 million in 2009. Many of our franchisees were beginning to lose confidence in corporate. They complained on online message boards set up to get franchise feedback that corporate employees were enjoying four-day work weeks and pay raises while they tightened their belts and worked harder every day.

I had a huge turnaround task in front of me and then I was thrown one more curve ball: The day I was supposed to step in as CEO -- Jan. 1, 2009 -- I was hospitalized with blood sepsis, a condition that kills 65 percent of people afflicted. Fortunately I survived without losing any organs or limbs, but it was weeks before I regained my strength.

Within the first six months of my tenure, three executives resigned. Some franchisees worried that FASTSIGNS was doing poorly, prompting these executives to leave.

Needless to say, I had a lot of work to do.

I met with franchisees
As soon as I was strong enough, I scheduled a four-month, 28-city tour, where I met personally with franchisees. As a franchisor, we earn a percentage of sales, not profits; some franchisees felt that we didn't care if their locations were profitable or not. I reassured them that this was not the case and, in the seminar I presented during the 28-city tour, offered practical advice on how to improve their business models and increase their profitability. I talked about everything from how to negotiate rent with landlords and equipment costs with vendors to when to slim down staff. I spent 75 percent of my time in the first year on the road. In the first nine months I had traveled to 275 out of 475 of our domestic locations.

We created programs to help franchisees
Our 2010 business plan came out of what I learned on the road, talking with our franchisees. The primary goal was to help our franchisees survive and prosper.

First, I addressed franchisees' concerns that they didn't have enough support from corporate. Previously all of our business consultants were based in Dallas, with most of our franchises hundreds or thousands of miles away. Our business consultants' were asked to spend two weeks a month on the road. As a result, our franchises in total were averaging fewer than 40 visits a month from our business consultants. At the end of 2009, we reorganized our business consultant team, hiring new consultants all over the United States. That means the consultants can make day trips to franchise locations during the two weeks they spent at home. Now our franchises average a combined 119 visits a month from our consultants.

In early 2009, we instituted what I call "operation fast-forward," which entails sending daily e-mails to our franchise network with tips on how to streamline business operations and increase profits and sales. I asked everyone at corporate -- from VPs to IT personnel -- that when contacted by one of our franchisees they needed to be prepared to offer business advice or talk about new programs or initiatives.

I wanted to create an environment that motivated the franchisees to focus their energy on business-building activities in spite of the tough economy. For example, FASTSIGNS offered an all-expenses-paid, five-day cruise in the Caribbean to franchisees who grew their sales by 20 percent from May 2009 to April 2010. It seems to have worked: 40 locations qualified.

We tightened our belts at the corporate office
To show solidarity with our franchisees as well as to right-size the company during this time of declining revenues, we tightened our belts at a corporate level. We reduced headcount by 15 staff members. That was an unpopular but necessary decision. I also eliminated the optional four-day workweek so that franchisees wouldn't call or e-mail a corporate team member with a concern or crisis only to hear that he or she was taking a long weekend. I suspended pay increases as well as all profit sharing and bonuses and the company stopped matching 401(k) contributions.

It was tough on everybody here, but at the same time, I was putting together a plan to get our company back on its feet, and holding monthly meetings with all the staff, explaining each decision and keeping them updated on the company's results and progress. I also explained that none of these changes were necessarily permanent.

We got the company back on track
Of course, the surest way to rebuild confidence and trust was to turn our declining sales figures around, which we've done. Year-to-date, we are up 5% in same-store sales. I am happy to say that we just finished our first round of raises at the corporate level last month, and I am hopeful we will be able reinstate our 401(k) matching contributions and other benefits in the coming year.

-As told to Harper Willis

Catherine Monson is the 2009 winner of the International Franchise Association's Bonnie LeVine award, in recognition of her contributions to the growth of the franchising industry and to the professional advancement of women.
Resources:

• Read about the importance of building trust in the workplace.
• Read six tips from the CEO of Citigroup on how to transition smoothly into a new leadership position.