Profitability Is the Strategy: Jennifer Durham on Why Franchise Growth Starts at the Unit Level

Hey everyone, today's guest is one of my favorite people in franchising, Jennifer Durham. Jennifer's led development at some of the biggest and most interesting brands out there, including Checkers & Rally's and Hand & Stone. She's helped to open hundreds of locations, built high performing teams, and found creative ways to grow unit profitability and scale at the same time.

Jennifer, awesome to have you here.

Thank you so much Gary, and you are one of my favorite people too. So we have that in common.

Amazing. Well, I hope I did you justice there with my intro. For those who don't know you, or maybe new to your background, how did you find your way to franchising?

You know, there is never a straight path to franchising, I think. But as I look back on who I am, I think entrepreneurism was very much a part of my life. My parents started a small business, when I was in high school and that sticks with you. You remember the grit and the hustle that was required to start a business.

And I think ultimately it led me to wanting to work with franchise owners. My first franchise experience was at Checkers & Rally's. I was in the accounting team, and had been on the accounting, finance, and technology teams at Checkers... kind of growing in that role. We had been a public company that had gone private and the CEO there had tapped me on the shoulder and said, I'd really like you to come and help us in franchise development.

And what was a temporary assignment, has not been so temporary anymore. As I look back at over 15 years, working with franchisees on kind of creating their business dreams through franchising with great brands like you mentioned, like Checkers & Rally's. I went to Cooper's Hawk for a bit and then also Hand & Stone.

And I'm now in pursuit of another brand to continue that journey as well.

Yeah, that's super interesting. I guess what, what do you think is that unique finance CPA lens that you have and continue to bring to development?

Well, with regards to any franchise opportunity, to me it's very obvious that it really starts with that lens of understanding the business economics and specifically speaking the language of business, which is really accounting and finance. Right? So,

regardless of the industry, regardless of the franchise, having that understanding is really important.

Now, I had an advantage because I am a CPA and I continue to be a CPA. I worked hard to get that, so it's one of those things that I keep current. But I think it's also something that you don't have to be an accountant, you don't have to be a finance major in order to really be good at understanding the business and how to improve performance because profitable franchisees in any system are happy franchisees, and they're growing franchisees. And so to me, I was mentioning to a friend the other day, I, I always start at the bottom and work my way up with any brand, what is the bottom line? And then we can work our way up from there. Tools like Harmonyze are a really great way to make sure that you access that capability or that potential in any given location. It's hardwired in me, I can't really undo that or think differently about it. But yeah, that's the approach.

I love that and it's interesting that you say that kind of bottoms up approach? Because you've done this now at a few industries, QSR Wellness, right? You've done it and you know, while there is a bottom line, there are parallels. They are different businesses, they, you know, make money in different ways.

What have been the through lines there, right? Like what have kind of, as you transition from one to the other back, what have you taken with and what have you had to reconstruct your understanding about each time?

Yeah, so that's a really great question. And there and there is that through line. Any franchise business needs to be profitable or it shouldn't be franchise.

Let's just leave it there. So that's a very clear through line, and if ultimately you're not getting the most profitability out of any given unit,

there's always work to be done there.

Like you're never done. That's something that's always, evergreen and ongoing. In respect to Hand & Stone relative to Checkers & Rally's or Cooper's Hawk, there were wild differences in the way, they got to that bottom line number and the types of expenses, you know, in the food and restaurant business

food cost is a very relevant and important part of ensuring that you have great profitability. At Hand & Stone, very different. You know, you're delivering a service. There is no food cost to that P&L, but membership became really fundamentally important to ensuring that you get to profitability. At a restaurant business, you're profitable from day one. In a membership business, you need to hustle and sell memberships before you get there. So the businesses were really very interestingly different, and that was actually exciting for me to kind of learn that difference. I would say, every career when you look in the rear view mirror has a logical path.

It maybe wasn't so logical when I started, but I would say at Checkers & Rally's, I had been there for almost 18 years. I understood that business incredibly well inside and out. I went to Cooper's Hawk, which is a bit of a hybrid. It's a membership concept with a wine club, attached to a restaurant, and really you can only get the wine club or wine of the month at that restaurant. Fast forward to Hand & Stone, it's really at its core, it's a membership based business. And that became, you talk about the through line or that thread, you know,

to membership, to a different category. But membership being part of that, was really the path.

So I'm interested to see what's next.

Yeah, yeah, yeah. Where the line extends to how, you know, I think following that journey, right, of kind of each time, it's a little bit of a reframe of, you know, A: how the business runs, but you know, by nature of that, how you're talking to franchisees or talking internally about it, right because you know that, I really like that idea of kind of day one versus that critical mass whenever it is on, on membership, for example.

How did you walk franchisees through that and kind of get them to understand it, you know, what you were seeing in your CPA background, but kind of in what you were seeing when you were mapping out profitability? How did you get them to see it in the same way?

Well, I think first in franchising, there's a really important thing that every franchisee or franchisor has that they present to every franchisee, existing franchise owners as well as new owners. And that's the franchise disclosure document. It's often seen as a burden or something that is, just mandated a requirement, you know, kind of red tape. Done well, I think an FDD and specifically Item 19 within the FDD that covers financial performance, representations and that are shared with prospective and existing owners is a really important tool to use. In both, Checkers & Rally's and at Hand & Stone. We evolved the FDD in order to highlight performance of the units so that franchise prospective owners could really understand their potential performance and how the system was doing. And you know, in the case of a membership, how long it would take to get to break even, or, what the expectation is.

Generating revenue and performance, it's incredibly valuable to have that. And I know that there are plenty of brands that don't have a lot of detail in their FDD and I just think that the more astute investors and the more astute candidates are really requiring that. And it's become a bit of a non-starter

if a brand doesn't have a really robust and thorough explanation of performance. I think really you, you miss out on great candidates because they just don't even include you in their, potential consideration because of it. So, that is like step one, you know, have a great FDD and Item 19. If you have revenue numbers and that's all you have for your system, well then start there and then you can work your way to other areas. The next step is collecting and gathering all of the information about the franchise units from a P&L perspective. And there are lots of brands that don't collect P&L or profitability data. It's really hard to be a great franchisor without having a clear understanding of the performance of the units. Some franchisors don't operate, they're just franchisors.

They're not in the business or they don't have units of their own. And so then I think it becomes even more important to collect that information, and to have business coaches and franchise business advisors or whatever the role is at that franchisor to walk these owners through, and have that financial acumen to be able to understand performance. Performance in terms of the experience for whether it's a service or a great burger. Ultimately it shows up in the numbers and in the results and ultimately, in the bottom line profitability of each of the units. So, those would be the two areas I would say FDD, and then collecting great P&Ls and making sure that you have clarity around performance of each of your franchise locations.

Interesting. So what's cool about that is that both of those are down or upstream of development, right? And I think this is something that's come up in our conversations in the past, which is that, I think you as development leader are much more focused on systems thinking, right? And this idea of building systems that sit across the organization rather than

focusing on the next initiative in a short term way. How have you dealt with that in the past at these brands when you're implementing systems that don't just touch development, but then are interplaying with finance and operations and how do you build that buy-in and change that, and bake those systems early so that you can reap the benefits in development?

Yeah, so ultimately with respect to buy-in, business unit leaders, whether they're in finance, operations, marketing, the discipline technology for that matter, that part doesn't matter.

As long as there's a shared understanding that at the end of the day, it all starts and ends with whether the franchisees are successful. And success is measured in terms of bottom line profitability.

So that is, we talk about the connective thread or that through line, that's it. And, buy-in is somewhat easy if those leaders understand

how important and impactful this is to owners. I think that one of the things that I've understood early on, because I understood accounting and finance before I understood franchising, is that if those two things are outta whack, then you can't possibly be a great growth or development leader. And if it's outta whack, then in every discipline, whether you're you know, technology, marketing, operations, there will be no, momentum to your initiative, unless it ultimately results in improvement to the bottom line.

So to me, you know, it can all be connected to that. And sometimes it's about sharing that connection with an ops leader. So, hey, we're, we're gonna do a rollout to make sure that the guest experience was really positive. Well, if the guest experience is really positive, what does that mean for sales growth?

Or what does that mean for profit improvement relative to those where it isn't. You can draw those correlations and drive that. And again, Gary, I think that that's how you get the buy-in is by connecting those initiatives ultimately to success. And success for growing franchise brands, is growing profitability of the owners and growing units.

And those two things, they cannot be separated, they definitely go together.

I agree that they're completely together, but help me understand that a little bit because, you know, brands don't just focus on profitability. They have goals on growth, on unit growth, on sales growth, right? There are other things that they care about, and no doubt they're linked, but there's kind of a interplay between them

that's not a let's call it necessarily a one-to-one correlation where it's like, I just focus on this. So, you know, how do these brands, that have scale, that have growth, that have goals, how do they think about the interplay of, those three things of unit growth, sales, growth, and profitability with

profitability being the key, but kind of an awareness of the others as well.

Yeah, so there are systems that grow units that don't have say the attention or the focus or the rigor, you know, the discipline

to be mindful of profitability. And I think that in the moment you can cheat it a little bit. You can potentially, get your pipeline at a place where growth is happening. But ultimately, if you take your eye off the ball on profitability, it catches up with you. Because, those units don't open as strongly as you would like. Those existing owners become frustrated because their performance isn't where they want it to be. Nobody gets into any franchise concept with the notion that they're not gonna be successful and profitable. If the franchisor doesn't have that that commitment to always have profitability, top of mind

and front and center, and really a priority, then I think it becomes, you know, like I said, you can have a short term win, but ultimately it just won't be sustained. And so I think the great brands that have staying power, the great brands that get to 100, 500, 1,000 units ultimately come back to the fact that you know, take all of the noise away

if the unit performance of any given unit isn't strong and ultimately you know, those units aren't successful then growth can't happen in a long-term way. And those short term wins are followed by closures and franchise systems where the franchisees are angry and disappointed. To me it is the elixir and the cure to the franchise health is really, like I mentioned earlier, it's that connection to happiness. When you've got profitable franchise owners, you have happy franchise owners that are wanting to grow. I think of it all as being like one thing and not two separate things.

In part because of where we started this conversation in terms of the way I think

Yeah.

things. But I also know that at the end of the day, there's just so many great examples of brands that did it right, and when I say they did it right, they focused on the franchise profitability and the success of each of their locations, as being their North Star. Brands that did it wrong may grow fast, but ultimately that foundation isn't strong and things start to wobble and ultimately growth slows as a result.

That's the way I would connect those two concepts.

No, I love it. I love the laser focus from the CDO and that's awesome.

Jennifer, this has been amazing. Thank you so much for joining us, super insightful. I'm excited for this to reach our listeners, any parting words?

Yes, I have a parting word. The parting word is understand your business. Understand the performance, you know, and the P&L of your business and growth will follow.

Amazing. Thank you so much.

Yeah, absolutely. Thanks Gary, this was fun.