Heather Elrod, Managing Partner at Conscious Capital Growth

“As a franchisee, you have to work ON the business as well as IN the business.

Heather's career spans 30 years in the franchise, beauty, and wellness industries. She’s held executive positions in multi-billion dollar as well as emerging companies — most notably and recently, Amazing Lash Studios, which she shepherded from 70 locations to more than 200 in just 2 years. Today, as Managing Partner at Conscious Capital Group, she guides the firm’s investments in emerging franchisors AND leverages her experience to seek out and support growth brands. 

Join Ab and Vini as they tap into Heather’s decades of insights: Why you should study franchising at large (not just your brand!). The “franchisee death spiral” and how to avoid it. The value of giving location managers tangible “skin in the game.” The perils of overscaling. The 3 things she’d do differently. And the 3 future trends she’s tracking and preparing for.

Transcript

 Hi everyone, welcome and thanks for joining us for Stars of Franchising. Get ready for a roller coaster ride through the world of franchising as we bring you the best stories of inspiration and entrepreneurial grit and turning dreams into franchise realities. That's right Vinnie. From emerging to global brands, we'll chat with the genius minds behind the magic. All brought to you by the Tariq Farid Franchise Institute at Babson College. I'm Ab. And I'm Vinnie. Now buckle up for some serious inspiration.



 So grateful to have Heather L. Rod join us. Welcome Heather, it's good to see you and be together.



 Well hello, thank you so much for having me. We're really really excited to speak with you just because you've had such an incredible career as an entrepreneur or leader and in this intersection of entrepreneurship and franchising that Vinnie are here to talk about. So we always when we speak to folks like you with so much valuable insights, we'd love to start off with hearing a little bit about your background and your why and how things got you to franchising and maybe a little bit of the impact it's had as we lay the groundwork for this discussion.



 Yeah, absolutely. So I have had the very good fortune and blessing of being in franchising for about 30 years, primarily in the areas of beauty and wellness and business services.



 I started after my undergraduate in my 20s and kind of the lower levels of franchise operations and training and worked my way up over the years, ultimately landing in a C-suite and a CEO running a number of companies and also was able to successfully work some deals with private equity on the buy and the sell side. And then a couple of those transactions actually led the transactions without an investment banking firm, not something I want to do again, but out of necessity did that.



 Yeah, franchising has been very good to me and my family.



 I love the business model. I love helping franchisees see their dreams come true. I love the growth phase of franchising.



 I have worked with startups, growing them to scale to a point where they are able to sell and experience a liquidity event, if that's what the founders so desire. And I was also an executive at mailboxes, et cetera, when we sold to UPS and became the UPS store. And we had 4,500 locations worldwide, multi-billion dollar companies. So done the growth stage, done the large stage franchise award, love all sides of it. But frankly, I am most fulfilled at the growth stage. And I think the why is really around people. It's around the passion of entrepreneurs, particularly younger franchise systems where founders are still engaged, they're ready for that next step of growth. Often they need capital to grow, but they also need the operational acumen to get to the next level. And they're looking for that many, for the strategic advice and counsel and tactics to get to scale more quickly and with fewer bumps along the way. So that's what we do actually at my company, Conscious Capital Growth. Awesome. I'm going to kick it off, Vinny, because Heather said a few things, which really I think I want to explore. I'd love to hear, and we're all about scaling here at Babson as well. And I'd love to hear and have our audience hear about the story of when you joined Amazing Lashes. And I think that falls under the category of an entrepreneurial team that really wanted to take to the next level. Help us understand a little bit about what it was like when you got there and how you executed on the plan to scale. And what role franchising played in that for you? Sure. So I joined Amazing Lashes Studio franchise in early 2016.



 The system was young. The founders were still involved. It intrigued me one because it was in beauty, a space I know well on the business side. But also it was the leader in the segment, and it was a nascent, a new segment. And so all those things were very interesting to me. I mean, I first had to answer for myself, are eyelashes actually a business? And in fact, they are. That's a very big business.



 So Amazing Lashes Studio was really on the forefront as a franchise of bringing this beauty service to the masses in an affordable way. And so that was very interesting to me. And so when I looked at the business, I looked at the opportunity for growth and scale. I decided to join. And the founders in early 2016. So when I joined, the company had about 70 locations. We in a couple of years, in two years, grew to over 200. Wow. And yes, and created a pathway for the founders to exit through a sale to private equity. So when I joined, I knew upfront, I always asked founders, what is your goal? What is your life goal for this business? And do you have a timeline?



 And they did. They had young children and they wanted to exit within a couple of years. I knew that was aggressive, but I knew it could be done. And so we implemented a strategic plan to get there. And we did. Along the way, we also implemented a number of systems into the business so that our growth was healthy. So it wasn't just about growth for the sake of growth, but there was healthy growth for the system. So by that, I mean we put in operational support systems, training systems, experiential and online. We put in knowledge bases for the franchisees and their team members. And perhaps most importantly, we implemented a very robust business intelligence system. So we were managing multiple KPIs in real time and sharing those out through the network. And every franchise location could see the top line KPIs of all other locations. And they were segmented by cohort. So you knew within a particular stage of maturity of a location where you fit within that framework.



 Fascinating. So Heather, in your introductory statement, you mentioned a couple of times the word entrepreneurship. Entrepreneur.



 But many people out there, they feel times that franchising and entrepreneurship don't go together. That an entrepreneur cannot be in the franchised world and then vice versa. What do you say to that?



 Yes, it is often a topic of debate. This is true.



 Actually, the definition of an entrepreneur is one who organizes and operates a business and takes on a greater than normal financial risk in doing so. And so from my perspective, I think the franchisor takes a disproportionate amount of risk in starting the business if it's done properly. And by that, I mean they're opening corporate locations more than one and substantiating the business model while they're fine tuning the business model and assuring for themselves that the model works. That should always be done before a franchise is launched. So if it's done that way, then the franchisor, in fact, is the entrepreneur. I think franchisees are also entrepreneurs because they are taking risk. But their risk is mitigated because they're investing in a business model with a proven track record. I often will counsel franchise, prospective franchisees that if you really believe that you have the keys to innovation yourself and that you don't need to listen to anyone else, you absolutely should not invest in a franchise because the franchise is the business model. And if everything that I said previously is true, that the founders have proven the model, the model works, then the franchisees who sign in just should work the model and follow what the top performing locations are doing and work the model successfully. That is, in fact, what franchising is. It's cool. Before I pass it over to Ab, I'm going to piggyback on that question by asking you to share with us what you think people misunderstand the most about franchising.



 So I'd like to respond from the franchisor perspective and then the franchisees' perspective. So for franchisors, I think there's a misperception that establishing your business as a franchise is easy. It is absolutely not when done the right way. You have to dial in the operation. You have to codify the operational protocols and systems so that you know they can be replicated in a sustainable way. And to be done right, that is a challenging undertaking. And then we often find that franchisors miscalculate the level of investment that's required to start the franchise and then to scale the business appropriately to effectively support the franchisees.



 From a franchisee perspective, I think some candidates, some prospective candidates, approach franchising as a guarantee to success, which of course is not accurate. Franchising as with any business irrespective of the industry, it requires a detailed business plan, a marketing plan, the right amount of working capital, the right human capital, a strong work ethic.



 And perhaps most importantly, it's for the franchisee to get in the mindset day one of scheduling time, taking time to work on the business, not just in the business. The last thing you want a franchisee to do is buy themselves a job. That's not why you're investing in a franchise.



 Wow. Thanks, Ada. Over to you, Abba. Well, you talked about in your earlier statement too, which really struck me because we've talked to some really, really seasoned executives like yourself from the franchisor side, Heather. And they've said the same thing and they have this empathy and understanding that the franchisee needs need to be met, right? And that they have to be successful. So given that perspective as a franchisor and all that you've seen, Heather, let's talk franchisees first then franchisors. What are the best franchisees do? You alluded to what maybe they shouldn't do in terms of just working in the business. What are the best franchisees do in your mind to become the top performers in a system? Yes. If you've invested in the right franchise, meaning the model works and it's been proven before you invest it, then you follow the franchisor's business model, plain and simple. Model works work the model. That is a franchise.



 And the franchisor has the responsibility to hone that business model and optimize it perpetually, not just before they launch. So don't reinvent the wheel. Focus on your key performance indicators, the business intelligence. They always have an operational story behind them, not just yours, but those of the top performers and figure out how they're doing it and model after that.



 I think also to understand as a franchisee that you're in business for yourself, but not by yourself.



 That is the franchise network and community around you to support you. The franchisor home office, your fellow franchisees. And I encourage franchisees to utilize every resource available to you from the franchisor, from your franchise network, take advantage of engagement in regional meetings and online courses and franchise committees, of course, your annual conference. Those things are really, really important and generally very effective. And then also to recognize that you can't cut your way to success. You know, there must be a focus on expense management, but there must be an equal focus on growing top line revenue.



 So, you know, over the years we've reviewed thousands of franchisee P&Ls. The trend without exception is that the lowest performers are spending the least in marketing their business. And so if their profitability is not meeting expectations or if they're losing money, then it's cut, cut, cut without focus on growth. And that's a death spiral. Well, gotcha. So let's take the other side of it. You alluded to some of the attributes. What are the best franchisors do to encourage that communication, that sharing of innovation and best practices? And then in general, you know, what kind of behaviors do the top franchisors exhibit given the, you know, the dynamics of the franchisee franchisor model and sometimes healthy tension, right?



 Yeah, absolutely.



 Absolutely. And let me start there because I think that top franchisors understand very clearly that franchising is a relationship. And, you know, of course there's contracts, there's the FDD, there's the franchise agreement, but relationships matter equally to the contract.



 And in my opinion, it's more important.



 So understanding that the success of the franchisor is inextricably intertwined with the success of the franchisee. And because of that, franchisees should be first, meaning union economics are paramount. If franchisees are making money, we're providing the right support, the model's working, then they're happy and we're going to grow. We're going to get great validation and we're going to grow. And sadly, I think a number of franchisors lose sight of that. And it comes about the franchisor's economics over, and sometimes at the expense of the franchisee, that is not how successful franchising should work.



 And then I think also it's embracing that some,



 and you can argue most of the best ideas and best practices come from the franchisees themselves as they're working the business model. So creating a culture and a platform for sharing those success tactics, it replicates success across the system at an accelerated pace.



 And so those are, I think, some of the best insights for franchisee. And I think most people don't realize that. Talk about some of that innovation you've seen. So best ideas and much of the innovation comes from those top performers and others in a system, if encouraged. Yeah. Wow.



 Oh yeah, I think so for sure. I mean, in my experience, it's been whether it's a food and beverage concept, it's menu expansions, it's creativity and scheduling, it's creativity and hiring practices and retention, it's creativity and building a successful culture and service culture within your four walls.



 And, you know, I mean, franchisees, they sign into the franchise because they believe in the system. They have some passion around the model generally. But really, who are they going to listen to? It's other franchisees who are successful and who are experiencing high levels of profitability within the business model. And so again, sharing those out is really critical. Great. Heather, if you look back in this more than plus 30 years, three decades, of excelling in the franchisee world, what would you do differently and why? Yeah, well, you know, sadly, it's the painful failures that cost the most money and the most time, and you know, but we do tend to learn the most in those experiences. So I would say, you know, one example of a real learning for me, and thankfully, it was pretty early on in my career as a franchisor, we overscaled a business. It was a smaller franchise system, you know, sub 50 locations, but we've taken in some some growth capital.



 And we were poised for growth. It was a great concept, but we overscaled the business too soon in preparation for that growth. And because we added too many resources too quickly, you know, we within six months thereafter had to lay people off, which is always painful. We had to reduce expenses to right size the business while we were focused on growth. And it was just a painful lesson. And I see a number of young franchise or is doing something similar to the same thing overscaling too soon, or adding resources in the wrong areas of the business that don't yield the results to support the franchise ease effectively in the early stages. So that was a painful but very valuable lesson for which I'm thankful. So you scale the business as it's growing and don't have a mentality of build it and they will come. And Heather, if I may, when you say talk about timing, what would you say to inform that timing, you know, that are there guideposts that you if you have to do it again, that, hey, these are things I need to check out first before deciding to scale quickly. What should we inform the timing of the scale and also the speed of scale?



 Yes. So what's really critical and depends on the industry is a focus and a balance of bringing on full time employees and leveraging consultants, which reduces expenses and leveraging your franchisees. On the end stage, it's very reasonable and actually has great results in using some of your franchise top performing franchisees as consultants and mentors to other franchisees that are in the system.



 So it's really a balance of committed internal fixed and variable expenses with your team, your overhead, and then leveraging outside resources. And then it's also, of course, it's just the growth model. And so it's not, you know, here's the sales we have planned. That is a part of it. You're projecting out using that. But it's, okay, with how many franchise agreements do we have signed? How many leases do we have signed? How many are in construction? And those are all trigger points for adding resources. And always first, the internal resources are, in my opinion, should be around training and operations. Marketing can be external early in a consulting capacity. Of course, you have to have brand advocates and understanding internally.



 And the same with BI and tech. Some of that can be outsourced early on.



 Well, I know you host a lot of conversations with people interested in franchising, right? And you alluded to some of the pieces of advice. But can you give us for our audience and our students, you know, for, you know, let's just say interested in going into franchising as a franchisee, what piece of advice or few pieces of advice would you give to ensure success, whether that's the selection process or talking to Z's? Tell us what your philosophy is and advice would be.



 Well, you know, let me start with a broad response first. And I think whether it's a franchise or a franchisee, be humble and seek guidance. You know, we see a lot of people who are in the industry, you know, who are in the industry, we've seen some younger franchise systems who have experienced a lot of growth early on. And it's often that is in the recent years through brokers and whatnot. So they're getting scale really quickly. They haven't opened many, but they've sold a lot. And that gives them a lot of confidence without having the executional track record. And so we see some haughtiness there. And that is not a recipe for success. Constantly reach out to those who have the experience, who have been on the journey, who have learned from the successes and the mistakes. You just will save yourself so much time, expense and pain by taking that counsel. And it's one of the greatest facets of franchising. It's that community, not just within your own brand, but franchising at large, you know, through the International Franchise Association, through multi-unit, through Franchise Times and its conferences and publications and resources. And it's really engaging in all of that.



 You know, on the on the franchise, or we've talked about some of those keys for success and the advice there, franchise selection, you know, is that's always a conundrum for most franchise.



 And, you know, I think what's first and foremost is just the passion of the individual for the brand and their ability really to inspire a team and manage others and to focus on the success of that business engagement. I'm not suggesting that everyone has to be an owner operator. I don't think that's true. But engagement in the business is really important, even if it's remotely. Great advice. That's cool. Heather, if you look at innovation, let's talk innovation briefly.



 Is there any innovation that you think could shape the future of franchising?



 What would that be?



 Oh, for sure.



 I think the technological advancements in robotics and artificial intelligence in particular is going to have massive impact on franchising and of course, all businesses.



 But, you know, let's take robotics first. You look at the low birth rates now. And I recently read a statistic that the US birth rate has declined by 20% since 2007.



 So you couple that with the rising labor costs and it just pushes franchise businesses to look for replacement options using robotics, particularly for those jobs that are wrote that humans just don't want to do.



 And so I think that will actually be powerful and beneficial to franchising as a business and to consumers. I think it'll create some more seamless experiences there and perhaps better experiences for franchisees. When it comes to artificial intelligence, this is really interesting to me. I've just been reading a bit on chat GPT and other AI that's out there now and just



 radically changing behaviors and the, I wouldn't say the depth, but the breadth of learning and the breadth of information.



 There's caveats to that, of course, but I think positive side, it's going to enable franchisors and franchisees to learn about their guests more quickly. The guest preferences needs and wants, and it will lead to this accelerated learning so that we'll be more efficient operationally and offering services and products that our guests want and need. This should accelerate the cycle in business of planning, implementing, reviewing, and adjusting. And that should allow franchises to optimize the stages of growth more quickly. I think AI is also going to have a radical impact on recruiting and hiring, which is a conundrum particularly on the hospitality industry at the moment.



 We recently invested in the recruiting company, Patrice and Associates, for that reason. Historically, I focus exclusively on hospitality, but AI, and there was a recent article with Donalds, is employing AI in the recruiting and hiring for speed and for experience of the recruit. So you find that now, and it's shifted pretty quickly, it's dueling initiatives for the franchisee and the franchisor. It's the guest experience and the candidate experience as well.



 So you get that key human capital.



 Now, you mentioned the impact of community and franchising and how it's the ultimate community and network sharing. We've had a lot of discussion around this intersection of DEI, diversity, equity, inclusion, social impact, innovation, sustainability. Can you talk a little bit about that intersection with franchising and how franchising can be equipped to move forward some of those things, whether it's making impact in a local community or a brand purpose? What's your take on that? Yeah, so I think that this actually does not need to be a revolution in franchising. I think that franchising has always been extremely diverse. I think the majority of franchisees are very engaged locally in their community and doing some great things from a social perspective. I mean, just look at the impact of franchising.



 In 2021, according to the Economic Output Study for the U.S. Economy, there was 775,000 franchise establishments with about 8 million jobs contributing almost 790,000 to the U.S. Economy and 3% to the GDP.



 That's massively inclusive. Then you look at the industries in franchising, every single spectrum. What I love about franchising as a business model is it's a level playing field for everyone. Every franchisee has the same opportunity for success.



 Everyone.



 Great. Interesting. Go ahead. Heather, as we wrap up this conversation, even though you alluded to this before in some of your comments, when you look into the future and you see some social trends that are taking place now, either locally or internationally, is there anyone that sort of like jumpstart to that say, "Hey, watch out." You mentioned you talked about the technology. Are there any social trends out there that you think might also have an impact in the future of franchising?



 Yeah, I think the ones that will have the most impact are what we've discussed already around technology. I think predominantly it will be artificial intelligence. Okay. Forceful. I think we're also going to have to rethink as businesses, as franchisors and franchisees, our recruiting processes and hiring processes and the culture we're creating in our businesses, which is so critical to recruitment and retention, creating opportunities for our team members. I love businesses that give franchise location managers and team members a pathway to become franchisees. Yeah, I love that.



 Yes. In my experience, the franchisees who have been so forward-thinking that they provided equity to their managers.



 They were the top performing franchisees. Really? Because irrespective of industry, that position is so essential. And for that manager to be an owner and a partner in the business completely changes mindset. It completely changes behaviors.



 And that leads to success. So I think we need to rethink and reshape how we think about human capital with these advancements in technology. To your left there, to your left up on the wall, when you say people, putting people in the process, you talk about people there. What do you have there?



 No, that's part of our mission statement, which is improving people's lives in the process of our business.



 The name of our company, Conscious Capital Growth, we chose very purposefully because it is about our values, which are servant leadership and increasing value of the business for all stakeholders. Not just financial stakeholders, but all stakeholders. And that is going back to your question, Ab, my why. That is our why. And we also try to look at investment opportunities, acquisition opportunities, growth acceleration opportunities in businesses that have a higher purpose. And franchising to me in general has a higher purpose because it is about helping people fulfill their dreams. And it's about for people who work the model and plan right and use all these levers for success that we've discussed. It's about generational wealth for their families.



 What could be more rewarding than that? Wow, what a way to end it with your words on social impact. That is social impact, right? And creating generational wealth. And you're one of the most authentic leaders and visionaries that I've met. And we've had the honor to talk to you. And I think it's great what you're doing at Conscious Growth Capital now is helping equip others to do that with all those lessons learned. So really refreshing to hear that and love to have you on campus here at Babson and show you around what we're doing here at the New Tariq Farid Franchise Institute and wish you all the best in the upcoming year, Heather.



 Well, you can count on it. I love what you all are doing there. And thank you so much for having me. It was a pleasure. Thank you, Heather. Thank you. Thank you. Bye, Heather.



 Thanks for joining us on this episode of Stars of Franchising. Stars of Franchising was produced at Babson College engineered by Travis Gray. Karen Sowell is our guest coordinator and music by Ralph Taylor. If you like Stars of Franchising, be sure to review us wherever you get your podcasts and swear the word and share these stories any way you can.