Like many CEOs, Ray Titus got a reality check when the U.S. economy tanked in 2008. With his franchise development services company coming off 20 straight years of year-over-year growth, the idea of not growing was at the very least a foreign concept.
“It was all great and roses and now the last couple of years have been really trying and challenging,” says Titus, CEO of United Franchise Group, which owns and manages approximately 1,400 franchise locations in 50 countries, including well-known brands such as SIGNARAMA, EmbroidMe and Billboard Connection. “We were in a position to grow again as usual, and unfortunately the franchisees got hit, the economy, everything that was going on.”
The company’s customers and employees lacked direction, unsure of how to deal with the financial uncertainty of what would become a global economic recession. As fear of the unknown threatened to paralyze the company, Titus realized that changes were needed to adapt for survival in the new business environment.
“You had a real freezing of decision-making that was being done,” Titus says. “Nobody knew what was going to happen next, so nobody wanted to make a decision.
“We live in a business world today that is changing on a daily basis, a weekly basis, so anybody that is stuck in their ways — it’s my way or the highway.”
Because UFG had focused on growth for two decades, Titus knew that the first step forward would be taking a step back.
After reading a book called “Islands of Profit in a Sea of Red Ink,” Titus discovered an important takeaway about operating as a successful brand and revenue-generating business.
“That book really hit it right between the eyes, because it talked about that there was as much as 40 percent of your business that was not profitable,” Titus says. “You just did this work because you always did it.”
To create a stronger business moving forward, Titus realized that the company needed to start thinking more about profitability when making investment decisions.
“We were really focused more on growth than we were even on profit,” Titus says. “As an organization, when you take a step back, you realize, ‘Wait a second, there are certain things in this organization that we are more profitable on than others.’”
The first change that Titus made was to put a stop to the expansion mode that the company had been in for years. That meant selling fewer new stores and franchises and refocusing on strengthening the brand.
“We had to change the way that we were doing business,” he says. “We had to look at things a little differently, make cuts, look at expenses differently and change the thought process.”
Part of that was revising the company’s strategic planning process to having only one- and three-year strategic plans.
“We always looked at five years and even 10 years as a company,” Titus says. “You’re obsolete in your planning and your strategic plan if you are going beyond three years.”
Titus also now spends much more time doing due diligence to evaluate investments, assessing factors such as profitability and vetting out those that aren’t a good fit with the company’s philosophy and goals.
“We’ve created some really smart steps for us to go forward with,” he says.
“Based on that, it’s meeting the criteria, the budget, looking at everything and does it get us to where we want to go in our one-year and three-year strategic plan.”
Improving profitability short term was a matter of identifying and eliminating expenses that had minimal return for the company. Titus knew that several of the countries the company was running as a direct organization, including a new store in Switzerland, had become money drains but were still mounting in costs.
“What started out as a small investment all of a sudden became a rather large investment into it and we weren’t getting any return on it,” Titus says.
But by selling master licenses in less profitable countries such as Switzerland and Canada, Titus handed over the expense and ownership sides of the businesses so the company could scale back to a support role.
“So we went from something that was costing us a lot of money to something that costs us nothing, and we’ll probably end up in a better spot when it is all said and done,” he says.
At the same time, Titus knows that some investments pay off in ways that aren’t as apparent on a budget line, such as in learning opportunities.
“It’s easy to cut people from going to trade shows or seminars, but looking back on it, each time that we’ve ever done that it’s a mistake,” he says.
Instead, invest smarter. Rather than having four or five employees traveling to a trade show, have one or two people attend and then relay the information to the rest of the company.
Evaluate your talent
Ultimately, restructuring the business to withstand the recession also called for some initial job cuts. While it wasn’t an easy time, making these cuts was necessary to strengthen the company from the inside out.
“There has been a change in mentality that was needed, but it still doesn’t mean it isn’t painful,” he says.
In times of financial uncertainty, it’s important to fully understand how each employee fits into your company’s vision so you can hold your organization accountable for progress and goals.
“I think it’s kind of bizarre that now we go year after year, month after month and everybody thinks they are an A,” he says. “Everybody thinks that they are 15 percent underpaid.”
If you want your people to be the best they can be and add the most value they can to your company, you have to set clear expectations and a high bar.
“Every great teacher and every great coach that I ever had got more out of me than I even thought that I could,” Titus says. “If you do that with your people, they’ll eventually really appreciate that management style — tough love but love.”
Titus evaluates his people through an annual review process that assigns employees with an A, B or C letter grade based on 12 criteria — an idea he got from Jack Welch’s management book. A’s usually get bonuses, raises and more money. B’s are valued employees that do a great job with the company, and C’s get a warning — 30 or 60 days to show improvement. Just like in school, C is the passing grade.
“We don’t hire D’s and F’s, and we don’t keep D’s and F’s,” Titus says.
The evaluation process frequently reveals strengths or weaknesses of a person that weren’t obvious to their boss or co-workers.
“The first year that we did it years ago, we went around the table and the manager was saying that this person is B, but by the time we got around the table it was very clear that that person was a C, or an A,” he says.
Knowing people’s strengths can also tell you how they can be utilized more effectively for the success of the company. During the recession, Titus realized some of his managers were actually more valuable reverting to the sales or customer service roles where they started out and really excelled.
“Certain people took roles that they did for ten years, eight years prior and went back to doing what they really, really did well,” Titus says.
Titus even removed himself as brand leader for each of the individual brands and put a separate president in charge of each brand, which freed him up to take the role as director of franchise sales and get more involved in big picture strategic planning.
“It’s focusing your people and yourself on taking a step back, and getting away from the titles and all the other things out there to really go back to what made you successful in the first place,” Titus says.
“We’ve got to sit down with our people and we’ve got to say what we like, what they are supposed to be doing, what they are not doing and correct it, but then we’ve also got to be able to say ‘This is how I’m rating you.’”
Lead a new mindset
Titus knew that the lessons learned from the down economy — getting more pricing for products, being more efficient with resources and so on — were things the company needed to keep doing moving forward.
“All of us have had to evolve a little bit more and be more conscious of how we spend our money, what we are investing in, and even the projects that we bring on. It’s not throwing bodies at problems,” he says. “It’s throwing solutions at problems.”
The challenge was explaining to employees and franchisees that there would be no getting back to normal.
“I have ten direct reports and they average 20 years with the company,” Titus says. “So they go back so far that they’re used to different mentalities in business.
“As we’ve turned and been in a really good spot now for about nine or ten months as an organization, we’ve learned that we can’t go back out and say everything is fine and now it’s back to the way that it was. We don’t want people doing what they did before.”
When you’re asking people to accept a new way of doing things, it’s critical to manage expectations by clearly communicating what that vision involves, especially for long-term employees who may be eager to revert to old ways. Clear communication from the top down is the key to making sure people understand what is expected of them as well as keeping morale high moving forward.
“Any time you do cuts of any kind it is painful and it’s hard to keep morale in a good spot and keep things positive, especially when people all around are getting budgets cut or somebody is getting laid off,” Titus says.
“The challenge there is to keep a good positive attitude and convey that we are doing well, but in the same breath, we still have to be careful. We have to watch what we are doing and keep moving forward as an organization to improve how we do business.”
To make sure the message doesn’t get skewed, Titus prefers to deliver it person, whether it’s participating in superregional meetings, traveling nationally to different offices for Q&A’s or spending time with franchisees locally. There is nothing like face-to-face communication to really get to know people and make sure that you are all on the same page.
“You don’t run a business from a desk,” Titus says. “You run a business with people, so you’ve got to get out from behind your desk and get face to face with customers and prospects.
“Some of those meetings are tough meetings. Some of them will appreciate it and some of them don’t, and it doesn’t matter. The bottom line is we’ve got to be involved in the different aspects of our business that we can make a difference in.”
The company’s ability to execute these changes has made all the difference. By late 2010, UFG was seeing dramatic improvement from the start of the recession, and just one year later, annual revenue had grown from approximately $450 million to $500 million.
“We have consistently moved forward as an organization,” Titus says. “I don’t want to say that it is back to normal because what is normal? We’re in a new normal. So things are improving. Store volumes are up. Franchise sales are up. We’re in good place now.”
How to reach: United Franchise Group, www.unitedfranchisegroup.com or (561) 640-5570
The Titus File
United Franchise Group
Who are your business mentors?
My first mentor was my dad. My eighth-grade school paper was how to start a franchise company. I would not be anywhere near where I am today if it hadn’t been for him. So he was the first one, and he introduced me to my second one, which was Gary Rockwell, who worked for my dad for 40 years. From my standpoint, the next one would be J.J. Prendamano. He is my father-in-law who has worked for me for 20 years. For me to have him as a mentor, as a helper and employee has just been incredible.
What is the greatest piece of business advice that you’ve ever received?
My dad telling me that there are always two sides to every story. There are always two sides. Sometimes you can really get emotional or caught up when you hear one thing, but there is a really good reason. There are always two sides and the truth is usually somewhere in the middle, a little bit of one and a little bit of another.
About JJ’s Entrepreneurs mentoring program:
Founded in 2011, J.J.’s Entrepreneur was developed by UFG to encourage and teach students about the benefits of entrepreneurship and owning their own business. The program was also created to honor J.J. Prendamano, a long-term employee who was diagnosed with brain cancer, by recognizing his commitment to mentoring and helping new business owners become successful. Through a five-year minimum $75,000 commitment by UFG, students participating in the competition are mentored by Titus and Prendamano as they create their own innovative business plans. Two winning students are selected to launch their business concepts, with one student awarded $10,000 and one receiving $5,000.