Leap to Scale
Leap to Scale is for technology curious leaders of service firms who want higher margins without adding headcount. Each week, Justin Davis and Greg Ross-Munro show how to turn firm expertise into repeatable, sellable technology products: SaaS, packaged workflows, and AI-powered tools clients can buy again and again. With AI, more of your know-how can be captured, standardized, and protected as IP instead of being rebuilt in every engagement.
We focus on practical decisions: what to productize, how to price it, when to build vs. buy, and how to use AI responsibly without risking delivery quality or margin. Clear steps, real tradeoffs, usable examples.
Leap to Scale
Custom Code, Common Goals: The Tech Backbone of Modern Franchises
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In this episode, host Sara Altenhoff is joined by Greg Ross-Munro, CEO of Sourcetoad, and Gregg "3G" Hilferding, VP of Delivery at Sourcetoad. They unpack how technology not only solves traditional challenges in franchising, but also sets the stage for unprecedented growth and consistency across various industries.
Key Takeaways:
- Understanding Franchises: Exploring the "hub and spoke" model across sectors, including a unique look at non-profits.
- Tech as a Problem Solver: How technology enforces standards and consistency, benefiting both franchisors and franchisees.
- Custom Software Development: Why tailored tech solutions are vital for protecting IP and streamlining processes.
- Implementing Tech Wisely: Strategies for introducing new technologies in a way that rewards and values franchisees.
Tune in for a deep dive into the transformative power of technology in franchising, offering actionable insights for franchisors, franchisees, and tech enthusiasts alike.
Hello and welcome to another episode of Decoder Podcast. I'm Sarah Altenhof.
SPEAKER_01I'm Greg Ross Monroe. And I'm Greg Hilfording.
SPEAKER_00So we have both of the Gregs here today. So we'll be referring to Greg Hilfording as 3G and to Greg Ross Monroe as Greg, just for clarity.
SPEAKER_02Yeah. Or for more for more chaos if you want. We can just do Greg's plural.
SPEAKER_00Okay, yeah. I could say I'll throw it to you, Greg, and then we'll see who catches it. So on today's episode, we're going to be talking all about franchises and why technology is vital for the success of the modern franchise. So before we get started, let's define a couple terms that we'll be using throughout the episode. So a franchise is basically just a business that licenses its operations, including its products, branding, and IP. It licenses all those things in exchange for a franchise fee. The franchiseur grants licenses to franchisees who run the individual businesses. So, Greg, would you like to talk a little bit more about this model and why it's a successful way and a popular way to grow a business?
SPEAKER_02Yeah, I mean, you know, the number one thing you're looking for in a business is growth. You know, you're looking for better margins, better returns. And ultimately a franchise is the is a really great way to take a successful model and then expand it out, you know, clone it out, stamp it out multiple times, right? Um, and that's where technology comes into play here because basically what a franchise is, is a process, a set of processes that work well, that you then cut, copy, paste, and um, you know, then reap the rewards from. And the other thing that is uh interesting about franchises is that, or any kind of franchise style model, rather than just, you know, because franchise can we're gonna use be more expansive in our term of franchise, you know, just in business models, even non-profit models here in a second. But um the idea is that you can uh have a whole bunch of almost individually functioning businesses as that the at the like node level, the final um spoke level, and they can send some percentage of tax, a franchise tax or a um an organizational tax back to the headquarters to help centralize some of those functions like sales and marketing or brand image or things like that, and or and technology in this situation.
SPEAKER_00So um lots of different types of businesses follow this model, as you said, Greg, like restaurants, medical groups, and nonprofits. Um, 3G, uh, you have a little bit of experience on the nonprofit side of uh franchises, don't you?
SPEAKER_01Yeah, I do. And it's really interesting because that they're almost never referred to in those terms as franchisees or franchisors. Um, some nonprofits do actually use the words uh like licensee or and licensor to describe their relationship. But when you are in your local community and you have the local little league team, or you have a local YMCA, or you have a local uh Boy Scout or Girl Scout group, those organizations actually follow a model that's very similar to franchising. There's a national organization, sometimes an international organization, and they provide kind of the program, the direction, um, and then sometimes a few services, uh, but the local group is the one that's actually making all the day-to-day decisions. They're implementing that program. So even though it's different words, I think we just put all that under the same pile for our discussion today because how software applies there is very, very similar in both cases.
SPEAKER_02I never, you know, I never thought about that until recently, actually, that um something like a girl, a Girl Scout group is actually a franchise, right? And they've got like a centralized location, and they've probably got like a sub-regional, like there's the the the there's probably the international um committee, the international headquarters, then there's probably like the country-based, the country level version, and then there's like a regional version, and then there's like probably even in some certain cities, there's probably like a city uh council, and then like there's the actual uh Girl Scout groups themselves. I mean it's just it's really funny to think about that as a really intricate nonprofit way of selling cookies.
SPEAKER_01Yeah, and that there's actually a really interesting story about how those came to be, and it kind of helps explain why they use this model, is that a ton of these nonprofit groups were set up like 100 to 120 years ago. And this, of course, is before the internet, before computers, uh barely telephones, right? We were still like telegrams, telegraphs. Um, and my favorite story about that is actually that if you look at that map of the United States and how the territories are broken down, if you take the map of the Boy Scouts and the map of Rotary, they're the same map. And the reason why is because the guy from the Boy Scouts and the guy from Rotary went on a trip together. They took a road trip around the country setting up these local groups, and they asked people where the map should be drawn, and they were like, Well, we're just gonna use the same map. Um, so it's just one of these like really weird, like how they came to be stories. Um, and of course, at that time, once they left town, all methods of like feedback and control was mostly like sending letters back and forth, right? An occasional visit. So these local, these local groups, these franchisees, um, to use our term, really had to be able to operate independently. Um, it's a little different today, though, with technology. That's much more connected. Yeah.
SPEAKER_00So to get to the discussion about why technology is vital for franchises, first let's talk about some of the problems that franchises face. Um so obviously, with one centralized unit that has all these different spokes that it is running and trying to, you know, control the branding of, um, there's gonna be a lot of problems that come up. Um, Greg, do you want to talk about some of those?
SPEAKER_02Yeah, I mean, just then it depends on like how the franchise is set up, to be honest. Um, you know, uh I've seen franchises that have been uh that have engaged with with that I've worked with from like day one when they had like a very clear understanding of what they wanted to be where they wanted to get to. They had kind of like a test model first, they were like highly capitalized, and they kind of were building the process in a lab to start with. And then on the flip side, I've you know worked with um franchises that were you know one or two like local businesses, and then they kind of grew and they kind of had a more organic, um less baked in a lab uh way of growing. And then they kind of tacked on the franchise system toward the end and started franchising out the business. And um uh both of them have distinct kind of issues and problems about how they deal with process and how they test process, but uh something that is more kind of uh organically built. Um, a few years ago we built uh uh I worked on uh a pizza delivery system, building a pizza delivery system for uh a pizza franchise. And they had about 98 locations. And the problem was that, or one of the problems was that each one of those individual franchise holders um were basically their own business and they ran, they had very different and distinct processes from each other look every other location, um, including the choice of point of sale system that they had inside the restaurant. So if you want to build a um, you know a 90 location pizza ordering system that delivered pizza from your uh you know the nearest geographical uh franchise, and you need to put that information to the POS, and each and every restaurant got to pick their own POS, like that's a huge problem, right? You you can't you either have to build some massive integration project or you've got to convince all the franchise holders to change their point of sale systems. And uh ultimately what we did in that situation was we worked on uh we we picked two, I think, of the POS companies that were kind of the most common, and we did the integration with those. And then anyone who wanted to be in on the any one of the franchises that wanted to be in on the ordering system had to then change the POS to one of the two approved POSs. And in that small story, I think we've got kind of the like uh in a nutshell, like the power of technology in process control and management, right? You make the change through offering a new technology, or the new technology actually then forces everybody to get on the same page of the POS. Uh and not to ramble on about it too much, but like that created all sorts of other improvements, right? Where now, because they had these two POS systems only, they could uh get analytics from all their franchises in one place from well, in two places rather than before when there was no way for them to see how stores were doing in real time. Now that when they when they they moved that down to just two POSs, um they would they were able to consolidate all that data and get real-time uh a real-time look into how their businesses were doing as a whole.
SPEAKER_01Yeah, my favorite story about the challenges with this is that I think every franchisor that I've ever talked to, their exact percentages are different, but they basically tell the exact same story. If we're gonna roll out a change, a third of our franchisees are gonna be excited and they're gonna do it right away. A third will wait six months to a year to see how it goes before they like roll it out, and the final third will just resist that change as much as possible. And so one of those ways, like how the story you just told of the POS systems is definitely one of those that there was probably a difficult change management the first time around, but once it was standardized, it made future change management a lot easier for the franchisors and the franchisees.
SPEAKER_00Yeah, so that brings us into um why technology is probably the most effective solution to a lot of these process management issues with franchises. So let's dive into some more specifics. So, like in addition to the POS systems, um, what are some other ways that tech can um make managing franchisees easier for the franchisors?
SPEAKER_02Yeah, I mean, the the thing is that ultimately what you've got is at the end of the day, like everything, uh people problems, right? You're trying to convince humans to do something in a collective way. You're trying to convince them to do something in a in a way that's been dictated by um central command, right? And the the people at the end of the chain who actually are doing the work and running the businesses, the day-to-day operations, you know, they have relationships with their clients, they have um they have particular ways of doing things and their processes that they've been that they may have developed over years. And um they, you know, changing the way you manage them uh to is difficult. And there's a whole bunch of reasons why you want to do this, right? You want to have a more consistent brand experience, you want to have like more consistency in the way that things are handled, you might want to have centralized data reporting. There's all sorts of reasons why you want the, you know, if you have like a uh a cake shop uh franchise, you you want the experience in your cake shop that's in Cincinnati to be the same that's in Tampa, right? So then when people walk in that they are ordering the same kind of cake, they know what kind of cake they're gonna get and the same kind of quality, and that's why franchises work so well. And then you also want all the information and the data and the reporting to kind of bubble up in a nice effective way. But in order to do that, everyone has to follow the same, you know, processes, and so you need to convince those people how to do that, and convincing them is very difficult because people don't like to do things in you know, out of a like some from some uh SOP out of a book. But what you can do with technology is you can kind of like backdoor in process, you know. Um there were there was an example we saw with um we had with a uh a laundromat franchise. Uh not laundromat, dry cleaners, sorry. And um they had uh a ticketing system where as you brought your clothes in, you the person at the front would like write down your name and your address and your phone number, and they'd put into the system and uh write down the number of items you gave them and give them a ticket, right? And one of the issues that the franchise had was that at some of these locations, the people who worked there hadn't they knew their customers so well for so long that they didn't need to write down the name and the phone number of those people. They just recognized them. And so they just write down the number of items that they were dropping off and they'd give them back the ticket. And the problem with that is that if you want to then like market to your uh or send email blasts out to your customer base, if you want to do any of the kind of cool centralized marketing stuff that a franchise has the power to do, you don't have that information because some guy at some franchise in, you know, in Fort Lauderdale knows all the customers by um by face. And that's wonderful probably for that business. But like you can't force that person to put to start writing those things down on a piece of paper. Um but if the system now that he has in front of him as the the the check-in system that runs the cash register or that scans the barcodes or whatever on the machine, if that requires the customer's name and phone number before you can even move to the next step and it's gonna be validated, then the person's probably gonna like complain for a few minutes when they first have to like, oh well, I already know all the stuff. It's like, okay, fine, we'll just make it easier for you to use. We'll enter the data once, and then you can just look them up by their phone number, or you can type in their first name. We can make the search easy for you to do. And then all of a sudden, what you've done is you haven't had to convince that person what the new process is. You've given them like the rails for their for them to run on. And they can't kind of go off the rails because the the process is baked into the system. Does that make sense?
SPEAKER_01Yeah, I think the way that I like to think about this is that I think most people when they think about franchising, they think about these like giant binders. And the binders are like every single process in the entire business. You just have to pick the right binder off the shelf and flip to the right page, and it's going to tell you how to do it. But of course, people have to read the binders, and they have to memorize the binders, and they have to train their people that they bring on, their staff, to do things the way the binder says. So, you know, it's a great example that there's a certain, there's three steps to bringing a uh to accepting work from a client, and those three steps should be done in a particular order. When it's a binder, it should be done in that order. When it's a piece of software, it must be done in that order. And now suddenly they don't need to read a binder. They just need to follow the instructions from the software. It's a lot easier for them. It reduces training time and basically ensures a consistent approach because there's no other way to go about it. Yeah. Circumvent it because the software won't let them. It just doesn't allow it to happen.
SPEAKER_02And and that that binder is not just like it, those SOPs, whatever those those processes that you have to follow, they're not just for consistency, right? They are literally part of the competitive advantage of a franchise. That's like what it that's what a the competitive advantage is of a franchise, is they've got all the stuff down. And if you see somebody who's like running those processes better and more efficiently and more effectively and is getting better data out of them, uh they're gonna compete with you and they're gonna put you out of business because they're gonna have better processes that are like more closely followed, and they're gonna they're gonna leverage all that stuff that is powerful about being a franchise better than you are. So um, you know, like if you look at every single, there's almost like every franchise you can name, there's like a almost equally sized competitor. Right? It's funny how they you can think of um, you know, there's McDonald's as Burger King, you know, there's and and the and and uh every single one of them that you can think of, there's probably um you know an equivalent. And they might be regional uh comp competitors or they might be competing inside the same same tiles. But one thing that you'll see them compete on so interestingly is the technology pieces. You know, like uh this this group, this uh uh dry clean has launched a new app, and you can scan all your own um clothing items, and uh actually then like once they're all scanned in, you've got your own tickets, you put your own name in, and then you just put them in a special bag and they get picked up for uh for dry cleaning. Uh I sorry, I dropped off dry cleaning yesterday, and we've worked with dry cleaners before, so it's on my mind. Um And then all of a sudden, that is a competitive advantage at enormous scale, like day one, and now you've put now you've put uh you've put a lot of pressure on your your competitor where who now they have to do that, but then if you had if you don't have first mover advantage, sometimes in a franchise, you look like you're copying.
SPEAKER_00Right.
SPEAKER_02And so uh franchises use like use technology as as a stick to beat their competitors with and as a as as an additional competitive advantage, right? So, you know, like why would I choose franchise A over franchise B? Well, maybe it's like franchise B is just they're they're like their app or their website, so much easier to for me to interact with them, or their online ordering is better, or whatever. And that's why I'm gonna make that choice. And so the franchises have to like make read have to be really, really, really careful about how they make those technology choices and who is actually building that stuff for them.
SPEAKER_01I was just gonna say, on that subject, I think the other thing that's interesting is that those binders are is that knowledge about those processes, and that knowledge can be taken out of the franchise and brought to another business because binders can walk away. The content in there can be easily copied. Interesting. Even if it's not like physically taken or physically copied, you're training all of your people into all these like different scenarios and the right way to handle them in your business model. And so even just them moving to a competitor, they take that knowledge with them. And in software, there's a lot of that branching logic of like, well, there's five different ways to handle a particular situation. You can't actually always see the five branches. You just see the branch that you're on based on what's happened so far with that particular order or that particular customer. And so it really also gives an extra layer of protection to that that intellectual property and that competitive advantage.
SPEAKER_02And and you're the intellectual property itself is probably a barrier to entry, right? Like the the the you you can go and you can you can if you worked at a at a franchise for long enough, you could like memorize all the processes, but and you could probably go and create your own binder, but it would be much harder to go and create your own software and your process software to do all that stuff. So if you've got that, that is like that massively, that I IP massively adds to the value of the franchise as well. So um, you know, we we do a lot of stuff with uh franchise companies and and uh and PE firms, and often sometimes there's a PE firm backing a franchise, right? And um it's it's it's a huge part of like the value play in PE that like there's IP behind the franchise. And so it's it's just a massive value increase there as well.
SPEAKER_00Yeah, that's a really great point about IP, like protecting that, um, in addition to having broader appeal to your customer base and um making life easier on the operation and process side for the franchise and franchisees. Um so I think your point about IP brings us to another good point. Um, how does custom software development factor in and why? Is having something custom that you own important for the franchise world.
SPEAKER_01Well, I think that the custom aspect of this really is all about that competitive advantage. With most businesses, if you're a single location small business, um, you mostly want to be uh buying software off the shelf. You don't want to have to reinvent every single piece of software out there. You want to find a pretty good POS system and a pretty good website management system, and you're gonna kind of cobble those things together because you just have the one location. And you're just gonna run that, like how you run that is gonna change day to day because it's mostly based on your personality and your values and how you train your individual individual employees. But when we get into franchises, suddenly it's all about having something that is different from everyone else. And so there's still pieces that you that we certainly would expect to integrate with and not have to reinvent everything. But suddenly with franchises, we see that the end-to-end process is where the value is, not just doing one part of it better than your competitors. And so that's where custom software development really kicks in here is that you want an end-to-end experience for your customers. You want an end-to-end experience for your the employees of the franchisees. Um, you want to give all of your franchisee owners um, you know, effective tools for them to know how their business is running. Um, and that ends up looking like a much more custom software development stack.
SPEAKER_00Another important point that you brought up earlier, uh Greg, um that there are lots of important things to consider when you're actually implementing your new technology across your franchise. Um so earlier in the episode 3G, you mentioned that there's always like a third of franchisees who don't want to adopt new technology, who don't want to make changes, and you know, change is hard. Um, so how can you make sure that you're considering all of your franchisees as you're rolling out new tech so that they will embrace it? Um, how can you prove the value to them? And um, in what way should you approach these changes to make sure that uh everyone is benefiting and embracing the technology? Um, Greg?
SPEAKER_02Yeah, I mean it's an interesting question. Um I think the thing that we you have to keep in mind is that franchises are like are weird in another way. They're kind of they're different from most businesses in another way, which is that you've got your franchisees who are the franchise customer as well as the end customer, right? So you've got the the end user of the person who goes into the the hamburger shop or the the cake store or the um pool supply shop um or the or is buying those cookies from the the Girl Scout. And then you've got so and you ultimately have to be worried about pleasing that customer, the end user, right? Like if the if that person is not happy, there's no business model, if there's no value provided to them. Um so you constantly have to be working on that, that side of the equation. But the other side of the equation is that you've got to make as the as the trustee of the tax dollars that come from, or the friend, you know, the franchise money that comes that trickles up to the main um headquarters or the main hub, you have a responsibility to your franchisees as as well. So you have two groups of people that you constantly have to keep happy. And sometimes there's a conflict between that, right? So if you want to uh roll out a technological solution that allows somebody, let's say go back to my example of uh the um the laundromat who allows you to scan your clothes at home and then just gets them picked up and they get taken to a centralized location for dry cleaning. Um, you know, that can erode the relationship between the end customer and their local franchise, right? So it might actually be better for the customer at the end of the day because they can scan all their clothes, they don't have to drive anywhere, they they put them in a bag with a special tag and like put it outside, and the truck comes by and picks them up. And now I tell all my franchisees at my big conference that I'm gonna do this. And you're gonna get people who push back and say, Well, that person's no longer to come into my location, and I'm gonna lose that relationship with them, which I've built over years. And I understand that it's gonna save me time and them time and everyone money, but it's gonna it's gonna destroy the business long term. Uh and so you always have to, when you when you roll these things out, you have to kind of look at the you have to look at the impacts on both sides of the the franchisee and the customer side. And most of the time you can find a compromise. Most of the time you can find a situation and say, okay, well, here's the thing that driver of that van is who's gonna pick up the clothing is gonna work at your location, and all the dry cleaning is gonna be done at your location, or your franchise fees are gonna go down because we're gonna centralize uh and your uh you know, the we're gonna centralize where all the dry cleaning is actually done, and your shop front is gonna still be there to place orders and maintain relationships. You know, we're gonna turn it into kind of like a flagship store model, like you have like watch stores in a mall or something, then it's not really important that you have the the stores there for visibility, and there's all sorts of things that you can change in um in how you change your model and how you keep your franchisees happy while still improving the customer experience. But it is a fine line to walk, and it is it is something that uh hopefully you can find you know ways of producing value for both parties. And typically you can typically you can say, well, we're gonna be able to do more, or you're gonna be able to do more with the data, or we're gonna be able to reduce your costs, or we're gonna be able to increase your margins, or we're gonna be able to add value to what you are the services you're offering, or add additional services. And so those are typically the ways to mitigate those process changes that are really focused at improving the customer's life, but also can negatively affect or the the perception, per set the perception of negatively affecting the franchisee.
SPEAKER_01And I would just add that when it comes to software development, the the sometimes surprising most important thing is just empathy. And the franchise or uh having empathy for what it what the effect of change is for their franchisees, I think is really important. And I know in the franchise world there's always a debate between how many corporate stores should there be versus how many franchisee stores should there be. Um it what the important thing is, is to know that if you're about to roll out a big change, what is that gonna be like for the franchisee who does have to still do some change management with their employees and make sure that the employees know that there's a change coming and know how to how to make that that change in the software effective. It's so much cheaper and so much easier to do with software, but it isn't automatic. There's still a little bit of thinking and empathy involved there.
SPEAKER_00Absolutely.
SPEAKER_01Well said.
SPEAKER_00Well, I hope if you have any interest in franchises and technology that you enjoyed joining us for this episode. So, just a quick recap, we talked about some of the problems with franchises. Um, we talked about how technology is perhaps the most effective process management tool for franchises to implement. Uh, we discussed why the custom software development aspect is so important for franchises because their processes are their IP. So owning that software within your organization is so important. And then finally, we touched on uh why empathy is important as you roll out any kind of change across an organization, um, whether that be through technology or just any change that you're asking people to adopt, it's important to consider how these changes will affect them. Um okay. And with that, um thank you for joining us today. If you'd like more insight into the world of custom software development and digital product development, then please do subscribe and follow Decoder Podcast. And with that, we bid you all farewell.
SPEAKER_02Thank you, Sarah. I feel like I for some reason, I don't know why, but I feel like the need to go get some drive thru junk food right now.
SPEAKER_01That's weird because I feel like I need to go drop off my dry cleaning now. Actually, I do need to drop off my dry cleaning. I'll see you guys later. Bye.