09:42 AM PDT on Thursday, May 4, 2006

By Terry Corbell

Seattle’s most famous ballet dancer and choreographer was known for his numerous qualities – creativity, athleticism, technique, and perseverance. Such qualities are also required for profitability in business.

Abdullah Jaffa Bey Khan, who later became known as the world-famous Robert Joffrey, was founder of the Joffrey Ballet, which is now celebrating its 50th anniversary as a business. Born in Seattle in 1930, the famous choreographer and dancer died in 1988.

The skills possessed by the late world-class ballet choreographer, which are instrumental in business success, are also helpful in influencing public policy. That’s especially true for a state, such as Washington, in which competitiveness has been a long-term issue.

Business and consumer groups are feverishly choreographing their opposition to Attorney General Rob McKenna’s effort to overturn the state spending limitations of Initiative 601.

I-601 is headed to Washington Supreme Court after a Snohomish County judge on Monday denied a claim by Attorney General Rob McKenna that I-601 is unconstitutional. The judge then issued a written order, which documented his oral ruling on March 17.

Superior Court Judge James Allendoerfer ruled that the legislature's 2005 taxes on liquor and warranties are illegal. But he allowed cigarette and death taxes. He also ruled that the legislature illegally increased its expenditure limit by $250 million.

Upon losing his argument, McKenna immediately filed a notice to appeal the judge’s decision to the state’s highest court. He acted on behalf of Governor Gregoire, the State Expenditure Limit Committee, and the State of Washington. His spokesperson didn’t respond to a request for comment.

“Well, overall we’re happy that the court denied the request,” said winning attorney Richard M. Stephens, a partner in the Bellevue law firm of Groen, Stephens and Klinge. “The taxes are no good unless they put it to a vote of the people.”

"It is shocking that the Attorney General would argue our 13-year-old, voter-approved taxpayer protection law is unconstitutional," said Jason Mercier, senior budget analyst for the Evergreen Freedom Foundation. "As a voting member of the I-601 expenditure limit committee, the Attorney General should be working to ensure state officials are following the law instead of defending their attempts to circumvent it."

The successful lawsuit was filed by a consortium of business and consumer groups: The Washington Farm Bureau, the National Federation of Independent Business, the Washington State Grange, the Building Industry Association of Washington, the Washington Association of Realtors, and the Evergreen Freedom Foundation.

The judge’s invalidation of death taxes is of particular importance to the Washington Farm Bureau. “This is an issue important for our members and many businesses across the state,” said spokesperson Dean Boyer.

For more background on the issue, you can visit this recent biz coach column, “ Incriminating e-mails: How WA lawmakers avoided I-601 spending limits .”

Lessons can be learned from another issue that affects a significant business sector – franchising. An online report in the trade publication, Advertising Age, indicated Subway is feuding with its franchisees for control of the company’s $400 million advertising budget.

No one is predicting a disaster for the company, but the disagreement might impact the competition between Subway and the second-leading sandwich chain, Quiznos. It’s obvious to any casual TV viewer that the companies are competing heavily for the palates of consumers.

Based on financial strength, growth, size, stability and required investment, Subway has maintained its No. 1 franchise ranking by Entrepreneur Magazine for 14 out of the last 18 years. Quiznos is ranked No. 2.

Subway’s sales reportedly jumped 14.3 percent to $7.17 billion in 2005 at 25,647 stores, according to an estimate by Technomic, a leading food-industry consulting firm.

The company’s sales are as noteworthy as its origin. Subway was launched as Pete’s Super Submarines in Connecticut four decades ago. Needing a source of money for college tuition, 17-year-old Fred DeLuca borrowed $1,000 from his friend, Peter Buck, in 1965. Pete’s was changed to Subway and the company started franchising in 1974.

Despite these hefty numbers, Subway management and franchisees might have reason to look in their rear-view mirror.

Formed in 1981, Quiznos trails a distant second with sales of $1.38 billion. But the Denver-based company’s sales jumped 23.2 percent last year.

It’s hard to believe, but Subway franchisees have controlled the budget for 28 years. Studies have proved that managerial control is ordinarily imperative for brand equity. The company has been playing catch up in trying to acquire control by imposing a new contract on its franchisees. While it calls for the status quo of franchisee advertising contributions – 4.5 percent of gross sales – the new contract retroactively calls for the fund to be managed by the company and “elected franchisees.”

The franchisees are not happy with management’s maneuvers. From the franchisees’ perspective, it’s not surprising they want to maintain control, especially because the company sells so many franchises. A Subway store is seemingly on every corner. In Portland, a smaller market than Seattle, there 62 Subway restaurants. That raises the question over whether there’s enough protection for each franchisee’s market share.

But Subway also seems to be lacking focus and stability for a couple of other reasons: There have been frequent changes in ad agencies. Weight-loss king Jared Fogel is the spokesperson. He’s the guy who grabbed major PR ink after he lost 245 pounds by eating Subway sandwiches every day. But he’s been absent from the airwaves. Is it any wonder Subway doesn’t have a memorable branding slogan? No.

Still, the franchisee holds the key to success. To succeed, a franchisee must possess competence in operating a small business and must understand quality in individual store marketing.

That means it’s up to the company to recruit the best-motivated franchisees who are able to follow procedures, be empathetic to the community and customers, and have a strong self-awareness of strengths and weaknesses.

The No.1 complaint franchisers make about franchisees? They don’t follow the system even though they invest thousands of dollars.

The No. 2 complaint by companies: Franchisees don’t practice the art of local marketing and community involvement.

Aside from following procedures and local marketing, here are 12 other tips for franchisees to succeed:

• Understand budgeting and forecasting
• Assess your strengths and weaknesses to determine what’s a good fit for you
• Research the field of all franchising opportunities
• Before investing, verify all franchisor claims and representations
• Analyze the competition
• Evaluate the need for the franchisor’s products
• Think exclusivity and purchase as many franchises as your budget allows
• Appraise the brand equity of the franchisor
• Interview existing franchisees to see if the system really works and if commitments are kept
• Gauge the quality of franchisees
• Understand that banks and the SBA are amenable to granting you a loan to finance your franchising ambitions, but don’t assume lenders have performed their due diligence regarding the franchise opportunity
• Double-check all documentation

In other words, practice due diligence in every aspect.

From the Coach’s Corner, the Small Business Administration also has an informative Web site on buying a franchise: www.sba.gov/starting_business/startup/franchise.html.