The Foundations of Franchising
A shopkeeper serving customers provided the catalyst for the historical roots of franchising. The realization that the only way to serve more customers was by expanding, coupled with limited capital to sustain rapid growth, led the pioneers of the franchise model to lay a solid foundation. Much of the early development of the franchise model was in the foodservice sector, with such iconic brands as A & W, Kentucky Fried Chicken and Dairy Queen leading the way. There was significant growth in the hospitality sector with Howard Johnson, Holiday Inn and Marriott using franchising to efficiently penetrate global markets and extend their brands. In all these examples the common element was the requirement for a physical premises to operate from, and many times with particular and distinguishing appearances such as the golden arches.
The focus of the franchise was building an attraction for customer to visit through unique architectural themes, convenient and prominent locations and compelling signage. And, of course a set of operating procedures that would support a quality customer experience once the customer arrived at the franchise location.
While the foundations of franchising revolved around the location, the landscape has changed dramatically over the past two decades, opening the door to many more business concepts and potential franchisees.
The Complexities of Fixed-Location Franchises
Most individuals looking at a franchise to be operated from a dedicated location do not have experience in site selection, therefore they must rely on the franchisor for significant support. However, the level and intensity of support can vary widely from one franchisor to the next. Some franchisors take a “hands off” approach and only offer candidates a modicum of information from which to determine a location for the franchised business. The information may be based on the physical parameters of the concept, such as square footage, ceiling height and signage requirements. Yet, the factors that will ultimately determine the success of the location will have more to do with the density of likely customers.
The franchisor should know from their experience their customer profile(s) and should support franchisees in identifying locations with an adequate base of qualified customer targets. Without this information it will be difficult to determine a sale projection. The other key complexity of a fixed-location franchise is obtaining the space, whether through a lease or purchase. Again, many potential franchisees have little or no experience with such transactions, which can be very complicated. If the franchisor has a reasonable number of existing locations then they should have some level of support to assist new franchisees in negotiating the key tenants of a lease or purchase. Certainly, the use of independent outside legal and financial advisors is essential to ensure all the risks are clearly understood. Finally, even if you get the location and the lease right, it is often hard to predict demographic shifts which could impact the business concept over time. All of these important considerations have fueled continued expansion of franchising into the service sector.
The Explosion of Service-Based Franchises
Reflecting the dramatic shifts in technology and consumer desires for more leisure time, franchises based on providing essential services has grown at unparalleled pace and encompasses hundreds of concepts. As consumers focus their time on entertainment, they instinctively increase their interest in reducing their commitments to “chores” such as landscaping and yard maintenance, home services such as carpet and tile cleaning, and technical trades such as air conditioning and plumbing repairs and maintenance.
Increasingly, consumers require service providers to attend to their needs wherever they may be…in their home, in their driveway and in some cases at their place of work. This pattern of demand has spawned innovative and exciting development of franchises in the service sector, and for many would-be small business owners, a more attractive model. The thought of working from a fixed-base of operation does not appeal to a broad cross-section of society, so the emergence of franchises featuring flexibility and independence operationally has been a welcomed addition of opportunity. Another key driver is affordability given the start-up costs are dramatically lower as are the ongoing expenses in many cases. Yet, there are distinct challenges with a service-based franchise model to consider.
Attracting and Keeping Customers
The name of the game in service-based franchises is customer acquisition. Since you don’t have a location the customer is driving by or otherwise focused on visiting the strategy for attracting customers is significantly different. This is further complicated by the increasingly segmented marketplace for advertising and media as consumers are overwhelmed with choices. The “Consumer Decision Journey” developed by McKinsey, a leading global consulting firm, highlights this fundamental shift whereby consumers are actively researching and seeking information rather than waiting for companies to feed it to them through advertising.
The traditional approaches to customer activation are rapidly diminishing as results fail to produce the necessary results. Instead, sophisticated customer profiles are created using socioeconomic modeling so that service-based franchise brands can target high-profile consumers with valuable information. This approach leads consumers to accept the brand in their consideration set of options. Once the customer experiences the service it can either solidify their loyalty, which is of tremendous value, or drive the brand out of their future consideration. Unlike a restaurant, hotel or retail franchise where the attraction is the location, service-based franchises need to proactively seek out customers to survive and they need to ensure an exceptional experience to thrive.
Finding the Right Fit
There has never been a more exciting or opportunistic time to engage in franchising given all the changes that are underway in the global society. Many developing countries are experiencing economic growth due to the emergence of franchise brands, primarily in fixed-location concepts, which is opening the door for many local entrepreneurs. The expansion of service-based concepts has fundamentally shifted the focus of franchising in the U.S. and many major economies around the globe. The key for would-be entrepreneurs is finding the right fit and it begins with taking a personal assessment. Investing in a franchise requires a commitment to the business model and the brand, so making sure the type of business, the work environment and the concept category are aligned with your personality, your market and your investment capabilities is essential to a successful outcome.
Although on the surface it may seem a service sector franchise is less complicated given you don’t have to commit to a specific location, negotiate and sign a long-term lease, and you are susceptible to shifting demographics, the ability to acquire customers is critically important and increasingly complicated. If your passion is to operate a fixed-location franchise then focus on a franchise that provides significant support for site selection and real estate/lease negotiations. If a service-based model is a better fit for you then focus on a franchise that has developed a proven method for acquiring customers.
Rising Above the Ordinary
The landscape of opportunity has expanded dramatically over the past decade in franchising, enveloping the service sector at a rapid pace. Individuals that take the time to understand the type of business they can be passionate about and is aligned with their personality and interests will rise above the ordinary.
