Several trends are converging to create a new concept that may help the $470 billion U.S. franchise industry achieve a major leap in growth. Big Data, social media, and advances in how software is developed and deployed are enabling entrepreneurs to create innovative packages of specialized B2C and B2B services and software — and target them to niche markets.
If these specialized technology-based services companies prove to be franchise-able, they would be a departure from the retail services businesses that have traditionally dominated franchising--and could attract a new generation of franchisees.
1. The franchising industry continues to grow rapidly — innovating new models of how franchisor and franchisee combine to create value
Franchising is an important part of the American business landscape, comprising about 5% of businesses in America and generating about 8% of all private sector jobs.
The genius of the franchising model, from its inception in the middle of the 19th century to today, is to provide entrepreneurs a way to expand their footprint and monetize their brand--by sharing the risk of growth with franchisees and vested managers with a stake in the success of brand.
Franchising has grown from its roots in restaurants and retail establishments into a wider variety of B2C and B2B services businesses. Intriguing new franchise businesses are popping up everywhere. A case in point: LED Source®, a new franchisor of LED Lighting, offers an opportunity for franchisees to profit from the “green” revolution. Another example of a growing number of B2B categories: InXpress USA, a franchise organization specializing in international shipping for small to medium-sized businesses.
Franchises are becoming more sophisticated in their business models. For example, Seva, a beauty salon franchise targeting the middle class demographic, locates many of its salons in Walmart stores. New categories of franchised professional services (for example, medically supervised weight loss programs) create value with a mix of local franchisee market penetration and specialized professional and technical skills provided by the franchisor (mirroring the corporate “center of expertise” that brings specialized expertise to business units of big companies.)
2. There is strong demand to buy “non-traditional” franchises from former corporate executives who have topped out of the corporate world.
Profound changes in the trajectory of corporate executive careers are a strong tailwind behind the franchise industry. The typical length an average corporate executive career is shortening at a jaw dropping rate. Among the causes: companies are getting smaller as they outsource non-core activities and replace workers with technology — so can afford few high level executives. A dynamic M&A market means that successful companies often get acquired and cut executive positions. There is a growing supply of talented, successful executives, some still in their 30’s and 40’s, who need a new career and have access to the capital to buy a franchise.
Many prospective franchise buyers among executives looking for a new career would be attracted to franchises that offer continuity with what they have done in the corporate world. These are people who have honed skills in software, marketing and communications. They don’t readily see how the digital skills they have spent decades acquiring will help them run restaurants, hair salons, pet services, after school tutoring services and other traditional retail franchises — where the key ingredient of success is managing a low skill/low wage work force.
The growing number of CEOs and other executives--who are in the prime of their career; have access to capital and are looking for a new career platform that offers more continuity with their digital experience and skills — would be strong candidates to buy technology-based services franchises. This new kind of franchise might define exclusive territory by industry or other target customer attribute, overlaid onto or instead of the traditional, geographical franchise territory.
In the next blog in this series, we will discuss the specific changes in software and business services that might make technology-based, digital services franchises a reality.
Mitch Alcon also contributed to this blog.
About the Expert
Mark Rosenman, Newport's Chief Knowledge Officer, has deep experience developing processes, systems and content to create value from intellectual capital.
Click here to learn more about Mark Rosenman or contact him.
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