In a recent blog, I discussed trends that are converging to create an opportunity for the $470 billion U.S. franchise industry to expand into new franchise concepts. Specialized technology-based services represent an opportunity for franchising to expand beyond its traditional confines of retail services.
There is strong potential demand to buy “non-traditional” franchises from former corporate executives who have topped out of the corporate world. The typical length of an average corporate executive career is shortening at a jaw dropping rate. Among the causes: as they outsource to focus on their core capabilities and replace workers with technology, companies are getting smaller so can afford few high level executives. 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 would be attracted to franchises that would offer more continuity with what they have done in the corporate world. They are unenthusiastic about owning traditional franchises like restaurants, hair salons, pet services and after school tutoring services — 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 well suited to a new wave of technology-based services franchises.
Changes in the software and related services world are well suited to the franchise model
A range of changes in the software and services industry make it feasible and attractive for software companies to consider franchising their business. For example, a “horizontal” software product that is established in the market can create even more value if tailored by industry. Such a company could turn itself into a franchisor selling territory consisting of vertical industries, which the franchisee would customize the software for. Executives who come from IT services companies or industry-specialized consulting firms with deep industry expertise and want to build a company and be their own boss, would be well suited to buy franchises that offer software to a specific industry.
High touch software-based services
The software industry is changing rapidly. Software has become a commodity. Software companies with a strong competitive position are those that are tightly integrated with a related service-and together they solve a problem or otherwise create value for the user. Small and medium businesses (SMB) are the fastest growing market for software. They approach software in a vastly different way than large companies do, often requiring high touch services to complement the software because they don’t have the in-house resources of large enterprises.
SAAS and the cloud
Software as a service (SAAS) is the delivery model that is replacing the premises-based model that used to require long-term commitment to the software, heavy up-front capital investment and big IT infrastructure to support and scale it. Becoming ubiquitous with the cloud, SAAS enables deployment of specialized software that requires minimal involvement by the user’s IT group. SAAS allows for more incremental software upgrades to be implemented by the vendor not the user, minimizing operational disruption. SAAS users want to work software and the services integrated with them from people who are located close to them and have a highly evolved remote support model focused on users just like them. Franchisees are well suited to provide this role.
Franchise model: New way to grow a digital company
The traditional models for a software company or other digital business to market software and train and support its customers is hub based, requiring a large corporate team to cover geographical areas. The alternative is to involve independent third party companies (value added resellers or VARs) to help market and support the software. But most VARs carry multiple lines of competing solutions, are trying to establish their brand in the market, and could be pursuing strategies at odds with the software vendor.
Creating franchisees that are exclusively dedicated selling and supporting the franchisor’s product might be better than the VAR model. Franchising will provide a vested partner whose success is tied to that of the software vendor. Becoming a franchisor provides a way to monetize investment in a software company’s IP through increased scalability, profitability, and overall customer retention.
For business people who have topped out of corporate employment or retired executives who want to “stay in the game,” digital franchises that are aligned with your particular career experience are increasingly available. They may be a better fit with your experience and capabilities than the kind of traditional franchise concepts (dry cleaning, food service etc.) that would take you out of your comfort zone. And you just might get in on the ground floor of what becomes a major new category of the franchise industry.
Mitch Alcon contributed to this blog.
About the Expert
Mark Rosenman has had leadership roles in knowledge management at top global firms McKinsey and KPMG and at entrepreneurial firms Tatum LLC and Newport Board Group, where he is currently Chief Knowledge Officer. He was a main architect of McKinsey’s first firm-wide document portal and of standards for publishing internal documents. He has extensive experience building line management consensus for content policies and processes. Click here to learn more about Mark Rosenman or contact him.
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