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With shifting franchise buyer base, consider generational change


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Alicia Miller

Illustration by Jonathan Hankin

Baby boomers are redefining retirement, because they’re not retiring. While 10,000 Boomers turn 65 every day, the Pew Research Center reports 29 percent of those 65-plus are employed or actively looking for work. Among younger boomers, 66 percent aged 54 to 64 still work.

Boomers have been a reliable source of franchise buyers for decades. According to FRANdata, of more than 773,600 U.S. franchise units, more than 60 percent are owned by boomers. Meanwhile, the next two generations are gradually increasing their share of franchise ownership. These dynamics create exciting opportunities.

Franchisors must appeal to the next generation of buyers and also be prepared for multi-generation buyer groups.

Rename Gen X ‘Gen Juggle’

A 2017 Harris Poll conducted for CIT Group found that 47 percent of Gen Xers claim saving for retirement was their top financial goal, followed by handling their tax burden (30 percent) and financing their children’s education (22 percent). According to the Federal Reserve, Gen X has a lower net worth than their parents at the same age.

Often called ‘the sandwich generation,’ Gen X franchise buyers weigh their entrepreneurial desires against the practicalities of their unique position. The job market is also great, so why take the risk to start a business? Franchisors must tailor recruiting messages and onboarding support with these buyer considerations in mind.

What about millennials?

Millennials turn 24-39 years of age in 2020. They face expensive housing and childcare, while carrying consumer and educational debt. Northwest Mutual reports the average millennial has $36,000 of personal debt, and 60 percent don’t know when (or if) they can pay off their debts. For decades, boomers have used corporate exit packages and retirement accounts to start businesses. Millennials may need different strategies, including tapping family partners.

Work-life balance and income security (again, in the context of a hot job market,) are also major considerations in the decision process. Entrepreneurship is hard and the hours can be long, but many candidates (of all ages) want independence and a chance to create something of their own.

Low entry barriers and internet enablers create additional franchise deal competition. It has never been easier to start an asset-light—and therefore reasonably low-risk, tech-enabled (sometimes side-hustle)—entrepreneurial venture. The franchise business model has to stand out against this competition as well.

Speaking of ‘not yet invented,’ according to FRANdata, 40 percent of U.S. franchise brands entered since 2012. So, the next disruptive growth franchise may not yet exist but could be launched tomorrow.

Franchise development best practices

Share long-term strategic planning with franchisees and candidates and get feedback. Demonstrate evidence of long-term brand stamina.

Include a variety of viewpoints in your validation process. Candidates must see the whole picture and themselves in your brand. Establish mentor programs for new owners.

Constructively tap the immense knowledge and brand passion of your most experienced franchisees.

Use rich content and smart onboarding to address the concerns and desired outcomes of your target buyer archetypes. Even if your brand primarily targets millennial entrepreneurs, recognize that multi-gen buyer groups will be common this decade. Look again at your owner case studies, FAQs and buying process.  

Screen candidates for flexibility because things will change. Some brands have proved amazingly resilient; others are undergoing jolting reboots. Brand elasticity is needed while also staying true to your core brand ethos, so franchisee tolerance for change is important.

Learn from those effective at recruiting millennial owners. Mystery shop brands and network with franchise leaders. How do they present their opportunity and handle onboarding, financing and training? Even better, add those brands to your portfolio as a hedge and expansion path. Private equity, large owner groups and some brands are already doing this.

Talk to your franchisees about exit plans and resale market dynamics. Consider adding wealth advisory partners, resale and family group transition programs to your portfolio of franchisee benefits.

Construct transition and legacy creation case studies. Line up bank partners to ensure smooth transitions. Rather than owners paying brokers 8 to 12 percent-plus, build a strong internal resale program so fees can be redeployed into reimaging, training, relocations, etc. If you use brokers, they must have proven resale expertise and incentives should be win-win. Create additional incentives for strong operators to consolidate via retirement buyouts.

Get in front of the turnover issue in your FDD. Discuss retirements and tenure, because successful transitions demonstrate brand staying power. Track your transitions. Are new owners growing? Can you substantiate those results to include in your FDD and validation process?

Consider new models to reflect emerging buyer values and needs. (Mobile, shared-risk, options to start part-time, etc.)

Create or expand escalators for top manager-operators to become owners. Develop thoughtful acceleration programs centered on business management training and funding access.

What will franchising look like in 10 years? That depends whether rising generations believe owning a franchise (or working in one) is a good career and investment choice. And remember, the importance of being laser-focused on franchisee profitability and success,never changes.

Alicia Miller is a principal at Franchise Performance Group. Her Development Savvy column covers smart ways to market and grow a franchise. Reach her at alicia@franchiseperformancegroup.com.

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